Legal Remedies for Termination of Contracts
Agreement & Contract

Legal Remedies for Termination of Contracts

A contract is typically a written agreement wherein the parties fix the terms and conditions of their relationship and transactions. Termination of a contract is very important as it provides parties with an exit option. Under the Indian Contract Act 1872, a contract can be terminated by the parties involved by giving legitimate reasons like frustration, repudiatory breach, termination by prior agreement, rescission, or on completion.

 

Such termination may occur by the mutual consent of the parties or by law. However, if a contract is breached or terminated without mutual consent, then the party other than the one breaching it can seek certain legal remedies on account of such termination. 

 

 

Following remedies may be pursued for if there is a termination of the contract: 

 

  1. Suit for breach of contract: A suit for breach of contract can be instituted when either party breaches an enforceable agreement. The remedies can be obtained in the form of damages, restituting the suffering party, rescinding the contract, or ordering the breaching party to perform the contract. These damages shall include the compensation given for financial losses caused by a breach of contract.
  2. Damages: Under Section 73 of the Indian Contract Act, any party can claim compensation for loss or damages caused to them in the normal course of business if the other party breaches it. The liquidated damages are pre-decided by the parties while forming the contract. The unliquidated damages are assessed and determined by the courts or appropriate authorities after the contract is breached. The general aim of an award of damages for breach of contract is to compensate the innocent party for the actual loss suffered and to put the party back in the same position as it was before the formation of the contract. The damages incurred are assessed as at the date of the breach of contract. These damages may be for the pecuniary loss, non-pecuniary, and nominal damages. 
  3. Specific Performance: Specific performance is an equitable and discretionary remedy given by the court in case of breach of contract, which compels the breaching party to perform a contractual obligation. It is generally awarded when the required obligation is unique and difficult to value. It may be ordered when the property is not an ordinary article of commerce or consists of goods which are not easily obtainable in the market. 
  4. Injunction: Injunctive relief is a legal order that either makes it mandatory for the defaulting party to perform specific obligations or prohibits the defaulting party from performing certain tasks. It is also at the discretion of the court and can be ordered on an interim basis or a final basis. A common instance of interim injunctive relief is an order restraining the party from dealing in certain property until the substantive dispute has been concluded. 
  5. Indemnity: Indemnity clauses are the contractual provisions that allow the parties to manage the risks attached to a contract by making one party compensate for the loss suffered by the other, due to specific events. An indemnity may be claimed for losses arising on account of the conduct of a third party. The damages, the amount paid under the terms of the agreement, legal costs of judgment, are some of the claims which Indemnity holders can include in its claims. 

 

 

Conclusion

It is important that a contract includes all these remedies in writing. It is advisable to approach a lawyer and assess which remedies to termination of the contract, maybe the most beneficial.
 

What Is A Non-Compete Clause In An Employment Contract?
Agreement & Contract

What Is A Non-Compete Clause In An Employment Contract?

A non-compete clause is a provision in an employment contract whereby the employee agrees to the fact that he would not enter into any competition with the employer during the term of his employment or even after the employment period is over. Typically, a fixed period of time is agreed upon for restrictions that extend beyond the term of employment. Non-compete clauses are common in IT Departments, Media, Financial Industry, Corporate World.
 

 

Enforceability of Non-Compete Clauses

 

The non-compete clause in an employment contract is governed by certain provisions of the Indian Contract Act, 1872. Section 27, of the Contracts Act, makes agreements that are in restraint of trade void. 

 

A vast number of judicial decisions have emerged on the question of enforceability of non-compete clauses. These decisions are divergent, and hence, no clear answer to the enforceability of non-competes has emerged till now. We have discussed some of these case laws below: 

 

  1. In Superintendence Company of India (P) Ltd. v. Sh. Krishan Murgai, a question was raised as to whether a non-compete clause in an employment contract is valid. The court held that a contract, with the objective of restraining trade, was void.
  2. A similar case came up in Delhi High Court, wherein, the court observed that any law which restricts an employee from working after the termination of his job is in violation of the Indian Contract Act,
  3. In Arvinder Singh and Anr. v. Lal Pathlabs Pvt. Ltd. & Ors, the court observed that any agreement which restricts the person from carrying any professional activity is contrary to law. 


For fixed-term employment contracts, the restriction can be enforced under specific conditions. If an employee has resigned before the expiry of the term, then the restriction can be enforced for the rest. Non-competes may also be enforced against senior-level employees under certain conditions. If there is suspicion that a senior- level employee possesses proprietary information about the company, such an employee may be prohibited from joining a competing company by enforcing a non-compete clause.

 

Thus, a non-compete clause in an employment contract is not completely unenforceable and may be enforced in some circumstances. However, it should be drafted carefully and properly. 

 


Non-compete Clause v/s Non-disclosure Agreements

 

A non-compete agreement is different from a non-disclosure agreement. In a non-compete clause, an employee promises to not enter into any kind of competition with the employer after leaving the job. Whereas a non-disclosure agreement restricts an employee from revealing any confidential information of his previous employer to the current employer or anyone else in the future. While the enforceability of non-compete clauses is still not a settled issue, non-disclosure agreements may be enforced under the law. 

 

 

Conclusion


In India, any clause which restricts an employee from practicing any professional activity through a contract or an agreement is considered void under the law. The topic of whether a non-compete clause is harsh and extreme and whether it includes consultant is a debatable topic that will continue. However, whether such a clause imposed on an employee is harsh or not depends upon the circumstances of the situation, and the final call can be taken by the courts.
 

Decoding a Fixed Term Employment Contract
Agreement & Contract

Decoding a Fixed Term Employment Contract

A fixed-term employment contract is a contract wherein a company or an organization hires a person for a specific period on a contractual basis. Generally, such a contract is of one year; however, it depends on the need and discretion of the company or organization. Under this contract, the payment is fixed prior and cannot be changed or altered before the expiry of the term. 

 


Fixed-term employees have a right to the same amount of wages and working conditions as permanent employees. At the expiry of the fixed-term employment contract, the employer needs not provide any notice. However, if the employee continues to work even after the expiry of the fixed-term employment contract, then there is an implied agreement between the employer and the employee. 

 


What elements must be included in a Fixed-term Employment Contract?

 

The only difference between a fixed-term contract and a permanent contract is the period of time. An employee hired on a fixed-term employment contract is hired for a fixed period of time and cannot be removed except on account of some misconduct. Some of the key elements that need to be included in an employment contract are-:

 

  1. Job Title and Job Description: This includes a brief but specific description of the work one is expected to do.
  2. Duration or term of employment: Duration or term of employment becomes very important in a fixed-term contract. This lays down the term for which the employee has been engaged. 
  3. Hours of work: This clause lays down the work timings of the employee. 
  4. Place of work: The place of work or the location where the employee is stationed is required to be mentioned. 
  5. Leave and holidays: Typically, leaves and holidays, legally mandated, should be provided to the employee.
  6. Wages: The amount of wages, the mode of payment, etc., should be included in the contract. 
  7. Termination: Provisions that entitle both the employer and the employee to terminate the contract should be included in the contract. Termination upon expiry of the contract should also be provided. 
  8. Renewal: A provision for the renewal of the contract based on mutual consent of the parties should also be included in the contract.
  9. Boilerplate Clauses: Standard clauses such as jurisdiction, waiver, severability, etc., should also be included in a fixed-term contract.

 
 

Advantages of Fixed-term Employment Contract  

 

  1. Although a person is hired for a specific period of time, he/she is entitled to equivalent benefits that a permanent employee enjoys, such as safe and secure working conditions, similar pay, or sometimes more considering the skills of the concerned person. 
  2. A person hired under a fixed-term contract may be made permanent depending upon their performance.
  3. It is affordable for the employer when he needs an employee for a short term. 
  4. It helps get more specialized resources. 

 

Disadvantages of Fixed-term Employment Contract

 

  1. There is no stability, as the employment contract is time-bound and once the contract expires, the employee loses his job. 
  2. Typically, benefits such as promotion, good professional growth etc. are not available to fixed-term employees. 
  3. It is not an assurance of permanent employment. 
  4. For an employer, it may be more beneficial to have a talented pool of permanent resources. This will save the efforts of looking for an employee, every time the contract expires.

 

 

Conclusion

 

A fixed-term employment contract should be drafted in such a way so as to avoid any liabilities after its expiration. There should be no words that convey that the contract will be automatically renewed or that a more permanent role would be given to the employee. It is advisable to engage a lawyer while drawing up such a contract.