Is It Legal to Only Share a Copy of Employment Contracts with Staff? Seeking Advice!

Dear Seniors, We have a system of renewing all employees' contracts each year. Usually, I have them sign one contract and share a copy of it with them for their personal records. However, some say that it's not legal or a good HR practice to not share the original contract copy with staff! Can some seniors advise me if that's the case? Is it against HR practices or labor laws to not give the original contract to staff? I can create two original copies and share one with staff, but my question is, what is the correct practice to follow? Please advise!

Regards, Vineeta

I have identified a procedural or even legal gap in your current practice. If you have employees on board, you need to issue them an appointment letter. On the contrary, contract agreements are usually made with external parties such as service providers, consultants, advisers, etc.

I am curious about the practice of entering into contracts with employees. Renewing contracts can lead to an increase in your administrative workload. Is this arrangement designed to avoid obligations like PF/ESI and PT? While such practices may be acceptable to a certain extent, they may not be sustainable in the long run. If a Labor Officer were to visit your company unexpectedly, how would you justify the large number of contracts?

Could you inform me about the nature of your industry? I believe that your company falls under the Shops and Establishment Act. According to the provisions of this act, issuing the appointment order is mandatory. If your management is not familiar with the legal requirements, it is essential to educate them on this matter.

Thanks,
Dinesh Divekar

Hello @dinesh divekar,

Don't worry about that. We are an American liaison office registered by RBI. Under its directive, we are supposed to keep employees under a renewable contract (which automatically renews each year). Such arrangements are common with NGOs, so don't worry, we aren't doing anything illegal.

Thank you.

If you are covered under the Shops and Establishment Act, then you are bound to issue an appointment letter to the employees. This appointment letter itself acts as a contract between the employer and the employee under the provisions of the Indian Contract Act, 1872. It is mandatory to provide the original copy to the employee.

In fact, the Karnataka Shops and Establishment Rules, 1963 have a specific form called Form 10, which is known as the Appointment Order. It is mandatory to issue this form to the employees. You may find out whether you have an equivalent form under the provisions of the Shops and Establishment Act of the state to which you belong.

An appointment letter can be issued for Fixed-Term Employment (FTE). Upon completion of the fixed term, you may issue a new appointment letter or renew the previous one. However, for renewal, you need to explicitly mention the modus operandi of the renewal.

Labour Officers are permitted to inspect the issue of appointment letters to the employees.

Thanks,
Dinesh Divekar

In your query, it is not clear why you issue (renew) letters (contracts) each year. If they are your permanent employees and you are providing all benefits to them, then rather than renewing their contract every year, you should issue them a proper Appointment Letter which does not need to be renewed. You can add a notice period clause which will be applicable to both parties.

Now, coming to your point of issuing a Xerox copy to the staff. Legally, you should print two copies of the letter. The original needs to be issued to the individual, and the employee will acknowledge the other copy. The acknowledged copy should be in your records as a token of acceptance.

The points raised by Mr. Dinesh are also considerable, keeping in view the legal aspects. He is of the opinion (maybe) that you are issuing a contract agreement to avoid PF, ESI, PT, and other statutory benefits. Most companies do such things; in order to avoid statutory costs, they issue a Contract Agreement for one year and do not cover the person(s) under statutory obligations. Such things can be notified and objected to not only by the LO but also by the PF-ESI Inspector.

Mr. Dinesh always provides legal, technical, and logical advice to guidance seekers, so please don’t prolong the issue any more.

Hope this will solve your query. Fellow members can correct me if needed.

Regards