Draft your IT Contracts Carefully

As in the case with any industrial concern, the success of the IT industry depends on careful structuring and management of the workforce. In this, the legal and HR departments must work together. There are a host of laws that protect a commercial concern, beginning from the Constitution of India and including other statutes such as the Monopolies and Restrictive Trade Practices Act 1969, the Indian Contract Act 1872 and the various labor laws.

Employment contracts

Employment contracts need to be drafted carefully, keeping in mind the interests of the company, as well as the applicable laws relating to the enforcement of such contracts. Particularly in India, where the courts tend to favor employees in a dispute with the management, care must be taken to ensure that the contracts executed are in fact enforceable.

Employment contracts must contain specific provisions with regard to the ownership of ‘inventions’ created by such employees during the course of his/her employment, as well as the ownership of copyright in any software developed by such employees. Where the nature of the employee’s service to the company involves the exposure of that employee to trade secrets and confidential information, care must be taken to ensure that appropriate safeguards are built into the contract, in order to protect the flow of confidential information.

Another aspect that must also be taken care of, particularly in the software industry where employee mobility is high, is the inclusion of appropriate clauses prohibiting the commencement of competitive activities. The agreement must specifically state that the employee would be prohibited from engaging in activities competitive with those of the employer during the course of his/her employment, as well as for a specified term beyond such contract.

Consultant agreements are similar to employment contracts, except that the consultant is not on the rolls of the company, and therefore is not entitled to the various benefits that employees would otherwise be entitled to. Care must be taken to ensure that all copyright and other intellectual property rights in any material developed by the consultant in the course of his/her engagements with the company, would vest with the company, without exception. The contract must, in addition, stipulate that the consultant would be required to execute all such documents, deeds and agreements as may be necessary to perfect the title of the company to any products developed by the consultant in the course of such engagement with the company. These contacts are normally governed by the provisions of the Indian Contract Act 1872.

Non-disclosure agreements

Non-disclosure agreements differ from the provisions of the standard employee agreement in that such non-disclosure agreements are specifically confined to the confidential information relating to the project on which the employee is working. More often than not, these agreements are executed between the employees and the company (or person) who commissioned the project. Non-disclosure agreements are essentially regulated by the Indian Contract Act 1872. Additionally, these contracts may include elements of the applicable intellectual property protection statutes.

Re-seller and distributor agreements

In addition to employees hired for the development of its products, IT companies also engage personnel for the sales and marketing of the products developed. The company would enter into re-seller and distributor agreements with these persons. In the execution of such distributor agreements, care must be taken to ensure that the terms of the contract do not fall foul of the provisions of the Monopolies and Restrictive Trade Practices Act 1969. In particular, care must be taken to ensure that restrictions on territory, price, classes of persons from whom goods are bought or sold and conditional sales are avoided.

Rodney D Ryder