The Nature of Exchange in ER

Subthemes: Regulation of ER through Contract

&
Breach of Contract and Remedies

Dimensions of Employment Relationship

The employment relationship covers every aspect of labour either

explicitly or implicitly.

Time, Qualifications and Wages are three central dimensions to

employment relationship.

Hence, the employment relationship is based on an exchange

between

work and non-work hours,

required and available qualifications; and
wages and performance

Williamsons Analysis of Employment Relationship

Loose Relationship
Market-like aspects of employment relationship dominate.
Temporary employment to perform a specific job; or
Contracting out the jobs to small independent businesses or subcontractors

outside the company when

Qualifications required are not firm-specific; and
Performance can measured easily and regulated by coercive power of contract

Permanent Organizational Relationship

Organization-like aspects of employment relationship dominate
Permanent full-time job when

Qualifications required are firm-specific; and

Performance is difficult to measure and regulated by intricate control
structure having control systems like promotion ladders, compensation
systems etc.

Watsons Analysis of Employment Relationship

Restrictive Employment Relationship
More specification of implicit employment contract by giving detailed
instructions to employee
Employment relationship is based on mistrust
Cooperation achieved by direct control

Diffuse Employment Relationship

General specification of implicit employment contract by giving employee
more discretion and autonomy
Employment relationship based on mutual trust.
Cooperation achieved by responsible autonomy

Watsons Analysis and Organizations Choice

An organization can, incidentally, have both types of employment

relationship as well as control systems for different types of work:

Restrictive employment relationships for simple, manual tasks in parts of the

organization with a strict division of labour and an extensive hierarchy of

managers supporting a regime of direct control.

Diffuse employment relationship for more complex work in parts of the

organization with a modest division of labour and a regime of responsible

autonomy.

Restrictive to Diffuse Employment Relationship

Implications for Employment Relationship Dimensions
Time
More autonomy in determining the relationship between working time and

recovery time or to a more intense level of work?

Qualifications
More responsibility and pressure on individuals in developing new skills and

competencies required for continuous development?

Wages and Performance

Will the employee take charge of his own performance or will new control

systems evolve to replace supervisory hierarchy like career planning and group
compensation?

Employment Relationship as a Power Relationship

Employment relationship is a power relationship and it can lead to

conflict since

Employers desire to control employee behavior.

Employees desire to control conditions of employment.

Employees

dependency on wages will always be more

disadvantage to him / her than to employers dependency on
employees performance.

Therefore, the relationship between employer and employee in the

labour market is uneven, asymmetrical.

Asymmetry in relationships between parties is a preconditions for the

exercise of power.

Power in Sociological Exchange Theories

The basis for power (Pfeffer and Salancik) in terms of dependence.
A has power over B in so far as:
The resources in question are more important to B than A
B will have more trouble than A obtaining the same resources elsewhere
B is unlikely to find a substitute for the resource in question to satisfy its
need.

Regulating Employment Relationship

Employment relationship is a regulated relationship through rules and

regulations governing the exchange which takes place on a continuous basis.

Internal regulation takes place within the company and with a specific

employer.

External regulation takes place at levels above the company.

The region;
The industry; or
Central level

The employment exchange dimensions (Time, Qualifications, Wages and

Performance) can be regulated at one of these levels or multiple levels.

Employment Relationship Regulation Models

Internal Regulation Only
The conditions of employment determined unilaterally by the employer

Predominant External Regulation

The conditions of employment determined by collective agreements and in

legislation with little or no scope for regulating the exchange internally.

Mixed Regulation
The conditions of employment determined by both external and internal regulation

with the employer having the power to make supplementary with his employees
while complying with collective bargaining agreements.

The supplementary agreements can be established either unilaterally or in

consultation with the employee(s).

Breach of Contract and Remedies

Breach of Contract
Breach of Contract could be either anticipatory or actual and could

lead to termination of contract

Anticipatory breach could occur when a contracting party refuses

to accept and /or acts in a way which could potentially affect the
performance of the contract before the arrival of the time where
performance of the contract / clause / ancillary contract starts.
E.g., A trainee employee refuses to undertake the test or delays undertaking

the test which could qualify him as a confirmed employee of the organization
and thereby entrusts various obligations like service bond, notice period
etc.,
E.g., A senior executive of the firm joins a competitor firm which makes the
firm apprehensive that s/he may disclose the trade secrets to benefit the
competitor at the expense of his/her previous employer.

Handling Anticipatory Breach

In case of an anticipatory breach, the affected contracting party

may cancel the contract and at once initiate legal proceedings

against the party which repudiated the contract in order to get
compensation for damages
Or
The affected party could wait till the time for execution of the
contract and sue the other party for not honoring the agreement.
It means that the affected party recognizes the validity of the contract until

the arrival of the time for execution and it provides an opportunity for the
other party to perform the contract.

Actual Breach
Actual Breach by contracting parties may happen either at the time

of performance of contract is due or during the performance of the

contract.
E.g., Ram Kumar accepted the offer letter from Firm A which had one

month notice period clause. However, the Firm had revised the notice period
clause to 3 months when Ram kumar was about to sign the employment
contract at the time of the joining the firm.
Or
E.g., Jan Peter signed an employment contract with Jet Airways Rs. 1500
Flight Duty Allowance per day. However, Jet Airways reduced that amount
to Rs. 500 during the employment term and thereby breaching the contract.

Handling Breach of Contract

Cancellation or Rescission of Contract
Seeking Compensation for Damages
Seeking a Decree for Specific Performance from Court of Law

Seeking An Injunction from Court of Law

Seeking Quantum Meruit

Rescission of the Contract

Affected Party may approach the court of law in order to rescind

the contract so that s/he could be free from obligations.

Rescinding the contract enables the affected party to seek

compensation from the party who breaches contract for damages.

It depends on the nature of breach on a case to case basis as what

kind of damage could be obtained from the party who breaches the
contract.

Understanding Damages
Ordinary Damages:
The affected party would be entitled to ordinary damages for any loss s/he
might have naturally suffered as a direct consequence of a breach by the other
contracting party. (E.g., Flight ticket cancellation and the direct
inconvenience but not the opportunity cost in terms of loss of business etc.,)
Special Damages
Special Damages are sought for any loss the affected party might have
incurred as an indirect consequence of a breach by the other party. (e.g.,
Loss of revenue or market share because a pilot resigns from his service
without fulfilling his notice period and / or training bond obligations)
The affected party may seek special damages for loss of profit etc., in
addition to actual damages when there is an extraordinary circumstance
present and it is communicated to the other contracting party. In such cases, the
party who breach the contract is liable to pay special damage due to nonperformance of the contract.

Understanding Damages
Vindictive Damages (or Punitive or Exemplary Damages)
The party which breaches the contract may be taken to court by the affected
party not solely with the intention to seek monetary compensation but for penalizing
the party for affecting the sentiments of the affected party. In such cases, the
penalty would depend upon the severity of shock received by the affected
party due to non-performance of contract.
Nominal Damages
The affected party is entitled to nominal damages when it is difficult or
almost impossible to calculate the actual loss suffered due to the breach of
contract.

Understanding Liquidated Damages and Penalty

Liquidated Damages
It essentially means that contracting parties conscientiously attempt to
estimate the loss in case of breach of contract by either party and mention
the same in the contract as liquidated damages.
Penalty
Unlike liquidated damages, the contracting parties do not make any attempt
to estimate the loss in case of breach by either party but specify a sum with
the objective to coerce the offending party to honour the contract by
fulfilling the obligations.

Understanding Liquidated Damages and Penalty

When a contract has been broken, if a sum is named in the

contract as the amount to be paid in case of such breach, or if the

contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual
damage or loss is proved to have been caused thereby, to
receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the
case may be, the penalty stipulated for. (Section 74 of ICA)
The above section is applicable for Service Bonds which are

entered between the employer and the employee wherein the

employee agrees to work for the employer for a stipulated period.

The 1946 Love Story of Arvind Mills

Mr. Deshpande was working for Arvind Mills as a Weaving Master and in the

year 1941, he entered into a service agreement with his employer for a period
of 3 years. It said;

.. shall not during the said term whether he be in the employment or not, get

in the employ of or be engaged or be connected as weaving master or as an

employee under any title discharging substantially the same duties he may be
discharging here with any firm or company or individual in any part of India
including. the Indian States for the space of the said years or any portion of the
remaining period of the said term.
Later, Mr. Deshpande joined Rohit Mills Ltd and subsequently Arvind Mills
sued him for breach of service agreement.
After hearing the legal councils, The Bombay High Court said, We,grant an

injunction against Deshpande restraining him from getting in the employ of or

being engaged or connected as a weaving master or as an employee under any
title discharging substantially the same duties as a weaving malster, in the Rohit
Mills or any other company or with any firm or individual in any part of India
including the Native States for the term ending on December 31, 1946.

Seeking Injunction
The court may give an injunction, either temporary or permanent,

depending on the circumstances of the case, preventing the

offending party from doing something which s/he agreed as per
the contract that s/he would refrain from doing so.

Seeking Relief for Specific Performance

The affected party may approach the court of law to seek relief for

Specific Performance when monetary compensation would not

be sufficient as a remedy.
This means that the court of law would coerce the offending

party to fulfill the obligations as per the contract rather than

paying an amount to mitigate the loss occurred due to the
breach.
However, relief for specific performance would be given to the

affected party only if the affected party would not be able to

get a substitute in the market using the monetary
compensation.

Seeking Quantum Meruit

A Quantum Meruit litigation arises in an event when an express

contract is not completed or it is rendered unperformable by the

contracting parties.
In such event, the court may award compensation by calculating the

reasonable value of services, irrespective of the contract terms,

to measure the damages arising out of this breach and thereby ensuring
equity.

The Onus of Damage Control

Mitigation of Damages
The affected party should do everything possible to mitigate the gravity of
damages due to the breach of contract. It essentially means that the affected
party could not seek compensation for breach of contract when s/he fails to take
reasonable efforts to prevent the losses after the breach.

Further Reading
Employment Bond: Legal Status and Current Issues by Prof. P.K.

Padhi and Prof. E.M. Rao. (The article is available in your

reading material)
Focus on Types of Employment Bond and Analysis of the Scenarios
Scenario I Fixed Period Type A
Scenario II Fixed Period Type B
Scenario III Special Fixed Period
Scenario IV- Fixed Period Type C (Return the complete salary)
Scenario V- Fixed Period Type D (Compensation for loss incurred)
Scenario VI- Fixed Amount
Scenario VII- Prior Deposit
Scenario VII- Training Expenditure
Scenario VIII- Foreign Bond
Scenario IX- Non release of Personal Document