By Indian employment law operates on a binary logic. The “workman” enjoys statutory shields against dismissal, while the “manager” relies solely on the written contract.
A common error involves assuming a job title protects the company from labor court jurisdiction. It does not. If a court finds a “Manager” performing clerical duties, the termination clauses in your agreement become void.
This guide examines the statutory distinction between these roles, addresses the specific criminal liabilities attached to Factory Managers under the Factories Act, 1948, and provides a drafting framework to mitigate risks associated with termination, non-competes, and intellectual property assignment.
Employment Agreements for Managerial Personnel in India
The legal framework governing employment in India operates on a split logic. A robust protective shield exists for the “workman” class which guards labor from unequal bargaining power. In contrast the employment of managerial personnel relies on the Indian Contract Act 1872 where the written agreement dictates the terms. This document details the legal architecture for company-manager agreements including statutory rules and drafting requirements.
A manager’s role is fiduciary. While workmen receive protection against “unfair labor practices” under the Industrial Disputes Act 1947 managers operate where “hire and fire” remains legally viable subject to contract terms. A mere title of “Manager” does not protect a company if the employee’s duties are clerical. The agreement must serve as the primary evidence of the role’s true nature.
Manager vs. Workman: Risk Analysis
This chart illustrates the comparative legal protections and compliance burdens.
The Definitional Problem
Misclassification poses a significant risk. If a court decides a “Manager” is actually a “Workman” termination clauses usually fail against the rigid rules of the Industrial Disputes Act. This can lead to heavy liabilities including back wages.
Section 2(s) Exclusionary Test
Section 2(s) of the Industrial Disputes Act excludes specific individuals from the workman category. This includes those employed mainly in a managerial capacity or those in supervisory roles earning wages exceeding ₹10,000 per month.
The Dominant Nature Test
Courts use the “Dominant Nature Test” to look past the job title. In Bharti Airtel v. A.S. Raghavendra the Supreme Court ruled that a “Senior Manager – Sales” was not a workman because he supervised a team and strategized sales. The lack of “hire and fire” power did not make him a workman. However administrative responsibility is required.
Essential Contract Clauses
A solid agreement for a manager must navigate the Indian Contract Act while addressing business needs.
Key Differences: Manager vs. Workman
| Feature | Workman (IDA 1947) | Manager (Contract Act) |
|---|
Statutory Liability: The “Factory Manager” Nuance
It is critical to distinguish between a corporate “General Manager” and a “Factory Manager” appointed under the Factories Act, 1948. In manufacturing sectors (like Steel or Heavy Industries), the person named as Manager in the factory license carries criminal liability.
Under Section 92 of the Factories Act, the “Occupier” and the “Manager” can be held jointly and severally liable for accidents or safety lapses. A standard white-collar employment agreement is insufficient here.
Key Managerial Personnel (KMP) Status
Under Section 2(51) of the Companies Act, 2013, certain high-level managers (CEO, CFO, Company Secretary) are classified as “Key Managerial Personnel”. Agreements for KMPs differ significantly from standard manager contracts.
- Board Approval: The appointment must be approved by a Board Resolution.
- Tenure Limit: Unlike standard employment, KMPs are often appointed for a fixed term (usually 5 years) and require reappointment.
- Disclosure: Remuneration details of KMPs must be disclosed in the Annual Report.
The “Stigma” Doctrine in Termination
A major pitfall in manager termination is the “Stigma” doctrine. In Dipti Prakash Banerjee v. Satyendra Nath Bose National Centre, the Supreme Court held that if a termination order contains “stigmatic” language (e.g., “terminated for inefficiency” or “integrity issues”), it is punitive in nature.
The Fix: Always use a “Termination Simpliciter” clause. The termination letter should simply state: “Your services are no longer required in accordance with Clause X of the Agreement,” without assigning reasons or casting aspersions on character.
Managerial Duties under POSH Act 2013
The Prevention of Sexual Harassment (POSH) Act places specific liabilities on managers. They are often the first point of contact for complaints.
Failure by a manager to report a complaint forwarded to them can be construed as aiding the harassment. Employment agreements should explicitly state that the manager has a duty to uphold the company’s POSH policy and report violations immediately to the Internal Committee (IC).
The “Loss of Confidence” Doctrine
Unlike workmen, who require a domestic enquiry and “proven misconduct” for termination, managers generally serve at the pleasure of the company, subject to contract. Indian courts have evolved the “Loss of Confidence” doctrine specifically for fiduciary roles.
If a manager holds a position of trust (finance, strategy, factory safety) and acts in a manner that erodes that trust—even without financial loss to the company—termination is justifiable without a full enquiry, provided the loss of confidence is based on objective facts.
Statutory Benefits: The Gratuity Trap
A common misconception is that managers are “exempt” from blue-collar benefits. This is false regarding the Payment of Gratuity Act, 1972.
Section 2(e) defines “employee” to cover any person employed on wages. Therefore, a CEO and a Factory Floor Manager are both entitled to Gratuity if they complete 5 years of continuous service.
Performance Improvement Plans (PIP)
To mitigate “Wrongful Termination” suits, companies must document performance failures. A Performance Improvement Plan (PIP) acts as a legal shield.
Legal Hygiene for PIPs:
- Measurable Goals: Avoid vague terms like “improve attitude.” Use “achieve 10% sales growth.”
- Sign-off: The manager must sign the PIP document acknowledging the targets.
- Timeline: A reasonable period (30-90 days) must be provided for improvement.
Drafting the Scope of Work
The “Scope of Work” clause acts as a firewall against labor law claims. It must list supervisory control and financial authority.
"The Employee shall perform duties as assigned."
"The Manager shall be responsible for supervising the sales team, conducting performance appraisals, sanctioning leave for subordinates, approving operational expenses up to ₹50,000, and formulating regional sales strategies."
Intellectual Property and Inventions
For managers involved in R&D, software, or strategy, the “Work for Hire” doctrine must be explicitly codified. Under Section 17 of the Copyright Act 1957, the employer is the first owner of copyright, but this presumption is weaker for patentable inventions.
The agreement must include an “Assignment of Inventions” clause where the manager agrees to assign all future IP created during the course of employment to the company immediately upon creation.
"The Manager acknowledges that all Intellectual Property, including but not limited to inventions, designs, processes, code, and strategies, created during the course of employment, shall be the sole and exclusive property of the Company. The Manager hereby assigns all rights, title, and interest in such IP to the Company and agrees to execute any necessary documents to formalize this assignment, even after termination."
Restrictive Covenants and Non-Competes
Section 27 of the Indian Contract Act 1872 declares agreements in “restraint of trade” void. This creates a specific legal paradox for managers handling sensitive data.
During Employment (Moonlighting)
Courts consistently hold that a negative covenant stopping an employee from joining a competitor during the employment term is valid. This also covers “Moonlighting” (dual employment). Companies should explicitly ban dual employment to protect against conflict of interest.
Post-Termination
Once employment ends the rules change. Post-termination non-compete clauses are generally void regardless of reasonableness. The Supreme Court in Percept D’Mark confirmed that Section 27 is absolute. No “rule of reasonableness” applies to post-term restraints in India.
The “Garden Leave” Solution
Companies now use “Garden Leave” clauses. Upon resignation the manager is placed on leave for the notice period. They receive full salary but cannot work or contact clients. Since the employment continues formally the restriction is valid.
"During the Notice Period, the Company reserves the right to place the Manager on Garden Leave. During this period, the Manager shall remain on the Company's rolls and receive full remuneration but shall not attend the office, contact clients, or undertake any employment with a third party. The Manager must remain available for transition duties upon request."
Digital Execution & Admissibility
With remote hiring becoming standard, physical signatures are often skipped. Under the Information Technology Act, 2000, e-contracts are valid.
- Aadhaar eSign: Highly recommended. It holds the same legal weight as a wet-ink signature.
- DocuSign/Click-wrap: Valid, but evidentiary value relies on audit logs (IP address, timestamp) which must be preserved.
Liability Spectrum: Managerial Roles
Different managerial roles carry different liability weights. Factory managers face criminal exposure, while sales managers face civil risks.
Dispute Resolution
Should you sue in Civil Court or go to Arbitration?
- Arbitration: Private and confidential. Useful for senior managers to avoid public washing of dirty laundry regarding salaries or trade secrets. However, it can be expensive.
- Civil Court: Public and slow. Often preferred by companies for obtaining immediate injunctions against data theft, as enforcement is sometimes swifter via Interim Orders (Order 39, CPC).
If including an Arbitration clause, specify the seat of arbitration (e.g., “The seat shall be Mumbai”).
Interactive: Severance Estimator
Estimate the statutory payout upon termination or resignation.
Termination Risk Assessment
Check your procedural hygiene before terminating a manager to estimate legal risk.
Comprehensive Model Agreement
Based on the structure provided in your reference document, here is a fully drafted, court-ready template for a Managerial position in a manufacturing context (Steel Plant). This template integrates the statutory protections discussed above.
AGREEMENT BETWEEN A COMPANY AND MANAGER
THIS AGREEMENT made at [City] this [Day] day of [Month], 20[Year], between XYZ Co. Ltd., a company incorporated under the Companies Act, 1956/2013 and having its registered office at [Address] (hereinafter called "the Company"), of the ONE PART and Shri [Name], son of [Father's Name], resident of [Address] (hereinafter called "the Manager") of the OTHER PART.
WHEREAS the Company is engaged in the manufacture of steel in various forms at its factory at [Factory Location];
AND WHEREAS the previous Factory Manager has resigned;
AND WHEREAS the Company, desirous of employing a competent Manager for its factory, advertised the vacancy and has selected Shri [Name] for the said post;
NOW THIS AGREEMENT WITNESSETH as follows:
1. APPOINTMENT AND TERM
The Company hereby appoints Shri [Name] as the Factory Manager for a period of 5 years commencing from [Date], subject to the provisions of the Factories Act, 1948. This appointment is subject to a probation period of 6 months.
2. DUTIES AND SCOPE OF WORK
The Manager shall:
(a) Be responsible for the overall administration, production planning, and safety of the factory;
(b) Exercise supervisory control over all workmen and staff employed at the factory;
(c) Act as the 'Manager' for the purposes of the Factories Act, 1948, and assume liability for safety compliances;
(d) Have the authority to sanction leave, approve expenses up to ₹[Amount], and initiate disciplinary proceedings against subordinates;
(e) Devote his whole time and attention to the business of the Company.
3. REMUNERATION
The Manager shall be paid a monthly salary of ₹[Amount] and perquisites as detailed in Annexure A.
(a) The Manager shall be entitled to Gratuity as per the Payment of Gratuity Act, 1972.
(b) The Manager shall be covered under the Company's Group Medical Insurance Policy.
4. CONFIDENTIALITY & INTELLECTUAL PROPERTY
The Manager shall not disclose any trade secrets, manufacturing processes (specifically regarding steel production), client lists, or pricing strategies to any third party. All Intellectual Property created during the employment shall belong solely to the Company.
5. TERMINATION
(a) Termination Simpliciter: Either party may terminate this agreement by giving 3 months' notice in writing or basic salary in lieu thereof.
(b) Misconduct: The Company may terminate services immediately without notice in cases of proven misconduct, fraud, theft, or "Loss of Confidence" as defined by company policy.
6. RESTRICTIVE COVENANT (NON-COMPETE)
(a) During the term of employment, the Manager shall not engage in any other business or employment (Moonlighting).
(b) Upon resignation, the Company reserves the right to place the Manager on "Garden Leave" for the duration of the notice period.
7. INDEMNITY
The Company agrees to indemnify the Manager against any civil or criminal proceedings arising out of the discharge of his official duties, provided such acts were performed in good faith and within the scope of authority.
8. GOVERNING LAW & ARBITRATION
This Agreement is governed by Indian Law. Disputes shall be referred to a sole arbitrator appointed by the Company, with the seat of arbitration at [City].
IN WITNESS WHEREOF the parties have set their hands on the day and year first above written.
SIGNED by:
_____________________ _____________________
For XYZ Co. Ltd. The Manager
(Authorized Signatory) (Shri [Name])
Statutory Compliance: West Bengal Context
State laws complicate the picture. The West Bengal Shops and Establishments Act 1963 applies to managers unless specifically exempted.
Professional Tax: In West Bengal managers earning above ₹40,000 monthly pay a flat tax of ₹200 per month.
Stamp Duty: Employment agreements must be stamped to be admissible in court. In West Bengal agreements typically require ₹50 to ₹100 stamp paper. Failure to stamp renders the document inadmissible until a penalty is paid.
Data Privacy (DPDP Act 2023)
The Digital Personal Data Protection Act 2023 changes how employee data is handled. Section 7 allows employers to process data without explicit consent for “purposes of employment” but notice is still required.
