There is a notion or view that a contract of employment is a law unto itself so far as the rights and obligations of the parties are concerned, namely the employer and the employee. It is true but not entirely. The Indian Contract Act, 1872, itself has imposed conditions for a contract to be valid and enforceable. For example, a contract entered into by one party exercising undue influence on the other party is void. Again, Section 27 of the Act, since Niranjan Golikari's case way back in 1969, renders restrictive clauses prohibiting an employee from joining a competitor after leaving service as null and void as they are in restraint of trade.
A contract of service is an agreement between a powerful employer who dangles the carrot of a job with a salary tag before an employee who needs it to earn his livelihood. Thus, it is a contract between two unequals, and perhaps the terms have been accepted by an employee for a compulsive need or under the undue influence of a powerful employer. Therefore, the courts will lift the veil and see whether the terms are in accordance with any law that protects the economic rights of an employee or in accordance with the principles of equity and justice. In view of the fact, the Apex Court in Niranjan Golikari's case observes that the agreements between the master and servant shall be put to a stricter view, and they cannot be put on the same pedestal as business contracts between a vendor and vendee or seller or purchaser.
Thus, in one case, the employer terminates the service of an employee by giving one month's notice by invoking terms of employment only in a letter but not in spirit. However, the Constitution Bench of the Apex Court threw the termination out as the employee was not given a hearing before being terminated, though the contract does not provide for a hearing. This is a gleaming example where the honorable Court imported the principle of equity reflected in the principles of natural justice to balance the contract evenly between the employer and the employee. Another example to illustrate is, let us assume that a contract provides a clause that permits an employee to resign by giving one month's notice but entitles the employer to refuse resignation without assigning any reason. Merely because the contract was signed by the employee, should he be under the slavery of the employer for his life as he has conceded the right to refuse to the employer? Will such a contract survive in a court of law? Will it not hit Section 27 of the Contract Act to become void? The foundations of such contracts seem to be shaky in the light of the court's observations in one case that a person, by entering into a contract of employment, does not sign a bond of slavery, and a permanent employee cannot be deprived of his right to resign (more so in the modern era of technology, which opened up abundant job opportunities).
Yet there are cases wherein either the contract of service or service rules contain a clause that an employee is transferable anywhere in India. However, such a clause does not give carte blanche to the employer to transfer an employee with malafide intention or in a colorable exercise of power, for example, to punish him for an act of indiscipline. Though the courts have upheld the employer's right to transfer as his privilege but set aside those affected with bad motive on the principles of equity and fairness.
In the instant case put up by the queriest, the employee submitted her resignation with an intention to serve the notice period. If the contract does not have a notice period and notice pay clause, the queriest should not have any issue. The fact that she has an issue with the employee's resignation shows that there is a provision for a notice period. In such a case when the employee expresses her intention to serve the notice period, it means she wants to terminate the contract of service only after the expiry of the notice period. Since the employer has terminated the contract of service by accepting her resignation before the expiry of the notice period and deprived her of a month's salary, in my view, he is required to pay notice pay as demanded by her on the basis of principles of equity and fairness.
B. Saikumar
HR & Labor Law Advisor
Mumbai
From India, Mumbai
Acknowledge(0)
Amend(0)
1979A contract of service is an agreement between a powerful employer who dangles the carrot of a job with a salary tag before an employee who needs it to earn his livelihood. Thus, it is a contract between two unequals, and perhaps the terms have been accepted by an employee for a compulsive need or under the undue influence of a powerful employer. Therefore, the courts will lift the veil and see whether the terms are in accordance with any law that protects the economic rights of an employee or in accordance with the principles of equity and justice. In view of the fact, the Apex Court in Niranjan Golikari's case observes that the agreements between the master and servant shall be put to a stricter view, and they cannot be put on the same pedestal as business contracts between a vendor and vendee or seller or purchaser.
Thus, in one case, the employer terminates the service of an employee by giving one month's notice by invoking terms of employment only in a letter but not in spirit. However, the Constitution Bench of the Apex Court threw the termination out as the employee was not given a hearing before being terminated, though the contract does not provide for a hearing. This is a gleaming example where the honorable Court imported the principle of equity reflected in the principles of natural justice to balance the contract evenly between the employer and the employee. Another example to illustrate is, let us assume that a contract provides a clause that permits an employee to resign by giving one month's notice but entitles the employer to refuse resignation without assigning any reason. Merely because the contract was signed by the employee, should he be under the slavery of the employer for his life as he has conceded the right to refuse to the employer? Will such a contract survive in a court of law? Will it not hit Section 27 of the Contract Act to become void? The foundations of such contracts seem to be shaky in the light of the court's observations in one case that a person, by entering into a contract of employment, does not sign a bond of slavery, and a permanent employee cannot be deprived of his right to resign (more so in the modern era of technology, which opened up abundant job opportunities).
Yet there are cases wherein either the contract of service or service rules contain a clause that an employee is transferable anywhere in India. However, such a clause does not give carte blanche to the employer to transfer an employee with malafide intention or in a colorable exercise of power, for example, to punish him for an act of indiscipline. Though the courts have upheld the employer's right to transfer as his privilege but set aside those affected with bad motive on the principles of equity and fairness.
In the instant case put up by the queriest, the employee submitted her resignation with an intention to serve the notice period. If the contract does not have a notice period and notice pay clause, the queriest should not have any issue. The fact that she has an issue with the employee's resignation shows that there is a provision for a notice period. In such a case when the employee expresses her intention to serve the notice period, it means she wants to terminate the contract of service only after the expiry of the notice period. Since the employer has terminated the contract of service by accepting her resignation before the expiry of the notice period and deprived her of a month's salary, in my view, he is required to pay notice pay as demanded by her on the basis of principles of equity and fairness.
B. Saikumar
HR & Labor Law Advisor
Mumbai
From India, Mumbai
Acknowledge(0)Amend(0)
Dear SaiKumar,
With due respect, I would like to state that I have presented points with relevant case law as mentioned under the Delhi Shops & Establishment Act. If you have any doubts, you can refer to the detailed judgment of the case. Although I do agree that the principle of equity needs to be followed while devising any such clause.
Regards,
Vikas
From India, Mumbai
Acknowledge(0)Amend(0)
With due respect, I would like to state that I have presented points with relevant case law as mentioned under the Delhi Shops & Establishment Act. If you have any doubts, you can refer to the detailed judgment of the case. Although I do agree that the principle of equity needs to be followed while devising any such clause.
Regards,
Vikas
From India, Mumbai
Acknowledge(0)Amend(0)
Dear Mr. Saikumar,
I went through your detailed posting, and thanks for bringing up the issue of Principles of equity in contract. There had been some questions about the validity of Service Agreements/Bonds a few days back, and I did mention this. To assess whether a contractual term is valid in law or void, we need to examine the principles laid down by the SC, more specifically the principles of equity.
I am in agreement with you on the following:
1. A clause stating that a person shall not join a competitor cannot pass the test of equity.
2. An employee can be transferred anywhere in India may not pass the test every time.
3. An employee can be terminated without assigning a reason, which also shall not pass the test of equity.
The present issue is not about the validity of a clause. Both parties agree to give 30 days' notice. The clause passes the test of equity.
Now, how do we implement it? While implementing, is there any violation of the principles?
The equity clause here is meant for both parties to compensate or get compensated for the hardships that they would undergo due to resignation or termination.
In the case of termination, the hardship is for the employee; hence there has to be a payment of 30 days, 60 days, or 90 days, as the case may be.
In the case of resignation, there is no hardship created by the employer for the employee. The employee chooses to resign as he would have another employment or personal commitments. The principle of equity requires the employee to give a notice of 30 days, and he has honored the provision. Now, the Employer can decide whether they require him to work for 30 days, 10 days, or not even one day after he submits his resignation. They have not breached the principles of equity here. If they refuse to accept his/her resignation even after 30 days and withhold his/her dues, they are breaching the principles.
Some managements ask me whether they can postpone relieving an employee by three months or six months. My advice has always been to relieve them exactly on the last day of the notice period or earlier and not to keep them even one day more.
Similarly, an employee can give a notice of 30 days or 60 days. In fact, thrice during my career, I have given six months' notice even though the appointment letter demands only three months. It is for the management to decide whether to believe me or not after I submit my resignation. In senior positions, this is usually negotiated. I have seen instances of one-year notice periods as well. Management requests employees to stay for a year to complete certain assignments, and mutually they agree. I have also come across senior-level people submitting resignations and getting relieved within a week.
Considering the principles of equity as explained by you, I am of the opinion that the Employer here has not flouted or breached any of the principles. Hence, the employee is not entitled to any money towards the notice period.
T. Sivasankaran
From India, Chennai
Acknowledge(0)Amend(0)
I went through your detailed posting, and thanks for bringing up the issue of Principles of equity in contract. There had been some questions about the validity of Service Agreements/Bonds a few days back, and I did mention this. To assess whether a contractual term is valid in law or void, we need to examine the principles laid down by the SC, more specifically the principles of equity.
I am in agreement with you on the following:
1. A clause stating that a person shall not join a competitor cannot pass the test of equity.
2. An employee can be transferred anywhere in India may not pass the test every time.
3. An employee can be terminated without assigning a reason, which also shall not pass the test of equity.
The present issue is not about the validity of a clause. Both parties agree to give 30 days' notice. The clause passes the test of equity.
Now, how do we implement it? While implementing, is there any violation of the principles?
The equity clause here is meant for both parties to compensate or get compensated for the hardships that they would undergo due to resignation or termination.
In the case of termination, the hardship is for the employee; hence there has to be a payment of 30 days, 60 days, or 90 days, as the case may be.
In the case of resignation, there is no hardship created by the employer for the employee. The employee chooses to resign as he would have another employment or personal commitments. The principle of equity requires the employee to give a notice of 30 days, and he has honored the provision. Now, the Employer can decide whether they require him to work for 30 days, 10 days, or not even one day after he submits his resignation. They have not breached the principles of equity here. If they refuse to accept his/her resignation even after 30 days and withhold his/her dues, they are breaching the principles.
Some managements ask me whether they can postpone relieving an employee by three months or six months. My advice has always been to relieve them exactly on the last day of the notice period or earlier and not to keep them even one day more.
Similarly, an employee can give a notice of 30 days or 60 days. In fact, thrice during my career, I have given six months' notice even though the appointment letter demands only three months. It is for the management to decide whether to believe me or not after I submit my resignation. In senior positions, this is usually negotiated. I have seen instances of one-year notice periods as well. Management requests employees to stay for a year to complete certain assignments, and mutually they agree. I have also come across senior-level people submitting resignations and getting relieved within a week.
Considering the principles of equity as explained by you, I am of the opinion that the Employer here has not flouted or breached any of the principles. Hence, the employee is not entitled to any money towards the notice period.
T. Sivasankaran
From India, Chennai
Acknowledge(0)Amend(0)
Mr. Sivasankaran,
Thank you for responding to my view and providing another angle to perceive the principle of equity in its application to employment contracts, making the discussion more meaningful.
Regards,
B. Saikumar
Mumbai
From India, Mumbai
Acknowledge(0)Amend(0)
Thank you for responding to my view and providing another angle to perceive the principle of equity in its application to employment contracts, making the discussion more meaningful.
Regards,
B. Saikumar
Mumbai
From India, Mumbai
Acknowledge(0)Amend(0)
Dear Sir,
Normally, in every appointment order, the termination clause includes the provision that either party must give one month's salary or one month's notice pay.
If an employee wishes to leave, they must submit a resignation and work for one month during the notice period. If the employee wants to leave immediately, they must pay one month's salary to the management and then leave the job. Some managements may choose to waive the notice period and release the employee immediately upon request.
In this particular case, the employee gave notice with the intention to work, but you immediately relieved her of her duties. Consequently, you would be required to pay one month's salary if she makes a claim.
D. GURUMURTHY
LL. HR & IR CONSULTANT
HYDERABAD.
From India, Hyderabad
Acknowledge(0)Amend(0)
Normally, in every appointment order, the termination clause includes the provision that either party must give one month's salary or one month's notice pay.
If an employee wishes to leave, they must submit a resignation and work for one month during the notice period. If the employee wants to leave immediately, they must pay one month's salary to the management and then leave the job. Some managements may choose to waive the notice period and release the employee immediately upon request.
In this particular case, the employee gave notice with the intention to work, but you immediately relieved her of her duties. Consequently, you would be required to pay one month's salary if she makes a claim.
D. GURUMURTHY
LL. HR & IR CONSULTANT
HYDERABAD.
From India, Hyderabad
Acknowledge(0)Amend(0)
It will be advisable to abide by the terms and conditions in the Appointment Letter.
In this particular case, the employee, who has given one month's notice for resignation, is entitled to one month's notice pay.
From India, Bokaro
Acknowledge(0)Amend(0)
In this particular case, the employee, who has given one month's notice for resignation, is entitled to one month's notice pay.
From India, Bokaro
Acknowledge(0)Amend(0)
Dear Rupavathi,
If she has mentioned and requested to be relieved on a specific date, then legally she is liable to complete her notice period and entitled to receive salary accordingly. If you wish to relieve her before the mentioned date, please refer to the appointment clause which states, "the management is free to relieve you before the date mentioned by you. In this case, you are not entitled to receive any further salary or services after being relieved."
Thanks,
Umesh Kumar
Rapid Fire Business Guidance
From India, Mumbai
Acknowledge(0)Amend(0)
If she has mentioned and requested to be relieved on a specific date, then legally she is liable to complete her notice period and entitled to receive salary accordingly. If you wish to relieve her before the mentioned date, please refer to the appointment clause which states, "the management is free to relieve you before the date mentioned by you. In this case, you are not entitled to receive any further salary or services after being relieved."
Thanks,
Umesh Kumar
Rapid Fire Business Guidance
From India, Mumbai
Acknowledge(0)Amend(0)Looking for something specific? - Join & Be Part Of Our Community and get connected with the right people who can help. Our AI-powered platform provides real-time fact-checking, peer-reviewed insights, and a vast historical knowledge base to support your search.