Introduction
Understanding breach of Employment Contracts is essential for employers to navigate legal challenges effectively. A breach of contract occurs when the obligations in the contract are not fulfilled. There are certain obligations provided in the obligation clause of the employment contract which has to be fulfilled, if it is not it will lead to a breach of contract.
Key Laws Governing Employment Contracts
The basic governing laws of the employment contract are the Indian Contract Act, 1872 and in certain cases the Industrial Disputes Act, 1947. The causes of breaches are provided in the employment contract itself. This is same in the case of employment contracts. Section 39 of the Indian Contract Act, 1872 states the following “When a party to a contract has refused to perform or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance”. This constitutes the repudiation of the contract.
Critical Considerations in Employment Contracts for Employers
The contract should not be one-sided: Employers must ensure contracts are balanced and fair to avoid legal disputes. This was discussed in the case of W.S. Milsted & Sons v. Hamp where the contract of service was terminable only by notice by the employer and the Court held it to be bad as being wholly one-sided. Another example is the case of Gopal Paper Mills v. Malhotra (AIR 1962 Cal 61), where the High Court of Kolkata held a one-sided contract void in law.
To constitute a breach, the contract must be valid: The basic conditions must be fulfilled and accepted without coercion. Section 9 of the Civil Procedure Code,1908 states that parties can file a suit under appropriate authorities for damage and in some cases where there is an industrial dispute, the civil courts will not have jurisdiction. (CT. Nikam v. Municipal Corporation of Ahmadabad, A.I.R 2002 SC 997.)
Negative covenants: There should not be any negative covenant in the terms of the contract. According to Section 27 of the Indian Contracts Act, there should not be any term which restrains the trade but when it comes to employment contract, certain terms are valid even when they are negative, it should be reasonable. It was held in the case of Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co, (1967 SCR (2) 378, Para 17):
“Negative covenants operative during the period of the contract of employment when the employee is bound to serve his employer exclusively are generally not regarded as restraint of trade and therefore do not fall under Section 27 of the Contract Act. A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not, therefore, a restraint of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one-sided”.
Employers to note while terminating a contract: The employee can also sue the employer if the termination is without proper notice and proper remuneration is not provided for the work done. They can get monetary compensation and reinstatement of their old position in case of termination without a proper cause. Hence, the employer needs to ensure that they don’t fall prey to these basic requirements.
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