NDAs, Employment and Vendor Contracts for Startups in India: Key Clauses and Common Mistakes

Once a startup is up and running, it signs contracts constantly: NDAs before sharing a pitch, offer letters for new hires, agreements with freelancers, vendors and customers. Each one is an opportunity to protect the business, or to create a problem that only surfaces later. This guide covers the key clauses in the contracts startups sign most, and the mistakes to avoid under Indian law.

Non-Disclosure Agreements (NDAs)

An NDA protects confidential information shared with someone outside the company: a potential partner, vendor, investor or employee.

Key clauses

• Mutual or one-way: whether both sides are sharing information, or only one.
• A clear definition of confidential information, specific enough to be enforceable.
• Standard exclusions, such as information that's already public or independently developed.
• How long the obligation lasts, and what happens to the information at the end.
• Remedies, including the right to seek an injunction.

Watch out for

Definitions so broad they cover everything, which makes them hard to enforce. And note that many investors won't sign NDAs at the pitch stage, so be selective about what you share.

Employment Contracts

An offer letter sets out the basic terms of a job. An appointment letter or employment agreement sets out the full terms, and protects the company's interests.

Key clauses

• Role, reporting, place of work and working hours.
• Salary, benefits, and any ESOPs, with a reference to the ESOP scheme rather than a vague promise.
• Probation and notice periods.
• Confidentiality, during and after employment.
• IP assignment, so work created in the job belongs to the company.
• Non-solicitation of clients and employees for a reasonable period after leaving.

The non-compete question

Section 27 of the Indian Contract Act, 1872 makes agreements in restraint of trade void. Restrictions on working for a competitor while employed are generally fine, but post-employment non-competes are usually unenforceable in India. Contracts should rely on confidentiality, IP and non-solicit clauses instead.

State labour laws

Employment terms also have to respect the labour laws that apply to your workplace, such as the state's Shops and Establishments Act on working hours, leave and holidays. A contract can give employees more than the law requires, but not less.

Consultant and Freelancer Agreements

Consultants aren't employees, so work they create doesn't automatically belong to the company. The agreement should expressly assign IP in writing, for the full term and all territories, since a copyright assignment that doesn't specify these is presumed to be for five years and India only. It should also make clear the consultant is independent, to avoid them being treated as an employee.

Vendor and Service Agreements

Whether you're buying a service or selling one, the agreement should cover:

• Scope of work and deliverables, specific enough to measure.
• Price, payment terms, and GST and TDS treatment.
• Service levels and what happens when they're missed.
• A cap on each party's liability, usually tied to the fees paid.
• Indemnities, balanced rather than one-sided.
• Data protection, where personal data is shared, in line with India's Digital Personal Data Protection Act.
• Termination rights, and what happens to data and work in progress at the end.
• Governing law and dispute resolution, whether arbitration or courts, and where.

Stamping and Signing

Most of these agreements must be stamped under the stamp law of the state where they're signed. An unstamped agreement can't be used as evidence until the duty and a penalty are paid. They can be signed electronically, using Aadhaar e-sign or a DSC, which is valid under the IT Act, 2000.

Common Mistakes

• Using a foreign template with clauses that don't work in India.
• No IP assignment from consultants and freelancers.
• Uncapped liability in customer contracts.
• Leaving out dispute resolution, so any dispute starts with an argument about where to bring it.
• Not stamping agreements at all.

Getting Help

Think Filing's lawyers draft and review NDAs, employment and consultant agreements, and vendor and customer contracts, and can build a set of templates your team can use as the business grows.