This article is about the options that an employer must consider upon the termination of the Consultant Agreement.
Termination of an agreement means putting an end to that agreement before it expires due to efflux of time. An Agreement can be terminated by mutual consent of the parties or it can be terminated by either party in accordance with the terms of the agreement. However, the party, before terminating an agreement, must consider all the possible repercussions that it may have after such termination.
Terms that an employer should keep in mind upon termination of a consultancy agreement by either party
If the agreement has been terminated by the consultant, then the employer must first verify that such termination has taken place in accordance with the provisions of the agreement. The High Court of Madhya Pradesh in the case of State of Madhya Pradesh and others vs M/s. Recondo Limited, Bhopal [1989 MPLJ 822] was of the view that if a party terminates the agreement without adhering to the due procedure of termination provided for in the agreement then such party may be held liable for damages for wrongful termination of the agreement. Hence, in case the consultant terminates the agreement without adhering to the procedure, then he can be held liable for damages.
The employer often provides the consultant with confidential information for the performance of services. Upon the termination of the agreement, the consultant must either return such confidential information to the employer or, at the employer’s discretion, destroy such information subjected to the satisfaction of the employer.
Intellectual Property Rights
For the performance of services, the employer often gives to the consultant the right to use the intellectual property of the employer. Sometimes, the consultant also discovers certain innovations during the performance of services and/or they incorporate any innovation(s), in any way, relating to the employer’s business which were conceived, reduced to practice, created, derived, developed or made by them (solely or jointly) even before the consultant was hired by the employer. Upon termination of the consultant agreement, the consultant must assign to the employer all of the consultant’s right, title and interest in all the innovations developed during the course of the agreement. To the extent any of the rights, title and interest cannot be assigned by Consultant to employer then the consultant must grant to the employer, an exclusive, royalty-free, transferable, irrevocable, worldwide, fully paid-up license, (with rights to sublicense through multiple tiers of sub-licensees) to fully use, practice and exploit those non-assignable rights, title and interest, including, but not limited to, the right to make, use, sell, offer for sale, import, have made, and have sold, the employer’s Innovations.
Upon termination of the agreement, the consultant may be paid on pro rata to the number of hours recorded by the Consultant upto the date of termination. In the event the amount already paid to the consultant is in excess to the pro-rata amount, then the consultant must refund such excess amount to the employer.
Upon termination of the agreement, the consultant must not solicit or induce any employee or any other Consultant involved in the performance of services with the employer to terminate or breach an employment, contractual or other relationship with the employer. However, such restriction should not be harsh or unreasonable or one sided.
Upon termination of the agreement, the consultant must ensure that he will not compete directly or indirectly with the employer for a reasonable period of time. Imposing such restriction on the consultant is quite challenging as the Indian Judiciary held, at many instances, that such clause is in contravention of section 27 of the Indian Contract Act, 1872.