ContractsEmployment Contracts & Safeguards Provided for Employees – III

August 12, 20210



A careful deliberation of the clauses included in Employment Contracts, just like in any other kind of contracts, is extremely important to protect the interests of the parties and avoid potential disputes from arising. These contracts safeguard the interests of the Employers by inserting restrictive covenants whereas, on the other hand, they protect the interests of the Employees by adhering to the prevailing statutory framework in order to provide the safeguards to the Employees. In Part III of the Employment Contracts Series, we shall attempt to review all the Acts and the provisions thereof which are important and are commonly incorporated in an Employment Contract.


1. Employees’ State Insurance Act Of 1948 (The ESI Act)

The ESI Act applies to all workers who work in establishments with 10 or more employees (subject to any State Rules) and receiving less than INR 21,000 (USD 300) per month as remuneration.

Employers are required to contribute 4.75 % of their Employees’ salaries to an Employees’ State Insurance Fund (the Insurance Fund) on a monthly basis, while the Employees are required to contribute 1.75 % of their wages to the Insurance Fund. The Workers/Employees are then entitled to several medical benefits (such as medical treatment, sickness benefits, disability benefits, and so on) from the Insurance Fund’s accumulations.


2. Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (The EPF Act)

The EPF Act was enacted in 1952. Benefits under the EPF Act are usually available to businesses with 20 or more workers. Employees earning less than INR 15,000 per month (USD 211) are required to contribute to EPF Schemes, while those earning more than this amount can opt out under certain stipulated circumstances. Employers and Workers/Employees can also agree to either make contributions on the entire monthly salary in the manner specified or to limit salaries for contribution purposes to INR 15,000 per month in cases where the monthly wages surpass INR 15,000 per month.

There are three main schemes framed under the EPF Act, namely:

  • The Employees’ Provident Fund Scheme, 1952 (the PF Scheme);
  • The Employees’ Pension Scheme, 1995 (the Pension Scheme); and
  • The Employees’ Deposit Linked Insurance Scheme, 1976 (the DLI Scheme).


3. Payment of Gratuity Act, 1972 (The PG Act)

The PG Act mandates the payment of gratuity to all Employees (whether Workers or not) working in establishments with ten or more Employees (including factories, stores, and other commercial establishments).

If an Employee has worked for the concerned company for at least 5 years (except in the case of death or disability), he/she is entitled to a gratuity in one of the following situations:

  • Super-Annuation;
  • Retirement;
  • Resignation;
  • Death or disability as a result of an accident and/or illness.

A gratuity is determined by multiplying 15 days’ salary by the number of years of service (a part of a year over 6 months is counted as 1 year).


4. The Employees Compensation Act, 1923 (The ECA) 

The ECA directs Employers to pay compensation (calculated in the prescribed manner) in cases of Employee death or disability caused by occupational injuries.


5. The Factories Act, 1949 (The FA Act) and The Shops & Commercial Establishments Act, 1962 (The S & CE Act)

According to the FA Act and certain S&CE Act(s), establishments must be closed at least one day a week (this is typically Sunday). However, some States’ S&CE Acts (for example, Maharashtra’s) allow establishments to be open all 365 days of the year, provided that Workers are given a weekly off and certain other conditions are met.


6. The Maternity Benefits Act, 1961 (The MB Act)

In terms of maternity leave, India recently amended its MB Act, under which women workers who have worked for 80 days are entitled to 26 weeks of paid maternity leave. In the event of a miscarriage or medical termination of pregnancy, female workers are entitled to 6 weeks of paid leave beginning the day after such miscarriage or medical termination of pregnancy. Women who have had tubectomy procedures, as well as any disease resulting from pregnancy, premature birth, childbirth, miscarriage, or surgical termination of pregnancy, must also take time off from work.


7. The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

It is the Employer’s duty to ensure that his/her workers, especially female Employees, are safe while at work. Employers or Administrators must react immediately and adequately to any cases of sexual assault, regardless of how large or small they are in scale or who is involved. It is also important to note that Employers are required to take into consideration the fact that just because someone does not object to sexual behavior in the workplace does not mean they agree to it, and that sexual assault is also a punishable offence under the Indian Penal Code (IPC).

Employers are required by law to develop a policy against sexual harassment. In order to ensure a safe working climate, the policy should be included in the company’s Service Regulations. The company’s policy should explicitly describe what constitutes sexual assault and include punishments, online grievance-redressal procedures, and other tools such as a list of people to contact for consultation, among other things. In addition, the policy document should also ensure that investigations are conducted impartially and in a time-bound fashion.



In the new industrial age, Employment Contracts have come a long way. Any Anti-Competitive Clause, or any agreement that prevents a prospective Employee from pursuing his or her chosen occupation or engaging in any trade and/or practise, is both illegal and unethical. Reasonable restrictions in Employment Contracts are legitimate and, in most cases, have no major legal ramifications. As a result, the presence of Employment Contracts means that all employment terms and conditions are clearly set out and accepted by both the Employer and the Employee.

However, ill-drafted and casually worded Employment Contracts can do more harm than good for the company. As under any other kind of contracts, it is crucial to carry out detailed deliberations and considerations while deciding what clauses – whether general or specific in nature – should be included in the Employment Contracts. It must be ensured that while such clauses are exhaustive in scope, they are also in adherence with the current laws, in particular with those laws that seek to provide safeguards to Employees. Ultimately, the Employment Contract must be beneficial for both, the Employer and the Employee, while also appreciating the imbalance between their respective positions as well as the resultant need to provide special safeguards for Employees in particular.



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