An employment contract establishes the rights, obligations, and expectations of an employer and an employee and is a legally enforceable agreement. It clarifies issues including job responsibilities, pay, perks, and length of employment. The Indian Contract Act, 1872, as well as several other labour laws intended to protect both employers and employees, regulate employment contracts in India.
A breach of the employment contract by the employee can have substantial legal repercussions, even though employers frequently concentrate on making sure that employees fulfil their contractual duties. When an employee fails to fulfill their contractual obligations, it may lead to financial losses, reputational damage and operational disruptions.
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Breach of Employment Contract
A breach of contract happens when one of the parties doesn't carry out their end of the bargain. A breach can happen in a number of ways in the context of employment, including:
Not carrying out job responsibilities.
Resignation without giving adequate notice
Confidentiality clause violations
Failure to adhere to non-compete agreements
Unauthorized disclosure of company trade secrets
For an employer, a breach by an employee may lead to significant operational or financial setbacks. Conversely, an employee may also consider a breach by the employer, such as wrongful termination, failure to pay wages or violation of other contractual terms. However, this article will focus on breaches by employees and the legal remedies available to employers.
Explore Voidable Contract in Indian Contract Act, 1872.
Legal Frameworks on Breach of Employment Contract by Employee
The formation of any kind of contract in India is governed by Indian Contract Act, 1872 but as soon as the purpose of such contract is defined, the laws governing such terms and conditions come into play. In case of breach of employment contract, laws like Industrial Dispute Act of 1947 and Specific Relief Act of 1963 plays a major role in establishing legal terms and conditions that are required for the employers and the employees.
Indian Contract Act, 1872
The Indian Contract Act of 1872 is the primary law in India that governs contracts. Compensation for loss or damage brought on by contract breach is specifically addressed in Section 73 of the Act.
It states that if one party to a contract doesn't keep their end of the bargain, they have to pay the other party for any loss or damage that results from the breach. If an employee doesn't follow the terms of the employment contract, this would apply.
Under Section 73 of the Indian Contract Act, 1872, the party who broke the contract has to pay for any direct or indirect losses that happened because of the breach.
Some examples of this are money the employer lost because the employee didn't do their job as agreed. However, the amount of money the employer gets in damages will usually depend on how well they can show that they actually lost money and that the breach was the direct cause of that loss.
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Specific Relief Act, 1963
The Specific Relief Act deals with the aftermath of the breach of any kind of contract.
This Act provides for ways to obtain specific performance from the party which caused the breach of contract by not performing his part.
In cases where the contract's essence is based on personal capacity like teaching, etc, where it is impossible to impose the specific performance, the Court grants the aggrieved party with reasonable remedy which can include the payment of compensation apart from pre-mentioned amount of damage provided in the terms and conditions during the formation of such employment contract.
The Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947 mainly deals with the dispute arising in the industries, hence this basically deals with the breach of duty, breach of contract, etc.
If an employee breaches their contract, they may be liable for compensation, but the employer must follow legal procedures for termination. Unlawful termination may result in reinstatement or compensation.
Common Contractual Clauses
There are some common yet important clauses that are needed to be incorporated in the employment contract. These clauses determine the foundation of a contract and comes with compensation if breached by either party:
Confidentiality Clause: To prevent employees from disclosing sensitive company information, many contracts contain confidentiality provisions. In order to prevent further disclosure and to recover damages for any harm caused by the unauthorised release of proprietary information, a breach of this clause may require legal action.
Notice Period: Employees are typically required to give a notice period prior to quitting their jobs under most employment contracts. An employee who resigns without giving sufficient notice is in violation of this clause. Employers may seek damages for any loss of business or the need to hire temporary staff or recruit a new employee.
Non-Compete Clause: Some contracts have a non-compete clause that restricts employees from working for competitors for a certain period of time after they leave the company. An injunction preventing the employee from working for a competitor or a claim for damages could follow a violation of this clause.
Non-Solicitation Clause: This clause prohibits employees from pursuing clients, customers, or other employees of the employer after they leave the company. In the event that this clause is broken, the employee may have to pay damages.
Get to Know What are the 10 Essential Elements of a Valid Contract
Steps to Take When an Employee Breaches the Contract
In order to protect the interest of the company and to ensure that the terms and conditions laid in the contract are maintained by the employees, the employers should take the following steps:
Review the Employment Contract: Make sure that the breach is allowed by the contract and that there is enough proof to show that it happened.
Communicate with the Employee: Talk to the employee about the problem directly, ideally in writing, and ask them to follow through on their contractual obligations or give you an explanation.
Seek Legal Counsel: Talk to an employment law expert about your legal options if the breach is serious. For example, you could file a claim for damages or ask for injunctive relief.
Follow the Correct Legal Process: Consider taking legal action by bringing a breach of contract lawsuit in a civil court if the dispute cannot be settled amicably. Particularly if it includes wrongful dismissal, the case may also be brought before labour courts in some situations.
Document Everything: Keep track of everything that was said and done, as well as any money or business losses that happened because of the breach. If the disagreement goes to court, documentation will be very important.
Find out What is Meant by Discharge of Contract
Summary
A breach of employment contract by an employee possesses a number of legal and financial consequences. Under Indian law, the Indian Contract Act, 1872 and other labor laws like the Industrial Disputes Act, 1947 provide the legal framework for addressing breaches of employment contracts. Remedies for a breach by an employee typically include the payment of damages but in some cases, specific performance or injunctive relief may also be available. Employers should carefully draft their employment contracts, making sure that important parts like notice periods, confidentiality agreements, and non-compete clauses are covered. Also, when employers deal with a breach, they need to follow the right legal steps to protect their rights and limit the damage.
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Breach of Employment Contract by Employee: FAQs
Q1. What happens if an employee breaches their employment contract?
An employee who breaches their employment contract may be required to pay damages to the employer for any losses incurred. The breach may also lead to legal action, such as a lawsuit for breach of contract.
Q2. Can an employer sue an employee for not serving the notice period?
Yes, the company may sue for damages resulting from the breach if an employee doesn't give the required amount of notice. When an employee's premature resignation interferes with business processes, this is frequently the case.
Q3. Can an employee be forced to continue working after resigning?
While employers may request that an employee continue working until the notice period ends, they generally cannot force an employee to remain employed if the employee does not wish to do so, unless the contract specifies otherwise.
Q4. What legal provisions protect employees in case of wrongful termination?
Employees are protected under the Industrial Disputes Act, 1947, which requires employers to follow due process when terminating an employee. If the termination is deemed unfair, the employee may challenge it in labor courts.
Q5. Can an employee be penalized for disclosing confidential information?
Yes, if an employee breaches a confidentiality agreement, they may be held responsible for damages and an injunction may be sought to prevent further disclosures. Breaching of confidentiality can do a lot of damage to a business.
