Many small and medium businesses in Pakistan hire staff on a verbal understanding or a one-line offer letter, assuming a full employment contract is only necessary for large companies. When a dispute arises over termination, dues, or conduct, this is exactly when the absence of a proper contract becomes a costly problem.

1️⃣ Legal Framework

Employment relationships in Pakistan are shaped by a mix of federal and provincial legislation, including the Industrial and Commercial Employment (Standing Orders) Ordinance 1968, provincial Shops and Establishments Ordinances, and, for larger employers, industrial relations legislation governing unions and collective bargaining.

2️⃣ Essential Clauses Every Contract Should Include

• Designation and job description — a clearly defined role and reporting line.
• Compensation and benefits — salary, allowances, bonus structure, and payment schedule.
• Probation period — duration and conditions for confirmation, typically up to three months under Standing Orders.
• Working hours and leave entitlement — in line with provincial Shops and Establishments Ordinances.
• Termination clause — notice period, grounds for termination, and severance where applicable.
• Confidentiality and non-compete — protecting business information, within reasonable and enforceable limits.

3️⃣ Termination Requirements

Under the Standing Orders, a permanent worker generally cannot be terminated without:

1. A show-cause notice specifying the alleged misconduct or reason for termination.
2. An opportunity for the employee to respond before a final decision.
3. Notice period or pay in lieu of notice, as specified in the contract or law, except in cases of proven serious misconduct.

✅ Practical example: A retail business in Karachi terminated an employee for alleged poor performance without any prior written warning or show-cause notice. The employee successfully challenged the termination before the labour court, which found the process failed to meet the Standing Orders’ requirements — resulting in reinstatement with back pay.

4️⃣ Common Employer Mistakes

• Relying on a verbal agreement or informal offer letter with no written terms.
• Terminating employees without documented cause or due process.
• Failing to register employees for social security and old-age benefits where legally required.
• Using non-compete clauses so broad that they become unenforceable.

💡 Practical Tips

• Issue a written employment contract to every employee, regardless of company size.
• Document performance issues and warnings in writing as they occur, not only at the point of termination.
• Review standard employment contracts periodically against current labour law requirements.
• Register employees for applicable social security and provident fund schemes to avoid future liability.

Need Legal Assistance?

HSJ Legal, led by Advocate Hina Saleem Jessani (High Court Advocate, Karachi), drafts employment contracts and advises employers on lawful termination and labour compliance.

📞 Get in touch with us today to make sure your employment contracts hold up.