While labour legislations in India do not strictly require that an employment contract be in writing, it is predominant market practice (with very rare exceptions) to have all terms and conditions of employment agreed and signed by both parties. Employment contracts in India are generally considered to be ‘unlimited term’ contracts, (i.e. contracts that are valid until termination or superannuation, unless specifically identified as a ‘fixed term’ contract).
Fixed-term employment contracts are permitted in India, as long as the employer is employing the person for a short-term requirement. The Government has recently stated that fixed term contracts will be permitted across sectors – earlier, they were expressly permitted only in the apparel manufacturing sector. However, it is unlikely that employers will be able to convert existing permanent positions into fixed term employment positions.
Indian law permits new employees to be placed on a trial or ‘probation’ period. The IESO Act envisages a probation period of 3 (three) months – this is largely followed by companies that are not subject to the IESO as well. The general market trend in India is to have a probation period between 3 and 6 months, especially in the technology and services sectors.
In terms of Indian labour law legislation, ‘workmen’ who have undertaken at least 1 year of continuous service are entitled to a notice period of 1 month, or equivalent wages in lieu thereof. In addition, the employer would be required to pay ‘retrenchment compensation’ to the workman, which is calculated at the rate of 15 days’ wages for every completed year of service. However, no notice period (or payment in lieu thereof) or payment of retrenchment compensation is required in the case of workmen dismissed for misconduct, provided the employer conducts an internal inquiry prior to such dismissal.