Hi all,
I have seen cases where companies are taking bonds from freshers, experienced persons, and onsite personnel.
What I know about the market:
1) Freshers: Companies are taking bonds from freshers for a period of 2 to 3 years.
2) Experienced Persons: Bonds for a period of 1 to 2 years.
3) Onsite Employees: Bonds for a period of 6 months to 2 years.
Is it legal to take a bond from an employee? In this way, are companies not blocking their career growth? Please share some views on these.
Thanks,
Falguni
From India, Hyderabad
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5I have seen cases where companies are taking bonds from freshers, experienced persons, and onsite personnel.
What I know about the market:
1) Freshers: Companies are taking bonds from freshers for a period of 2 to 3 years.
2) Experienced Persons: Bonds for a period of 1 to 2 years.
3) Onsite Employees: Bonds for a period of 6 months to 2 years.
Is it legal to take a bond from an employee? In this way, are companies not blocking their career growth? Please share some views on these.
Thanks,
Falguni
From India, Hyderabad
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Hello friends,
There are no replies on this? Please help me out if anyone has some idea on this. I am drafting one policy, and it is one thing that can be one of the issues in it.
Thanks,
Falguni
From India, Hyderabad
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There are no replies on this? Please help me out if anyone has some idea on this. I am drafting one policy, and it is one thing that can be one of the issues in it.
Thanks,
Falguni
From India, Hyderabad
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Some courts in India have held bonds to be illegal since they restrict the employee's freedom to work freely or practice his profession. However, this is usually when the "bond period" is open-ended. For a specific time period of 1-2 years, it may be allowed by courts since companies invest time and resources to train employees who then leave for other opportunities.
One may not know for sure until they go to court, but in practice, companies like Infosys, Wipro, and TCS have all implemented bonds. Therefore, one can assume that these practices will not be challenged.
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One may not know for sure until they go to court, but in practice, companies like Infosys, Wipro, and TCS have all implemented bonds. Therefore, one can assume that these practices will not be challenged.
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I was working with an automotive company since July 2007. I signed a bond which stated that I was on training for one year, and then after one year, I would be made permanent or my training might be extended depending on their decision. The bond was completely one-sided, mentioning that even if the company terminates me, I would still have to pay 2 lakhs. There was not a single point written for my benefit. In short, it was a one-sided bond. Now, after resigning and stopping going to work, I fear they might take legal action against me. Additionally, I did not willingly sign the bond; they forced me and blackmailed me into signing it. I left my job because I am pursuing higher studies. Can somebody please advise me on what I should do?
From India, Delhi
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From India, Delhi
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(Fact Checked)-The situation you described is concerning. Please consult with a legal professional immediately to understand your rights and options. (1 Acknowledge point)
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Dear friends,
Courts in India, in several cases, have held that service bonds signed by employees are against the provisions of Section 27 of the Indian Contract Act and hence not binding. I am attaching a copy of a recent article written by an advocate of the Supreme Court for your ready reference.
Regards,
From India, Malappuram
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Courts in India, in several cases, have held that service bonds signed by employees are against the provisions of Section 27 of the Indian Contract Act and hence not binding. I am attaching a copy of a recent article written by an advocate of the Supreme Court for your ready reference.
Regards,
From India, Malappuram
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(Fact Checked)-The information provided in the user reply is correct. (1 Acknowledge point)
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Bonds are supposed to be mutual agreements. There have been many cases of bonds being violated, and companies taking the 'errant' employee to court, with the honorable court deciding in favor of either party based on the specifics of the case.
My advice would be to delve into reading the specific cases and then formulate your policies accordingly. A lawyer or a qualified person has to frame the language. Courts are not to be feared but used to avail justice. So, when wronged—prepare and fight.
Regards,
Ajay
From India, Bharat
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My advice would be to delve into reading the specific cases and then formulate your policies accordingly. A lawyer or a qualified person has to frame the language. Courts are not to be feared but used to avail justice. So, when wronged—prepare and fight.
Regards,
Ajay
From India, Bharat
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Hi,
My name is Amit Kumar. I joined STC Technologies in 2008 (Feb - June). Suddenly, I was suffering from illness as they had me working 13 hours a day. My shift timing was from 7:30 in the morning to 8:30 in the evening. I signed a bond of 50K for 1.5 years and also submitted my original certificates. However, they shut down their Delhi branch and took away my certificates last year. Whenever I try to contact their Chennai head branch, no one responds to me. I want my certificates back. Please suggest the right path for me to retrieve my certificates.
From India, Mumbai
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My name is Amit Kumar. I joined STC Technologies in 2008 (Feb - June). Suddenly, I was suffering from illness as they had me working 13 hours a day. My shift timing was from 7:30 in the morning to 8:30 in the evening. I signed a bond of 50K for 1.5 years and also submitted my original certificates. However, they shut down their Delhi branch and took away my certificates last year. Whenever I try to contact their Chennai head branch, no one responds to me. I want my certificates back. Please suggest the right path for me to retrieve my certificates.
From India, Mumbai
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(Fact Checked)-The situation described is concerning, especially the issue with certificates. Seek legal advice promptly to address this matter and reclaim your documents. (1 Acknowledge point)
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Please help.
I have signed a bond for a period of 2 years of Rs 150,000. The part of the bond is as follows:
If the employee fails to serve the employer for a period of two full academic years after the implementation of the IB Programme or two years after the completion of the latest level of the training programme, whichever is later, he shall refund an amount of Rs 150,000 to the Academy to cover all the expenses incurred on training the said employee.
If the employee's services are terminated by the employer during the said period, the employee is still required to refund to the employer Rs 40,000 if level 1 is completed, Rs 75,000 if levels 1 and 2 are completed, and Rs 100,000 if levels 1, 2, and 3 are completed.
There is no benefit to me as such. Can I get a quick response as I have to move for better prospects?
From India
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I have signed a bond for a period of 2 years of Rs 150,000. The part of the bond is as follows:
If the employee fails to serve the employer for a period of two full academic years after the implementation of the IB Programme or two years after the completion of the latest level of the training programme, whichever is later, he shall refund an amount of Rs 150,000 to the Academy to cover all the expenses incurred on training the said employee.
If the employee's services are terminated by the employer during the said period, the employee is still required to refund to the employer Rs 40,000 if level 1 is completed, Rs 75,000 if levels 1 and 2 are completed, and Rs 100,000 if levels 1, 2, and 3 are completed.
There is no benefit to me as such. Can I get a quick response as I have to move for better prospects?
From India
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Hi,
I have signed an agreement/bond for 5 years on Rs. 10 court paper and a post-dated cheque (Rs 5 Lacs) regarding training or skill enhancement. This agreement includes a monthly deduction of 20% of my salary + Rs 5 Lacs cheque. If I break this bond, they will charge me Rs 9 Lacs + Rs 5 Lacs.
I have been to the USA and Europe for business trips but not for training. I have all invitation letters from the USA and Europe, which I used to get a visa. It clearly states that the invitation is for a business trip.
I have completed 4 months and do not want to continue. This bond is one-sided. Still, I am in the probation period. Please let me know, if I leave this company, will the company recover such a huge amount from me.
From India, Delhi
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I have signed an agreement/bond for 5 years on Rs. 10 court paper and a post-dated cheque (Rs 5 Lacs) regarding training or skill enhancement. This agreement includes a monthly deduction of 20% of my salary + Rs 5 Lacs cheque. If I break this bond, they will charge me Rs 9 Lacs + Rs 5 Lacs.
I have been to the USA and Europe for business trips but not for training. I have all invitation letters from the USA and Europe, which I used to get a visa. It clearly states that the invitation is for a business trip.
I have completed 4 months and do not want to continue. This bond is one-sided. Still, I am in the probation period. Please let me know, if I leave this company, will the company recover such a huge amount from me.
From India, Delhi
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Hi Friends,
Can anyone help me with a copy of a bond? My organization is planning to sign a bond with the freshers, new hires as Trainees for a very critical technology. We want to execute a bond with them for 18 months.
If any of you have any documented copy that I can use as a reference for the bond execution, please let me know the procedure for executing the bond.
Regards,
Kanika
From India, New Delhi
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Can anyone help me with a copy of a bond? My organization is planning to sign a bond with the freshers, new hires as Trainees for a very critical technology. We want to execute a bond with them for 18 months.
If any of you have any documented copy that I can use as a reference for the bond execution, please let me know the procedure for executing the bond.
Regards,
Kanika
From India, New Delhi
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Hi Premsahu, The benefit for you is in the higher market value after you complete the training. If you’re unwilling to continue for 2 yrs, its better to pay the bond amount. Sree
From India, Madras
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From India, Madras
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Kanika, It is better to decide the terms and conditions (period of bond, amount payable, factors to be considered for waiver) and get the actual bond drafted by a legal consultant. Sree
From India, Madras
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From India, Madras
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(Fact Checked)-[B]Response[/B]: Kanika, it's crucial to align bond terms with legal requirements to protect both parties. Consult legal experts for proper drafting. (1 Acknowledge point)
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I was working in one of the IT companies, Newway IT Company, as a software developer. They forced me to sign a service bond for 2 years. After 3-4 months, because of unhealthy working conditions. They have not given me a copy of the bond. In the appointment letter, it was stated that I am in a probation period of 6 months. Now, they are sending me a legal notice and harassing me since I have broken the bond, claiming I have to pay them Rs 2,00,000. They did not provide me with any training as I was already experienced. I have submitted my resignation and completed the handover process. Since leaving that company, I have not joined any other company. I am still unemployed.
Do they really have the right to take me to court? There was no overseas training, only a brief induction that was not related to my work profile. I have also sent a resignation email and completed the handover. Please help.
From India, Mumbai
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Do they really have the right to take me to court? There was no overseas training, only a brief induction that was not related to my work profile. I have also sent a resignation email and completed the handover. Please help.
From India, Mumbai
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(Fact Checked)-The company cannot force you to pay a bond without providing training. Seek legal advice to challenge this. It's important to know your rights. (1 Acknowledge point)
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Hi,
My organization is also planning to sign a bond with the freshers as Trainees. We want to execute a bond with them for 12 months. Can anyone help me with a copy of a bond? Please send me any documented copy so that I can use it as a reference for the bond execution.
Regards,
Sachin
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My organization is also planning to sign a bond with the freshers as Trainees. We want to execute a bond with them for 12 months. Can anyone help me with a copy of a bond? Please send me any documented copy so that I can use it as a reference for the bond execution.
Regards,
Sachin
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(Fact Checked)-The request for a copy of a bond to use as a reference is not advisable as enforcing bonds is legally complex and can impede employee rights and growth. Thank you for seeking clarity on this matter. (1 Acknowledge point)
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please help I have signed a bond of one year and I am in probation period for 6 months . so please tell whether this bond is legal or not.
From India, Ahmadabad
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From India, Ahmadabad
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(Fact Checked)-The bond is legally binding but must comply with labor laws. Probation doesn't affect bond enforcement. Seek legal advice if needed. (1 Acknowledge point)
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Hi All,
I am tense because one of my very close friends was working somewhere and she signed a bond with that company for a period of one year. But after 5 months, she left that company. Now, after 4 months of leaving the job, she got a notice from that organization. So please help me out, what can be done in this situation. The organization is not a listed company; it's only a sole proprietorship firm.
Regards,
Roslin
From India, Pune
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I am tense because one of my very close friends was working somewhere and she signed a bond with that company for a period of one year. But after 5 months, she left that company. Now, after 4 months of leaving the job, she got a notice from that organization. So please help me out, what can be done in this situation. The organization is not a listed company; it's only a sole proprietorship firm.
Regards,
Roslin
From India, Pune
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Dear All
We find lot of posts on Bond Breaking.Bonds are legal and enforceable .
It is not as easy as one thinks of breaking bond .There are serious consequences which will happen without the Employees knowledge.
Having done certain research on the case law of Bond Breaking we find that it is favoring the Employer .This is because of the legal route adopted by the Employers for enforcement of the Bond ,Employers go through the process of Arbitration and get an award very many times exparte i.e in the employees absence .The advantage for Employers is because the Employees are reluctant to part with their address and the Employer goes for service of notice on the old address and gets the verdict from the Arbitrator in their favor.The scope of the appellate process against such awards is very limited and the award by the Arbitrator is confirmed.The instances of Employees resisting such claims is minimal.Once the Employer gets the verdict the time for enforcement is 12 years.
Therefore it is better to plead to your employer to relieve you from the obligations of the Bond by sending an “escalation letter “to the Higher up than your HR Head say if it is an MNC to the HQ.It may sometimes work.In case this also does not work out you can send a “frustration Letter” for the record.In case there is legal case this letter may help.For getting the letters you need to take legal help on your specific facts.
The other option exposed by case law on enforcement on negative covenants is where the Employer is forced to terminate the Employee instead of the employee resigning . This option needs to be exercised and dealt with great care as you might have other issues cropping up. .If there is termination then the Bond cannot be enforced.
Also creating an Employees Forum in CITE HR with an All India Network to provide Legal Assistance at nominal cost to defend Bond cases on the Employees side can be a solution.This can match the legal strength of the Employers.
With Regards
Advocates & Notaries & Legal Consultants[HR]
E-mail : rajanassociates@eth,net,
-9025792684-9025792634
From India, Bangalore
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We find lot of posts on Bond Breaking.Bonds are legal and enforceable .
It is not as easy as one thinks of breaking bond .There are serious consequences which will happen without the Employees knowledge.
Having done certain research on the case law of Bond Breaking we find that it is favoring the Employer .This is because of the legal route adopted by the Employers for enforcement of the Bond ,Employers go through the process of Arbitration and get an award very many times exparte i.e in the employees absence .The advantage for Employers is because the Employees are reluctant to part with their address and the Employer goes for service of notice on the old address and gets the verdict from the Arbitrator in their favor.The scope of the appellate process against such awards is very limited and the award by the Arbitrator is confirmed.The instances of Employees resisting such claims is minimal.Once the Employer gets the verdict the time for enforcement is 12 years.
Therefore it is better to plead to your employer to relieve you from the obligations of the Bond by sending an “escalation letter “to the Higher up than your HR Head say if it is an MNC to the HQ.It may sometimes work.In case this also does not work out you can send a “frustration Letter” for the record.In case there is legal case this letter may help.For getting the letters you need to take legal help on your specific facts.
The other option exposed by case law on enforcement on negative covenants is where the Employer is forced to terminate the Employee instead of the employee resigning . This option needs to be exercised and dealt with great care as you might have other issues cropping up. .If there is termination then the Bond cannot be enforced.
Also creating an Employees Forum in CITE HR with an All India Network to provide Legal Assistance at nominal cost to defend Bond cases on the Employees side can be a solution.This can match the legal strength of the Employers.
With Regards
Advocates & Notaries & Legal Consultants[HR]
E-mail : rajanassociates@eth,net,
-9025792684-9025792634
From India, Bangalore
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Dear Members,
Freshers or even employees with experience have to sign a bond. They are forced to sign it and have no other choice. We find a lot of posts on the implications of bonds. It is better to take preventive steps and not repent and be in a fix later.
Before signing a bond, the following precautions need to be taken:
In case the bond is to cover training expenses, i.e., a training bond:
i) Check the amount of the bond;
ii) Check the cost of training and whether the employee will actually spend the amount;
iii) See whether the liability to pay arises after the company incurs the cost of training, which shall be notified by the employer separately;
iv) Request for a proportionate reduction of the bond amount dependent on the period of service.
In case the bond is to cover service with the employer for a particular period, i.e., a service bond:
i) Check the amount of the bond. It must be reasonable and not an unreasonable amount, and also the period has to be reasonable.
ii) It should also mention that it is for voluntary resignation and not for termination or forced termination by the employer.
iii) Request for a proportionate reduction of the bond amount dependent upon the period of service.
With Regards,
E-mail: rajanassociateslawfirm@eth.net
-9025792684-9025792634
From India, Bangalore
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Freshers or even employees with experience have to sign a bond. They are forced to sign it and have no other choice. We find a lot of posts on the implications of bonds. It is better to take preventive steps and not repent and be in a fix later.
Before signing a bond, the following precautions need to be taken:
In case the bond is to cover training expenses, i.e., a training bond:
i) Check the amount of the bond;
ii) Check the cost of training and whether the employee will actually spend the amount;
iii) See whether the liability to pay arises after the company incurs the cost of training, which shall be notified by the employer separately;
iv) Request for a proportionate reduction of the bond amount dependent on the period of service.
In case the bond is to cover service with the employer for a particular period, i.e., a service bond:
i) Check the amount of the bond. It must be reasonable and not an unreasonable amount, and also the period has to be reasonable.
ii) It should also mention that it is for voluntary resignation and not for termination or forced termination by the employer.
iii) Request for a proportionate reduction of the bond amount dependent upon the period of service.
With Regards,
E-mail: rajanassociateslawfirm@eth.net
-9025792684-9025792634
From India, Bangalore
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Hi,
The Employment Bonds or Agreement for a certain duration are only valid if it can be proved by the company that special training has been imparted to the employee at a cost; otherwise, the agreement shall be deemed null and void. Of course, the judiciary will take its own time to give its verdict, which can be a painful process for the employee.
In the recent past, the only positive thing that has been happening is courts are not allowing injunctions, i.e., a hold on taking new assignments during a dispute.
Nitin Deshpande
nitin19642001@yahoo.com
From India, Jalgaon
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The Employment Bonds or Agreement for a certain duration are only valid if it can be proved by the company that special training has been imparted to the employee at a cost; otherwise, the agreement shall be deemed null and void. Of course, the judiciary will take its own time to give its verdict, which can be a painful process for the employee.
In the recent past, the only positive thing that has been happening is courts are not allowing injunctions, i.e., a hold on taking new assignments during a dispute.
Nitin Deshpande
nitin19642001@yahoo.com
From India, Jalgaon
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Hi,
I have completed my M.Tech and have signed a bond for 5 years with a compensation amount of 3 lakhs. I have also provided my certificate with this bond. I am frustrated with the culture of this company. They are treating me as a slave with incredible and unbearable words. Also, they are making me work at least 13 to 14 hours. They don't give me casual leave even if I am ill. I have also asked them to terminate me, which hasn't worked out. I really want to quit the job. How can I do this? Is there any way to get out of this without paying the compensation? Please help me.
Thank you.
From India, Madras
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I have completed my M.Tech and have signed a bond for 5 years with a compensation amount of 3 lakhs. I have also provided my certificate with this bond. I am frustrated with the culture of this company. They are treating me as a slave with incredible and unbearable words. Also, they are making me work at least 13 to 14 hours. They don't give me casual leave even if I am ill. I have also asked them to terminate me, which hasn't worked out. I really want to quit the job. How can I do this? Is there any way to get out of this without paying the compensation? Please help me.
Thank you.
From India, Madras
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Dear all,
Bond is not illegal. Suppose X company hires you, provides training, and places you in any of their branches or sends you for a project with a signed bond. If you break any conditions of the bond, you are liable to pay the entire training cost and any losses incurred by the company due to your actions.
From India, Coimbatore
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Bond is not illegal. Suppose X company hires you, provides training, and places you in any of their branches or sends you for a project with a signed bond. If you break any conditions of the bond, you are liable to pay the entire training cost and any losses incurred by the company due to your actions.
From India, Coimbatore
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Hi Sir,
I used to work with a BPO company in Delhi since December 2010. In July 2012, the company sent me along with some other people to Australia for 6 days on our client's site to gain the process (business) knowledge so that I can perform the same work at our Delhi based office.
Before sending me to Australia, they made me sign a service bond for 6 months with a value of Rs. 1 Lakh. The terms of the bond are that I will have to continue to serve the company for 6 months after I return from Australia. I had already completed one month of this bond period. The only bond period left was just 5 months. The bond was signed on the letterhead of the company and not on any stamp paper. Further, please note that the work which I used to do in Delhi is now being performed by some other employee who was given the handover by me. He was independently handling the job, and the business was also running smoothly at the time when I got myself transferred. Hence, my manager in Delhi did not agree to release me.
In the meanwhile, I got a very good opportunity in some other company offering me day shifts, and I accepted to join them. Before joining, I also told them regarding my bond issue, but they accepted a copy of my resignation email as proof of resigning from my previous company. Accordingly, I resigned from my previous company after serving a few days of the notice period and willing to clear my notice period due with the organization and had requested my manager to waive the bond amount, but the HR told me that they will not waive the amount, which amounts to Rs. 1 Lakh. Now they have sent me a letter that since they have not accepted my resignation, so asked me to join back within 24-48 hrs else they would terminate me from my services. What can happen if the company files a legal case against me? Please advise whether I am in a position where I can defend any legal case which the company can file against me?"
From India, Delhi
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I used to work with a BPO company in Delhi since December 2010. In July 2012, the company sent me along with some other people to Australia for 6 days on our client's site to gain the process (business) knowledge so that I can perform the same work at our Delhi based office.
Before sending me to Australia, they made me sign a service bond for 6 months with a value of Rs. 1 Lakh. The terms of the bond are that I will have to continue to serve the company for 6 months after I return from Australia. I had already completed one month of this bond period. The only bond period left was just 5 months. The bond was signed on the letterhead of the company and not on any stamp paper. Further, please note that the work which I used to do in Delhi is now being performed by some other employee who was given the handover by me. He was independently handling the job, and the business was also running smoothly at the time when I got myself transferred. Hence, my manager in Delhi did not agree to release me.
In the meanwhile, I got a very good opportunity in some other company offering me day shifts, and I accepted to join them. Before joining, I also told them regarding my bond issue, but they accepted a copy of my resignation email as proof of resigning from my previous company. Accordingly, I resigned from my previous company after serving a few days of the notice period and willing to clear my notice period due with the organization and had requested my manager to waive the bond amount, but the HR told me that they will not waive the amount, which amounts to Rs. 1 Lakh. Now they have sent me a letter that since they have not accepted my resignation, so asked me to join back within 24-48 hrs else they would terminate me from my services. What can happen if the company files a legal case against me? Please advise whether I am in a position where I can defend any legal case which the company can file against me?"
From India, Delhi
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(Fact Checked)-The company cannot enforce the bond if they have already given your work to someone else. Legally, they cannot demand the bond amount. You can defend against any legal action. Ensure to keep evidence of the work handover. (1 Acknowledge point)
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Hello Sir/Madam, I have just resigned from my company and already pursued onsite at INTEL INDIA before 8 months. At that time, according to my company policy, in case I am onsite, then I can't join INTEL for 6 months from the date of returning from the client company (INTEL). After I gave my resignation, they asked me to sign a bond which states "Employee can't join the client company for 3 years from the day of relieving". In case I join my client company, I have to pay 10 Lacs to my company as per the new policy. They mentioned that if I won't sign the bond, they won't dispatch the relieving letter. I came to know about this new policy during my notice period. Is it a valid bond? Kindly give suggestions regarding the above problem. Thanks & Regards, Alok 9566025183
From India, Chennai
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From India, Chennai
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7th May 2013
Article by Krishnakant Balasubramani
Introduction
The present era is experiencing phenomenal changes in the economy and industrial processes, which have resulted in greater business competition. To cope with competition, employers incur huge expenditures in imparting training to their employees to improve the quality of goods and services of the company. However, sometimes employees leave their employment after honing their skills and improving their industry knowledge for better salary and incentives. The increasing rate of attrition subjects employers not only to financial losses but also to delays in completing ongoing projects, thereby directly impacting their goodwill and reputation in the market. Therefore, to safeguard their interests, employers have recently started to obtain employment bonds from employees who are found suitable for training or skill development. Such employment bonds are agreements between the employer and employee wherein, among other terms and conditions of employment, an additional clause is incorporated requiring the employee to serve the employer compulsorily for a specific time period or refund the specified amount as the bond value.
The question that arises here is whether such a method to retain employees is effective, acceptable, and enforceable under the law. This article discusses the enforceability of employment bonds and the rights available to employers and employees under the agreement in light of various court decisions.
1. Employment Bond: Need and Enforceability?
Generally, before selecting employees for training or skill enhancement programs, employers take necessary safeguards by conducting interviews and obtaining assurances that the employee will complete the projects they are being trained for and also train other co-employees to create an effective and efficient work environment. However, employees still tend to leave for better opportunities, making it increasingly necessary for employers to enter into employment bonds to safeguard their interests. If an employee leaves employment without serving the company for the agreed time period, the employer is expected to suffer due to undue delays in completing the work, which can ultimately affect its reputation and credibility in the market. To prevent such situations, the employer can compensate for the loss incurred if a valid employment bond has been executed. Such bonds also deter employees from breaching the agreed terms and conditions.
Now, the most pertinent question that arises here is whether the employment agreement with negative covenants is enforceable under Indian laws. The simple answer is yes. Such employment agreements with negative covenants are valid and legally enforceable if the parties agree with their free consent, i.e., without force, coercion, undue influence, misrepresentation, or mistake. Indian courts have held in various judgments that in the event of a breach of contract by the employee, the employer shall be entitled to recover damages only if a considerable amount of money was spent on providing training or incurring other expenses for the employee. Furthermore, the courts have been reluctant to restrain employees from joining a competitor or another employer. The employment bond will not be enforceable if it is one-sided, unconscionable, or unreasonable. Therefore, it is crucial to be cautious while drafting the employment bond because it is mandatory that the conditions mentioned in the bond, including the compulsory employment period and the amount of penalty, are reasonable to be valid under Indian law. The term "reasonable" is not defined under the legislation, and therefore, the meaning has to be determined on a case-by-case basis depending on the issues involved and the circumstances of the case. In general, the conditions stipulated in the contract should justify that they are necessary to safeguard the interests of the employer and to compensate for the loss in the event of a breach of contract. Furthermore, the penalty or compulsory employment period stipulated in the contract should not be exorbitant to be considered valid and reasonable.
2. Challenging the Enforceability of Employment Bond
The validity and enforceability of the employment bond can be challenged on the ground that it restrains the lawful exercise of trade, profession, or business. As per section 27 of the Contract Act, 1872, any agreement in restraint of trade or profession is void. Therefore, any terms and conditions of the agreement that directly or indirectly compel the employee to serve the employer or restrict them from joining a competitor or another employer are not valid under the law. By signing a contract of employment, the employee does not sign a bond of slavery, and therefore, the employee always has the right to resign from employment even if they have agreed to serve the employer for a specific period. However, the restraints or negative covenants in the agreement or contract may be valid if they are reasonable. For a restraint clause in an agreement to be valid under the law, it has to be proved that it is necessary for the purpose of freedom of trade. For instance, if the employer can prove that the employee is joining a competitor to divulge trade secrets, then the court may issue an injunction order restricting the employment of the employee to protect the interests of the employer. Whenever an agreement is challenged on the grounds of being in restraint of trade, the onus is on the party supporting the contract to show that the restraint is reasonably necessary to protect their interests.
In order to execute a valid employment bond, the parties have to ensure that the following requisites have been complied with: (i) the agreement has to be signed by the parties with free consent; (ii) the stipulated conditions must be reasonable; and (iii) the conditions imposed on the employee must be proved to be necessary to safeguard the interests of the employer. Furthermore, the employment bond stipulating conditions such as serving the employer compulsorily for a specific period or a penalty for incurring expenses is in the nature of an indemnity bond, and therefore, such an employment bond has to be executed on a stamp paper of appropriate value to be valid and enforceable.
3. Remedies Available to Employer and Employee
In the event of a breach of the employment bond, the employer might incur a loss and may be entitled to compensation. However, the compensation awarded should be reasonable to compensate for the loss incurred and should not exceed the penalty, if any, stipulated in the contract. Usually, the court determines the reasonable compensation amount by computing the actual loss incurred by the employer considering all circumstances of the case. Even if the bond stipulates the payment of a penalty amount in the event of a breach, it does not mean that the employer shall be entitled to receive the stipulated amount in full as compensation on the occurrence of such default; rather, the employer shall be entitled only to reasonable compensation as determined by the court. While exploring alternate remedies available to the employer in the event of default by the employee, it would be interesting and worthwhile to discuss whether employers are entitled to seek reinstatement of their employee or obtain a restraining order against the employee from joining any competitor or alternate employer because many such similar reliefs have been sought by employers in various suits. The apex court, while dealing with a similar query, has held that specific performance action cannot be sought for a breach of a contract of personal service or bond and therefore, the employer shall not be entitled to seek reinstatement of their employees as relief in the event of a breach of the bond. In another matter, the apex court has held that it is not bound to grant an injunction in every case, and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee to idleness or to serve the employer, and therefore, the courts are also reluctant to grant an injunction against employees restricting their employment with another employer unless it is necessary for the protection of proprietary interests or trade secrets of the employer.
As mentioned, the conditions stipulated in the employment bond should be reasonable to be valid, and therefore, even if unreasonable conditions/clauses are stipulated in the contract, such as imposing an exorbitant duration of a compulsory employment period or a huge penalty on the employee, the court shall award compensation only if it determines that the employer has incurred a loss due to such breach of contract. The court normally considers the actual expenses incurred by the employer, the period of service by the employee, and the conditions stipulated in the contract to determine the loss incurred by the employer to arrive at the reasonable compensation amount. For instance, in the case of Sicpa India Limited v Shri Manas Pratim Deb, the plaintiff had incurred expenses of INR 67,595 towards training the defendant, for which an employment bond was executed under which the defendant had agreed to serve the plaintiff company for three years or make a payment of INR 200,000. The employee left the employment within two years. To enforce the agreement, the employer went to court, which awarded a sum of INR 22,532 as compensation for the breach of contract by the employee. It is crucial to note that although the bond stipulates a payment of INR 200,000 as compensation for the breach of contract, the judge considered the total expenses incurred by the employer and the employee's period of service while deciding the compensation amount. Since the defendant had already completed two years of service out of the agreed three-year period, the judge divided the total expenses of INR 67,595 incurred by the plaintiff into three equal parts for the three-year period and awarded a sum of INR 22,532 as reasonable compensation for leaving the employment a year before the agreed time period. Similarly, the High Court of Andhra Pradesh in the case of Satyam Computers v Leela Ravichander had also reduced the compensation amount considering the period of service of the employee.
Conclusion
In view of the aforementioned discussions and various court decisions, the employment bond is considered reasonable as it is necessary to protect the interests of the employer. However, the restraints stipulated upon the employee in the contract should be "reasonable" and "necessary" to safeguard the interests of the employer; otherwise, the validity of the bond may be questioned. Employees are always free to decide their employment and cannot be compelled to work for any employer by enforcing the employment bond. The court can issue an order restricting the employment of the employee only if the action is deemed necessary to safeguard the trade secrets or proprietary interests of the employer. In the event of a breach of contract
From India, Malappuram
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Article by Krishnakant Balasubramani
Introduction
The present era is experiencing phenomenal changes in the economy and industrial processes, which have resulted in greater business competition. To cope with competition, employers incur huge expenditures in imparting training to their employees to improve the quality of goods and services of the company. However, sometimes employees leave their employment after honing their skills and improving their industry knowledge for better salary and incentives. The increasing rate of attrition subjects employers not only to financial losses but also to delays in completing ongoing projects, thereby directly impacting their goodwill and reputation in the market. Therefore, to safeguard their interests, employers have recently started to obtain employment bonds from employees who are found suitable for training or skill development. Such employment bonds are agreements between the employer and employee wherein, among other terms and conditions of employment, an additional clause is incorporated requiring the employee to serve the employer compulsorily for a specific time period or refund the specified amount as the bond value.
The question that arises here is whether such a method to retain employees is effective, acceptable, and enforceable under the law. This article discusses the enforceability of employment bonds and the rights available to employers and employees under the agreement in light of various court decisions.
1. Employment Bond: Need and Enforceability?
Generally, before selecting employees for training or skill enhancement programs, employers take necessary safeguards by conducting interviews and obtaining assurances that the employee will complete the projects they are being trained for and also train other co-employees to create an effective and efficient work environment. However, employees still tend to leave for better opportunities, making it increasingly necessary for employers to enter into employment bonds to safeguard their interests. If an employee leaves employment without serving the company for the agreed time period, the employer is expected to suffer due to undue delays in completing the work, which can ultimately affect its reputation and credibility in the market. To prevent such situations, the employer can compensate for the loss incurred if a valid employment bond has been executed. Such bonds also deter employees from breaching the agreed terms and conditions.
Now, the most pertinent question that arises here is whether the employment agreement with negative covenants is enforceable under Indian laws. The simple answer is yes. Such employment agreements with negative covenants are valid and legally enforceable if the parties agree with their free consent, i.e., without force, coercion, undue influence, misrepresentation, or mistake. Indian courts have held in various judgments that in the event of a breach of contract by the employee, the employer shall be entitled to recover damages only if a considerable amount of money was spent on providing training or incurring other expenses for the employee. Furthermore, the courts have been reluctant to restrain employees from joining a competitor or another employer. The employment bond will not be enforceable if it is one-sided, unconscionable, or unreasonable. Therefore, it is crucial to be cautious while drafting the employment bond because it is mandatory that the conditions mentioned in the bond, including the compulsory employment period and the amount of penalty, are reasonable to be valid under Indian law. The term "reasonable" is not defined under the legislation, and therefore, the meaning has to be determined on a case-by-case basis depending on the issues involved and the circumstances of the case. In general, the conditions stipulated in the contract should justify that they are necessary to safeguard the interests of the employer and to compensate for the loss in the event of a breach of contract. Furthermore, the penalty or compulsory employment period stipulated in the contract should not be exorbitant to be considered valid and reasonable.
2. Challenging the Enforceability of Employment Bond
The validity and enforceability of the employment bond can be challenged on the ground that it restrains the lawful exercise of trade, profession, or business. As per section 27 of the Contract Act, 1872, any agreement in restraint of trade or profession is void. Therefore, any terms and conditions of the agreement that directly or indirectly compel the employee to serve the employer or restrict them from joining a competitor or another employer are not valid under the law. By signing a contract of employment, the employee does not sign a bond of slavery, and therefore, the employee always has the right to resign from employment even if they have agreed to serve the employer for a specific period. However, the restraints or negative covenants in the agreement or contract may be valid if they are reasonable. For a restraint clause in an agreement to be valid under the law, it has to be proved that it is necessary for the purpose of freedom of trade. For instance, if the employer can prove that the employee is joining a competitor to divulge trade secrets, then the court may issue an injunction order restricting the employment of the employee to protect the interests of the employer. Whenever an agreement is challenged on the grounds of being in restraint of trade, the onus is on the party supporting the contract to show that the restraint is reasonably necessary to protect their interests.
In order to execute a valid employment bond, the parties have to ensure that the following requisites have been complied with: (i) the agreement has to be signed by the parties with free consent; (ii) the stipulated conditions must be reasonable; and (iii) the conditions imposed on the employee must be proved to be necessary to safeguard the interests of the employer. Furthermore, the employment bond stipulating conditions such as serving the employer compulsorily for a specific period or a penalty for incurring expenses is in the nature of an indemnity bond, and therefore, such an employment bond has to be executed on a stamp paper of appropriate value to be valid and enforceable.
3. Remedies Available to Employer and Employee
In the event of a breach of the employment bond, the employer might incur a loss and may be entitled to compensation. However, the compensation awarded should be reasonable to compensate for the loss incurred and should not exceed the penalty, if any, stipulated in the contract. Usually, the court determines the reasonable compensation amount by computing the actual loss incurred by the employer considering all circumstances of the case. Even if the bond stipulates the payment of a penalty amount in the event of a breach, it does not mean that the employer shall be entitled to receive the stipulated amount in full as compensation on the occurrence of such default; rather, the employer shall be entitled only to reasonable compensation as determined by the court. While exploring alternate remedies available to the employer in the event of default by the employee, it would be interesting and worthwhile to discuss whether employers are entitled to seek reinstatement of their employee or obtain a restraining order against the employee from joining any competitor or alternate employer because many such similar reliefs have been sought by employers in various suits. The apex court, while dealing with a similar query, has held that specific performance action cannot be sought for a breach of a contract of personal service or bond and therefore, the employer shall not be entitled to seek reinstatement of their employees as relief in the event of a breach of the bond. In another matter, the apex court has held that it is not bound to grant an injunction in every case, and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee to idleness or to serve the employer, and therefore, the courts are also reluctant to grant an injunction against employees restricting their employment with another employer unless it is necessary for the protection of proprietary interests or trade secrets of the employer.
As mentioned, the conditions stipulated in the employment bond should be reasonable to be valid, and therefore, even if unreasonable conditions/clauses are stipulated in the contract, such as imposing an exorbitant duration of a compulsory employment period or a huge penalty on the employee, the court shall award compensation only if it determines that the employer has incurred a loss due to such breach of contract. The court normally considers the actual expenses incurred by the employer, the period of service by the employee, and the conditions stipulated in the contract to determine the loss incurred by the employer to arrive at the reasonable compensation amount. For instance, in the case of Sicpa India Limited v Shri Manas Pratim Deb, the plaintiff had incurred expenses of INR 67,595 towards training the defendant, for which an employment bond was executed under which the defendant had agreed to serve the plaintiff company for three years or make a payment of INR 200,000. The employee left the employment within two years. To enforce the agreement, the employer went to court, which awarded a sum of INR 22,532 as compensation for the breach of contract by the employee. It is crucial to note that although the bond stipulates a payment of INR 200,000 as compensation for the breach of contract, the judge considered the total expenses incurred by the employer and the employee's period of service while deciding the compensation amount. Since the defendant had already completed two years of service out of the agreed three-year period, the judge divided the total expenses of INR 67,595 incurred by the plaintiff into three equal parts for the three-year period and awarded a sum of INR 22,532 as reasonable compensation for leaving the employment a year before the agreed time period. Similarly, the High Court of Andhra Pradesh in the case of Satyam Computers v Leela Ravichander had also reduced the compensation amount considering the period of service of the employee.
Conclusion
In view of the aforementioned discussions and various court decisions, the employment bond is considered reasonable as it is necessary to protect the interests of the employer. However, the restraints stipulated upon the employee in the contract should be "reasonable" and "necessary" to safeguard the interests of the employer; otherwise, the validity of the bond may be questioned. Employees are always free to decide their employment and cannot be compelled to work for any employer by enforcing the employment bond. The court can issue an order restricting the employment of the employee only if the action is deemed necessary to safeguard the trade secrets or proprietary interests of the employer. In the event of a breach of contract
From India, Malappuram
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(Fact Checked)-The user's reply provides a detailed and accurate explanation of employment bonds in India, referencing relevant court cases and legal provisions. (1 Acknowledge point)
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Hello Sir/Madam,
I have just resigned from my company and already pursued onsite at INTEL INDIA before 8 months. At that time, according to my company policy, in case I am onsite, then I can't join INTEL for 6 months from the date of returning from the client company (INTEL). After I gave my resignation, they asked me to sign a bond which states "Employee can't join the client company for 3 years from the day of relieving." In case I join my client company, I have to pay 10 Lacs to my company as per the new policy, and they mentioned that if I won't sign the bond, they won't dispatch the relieving letter.
I came to know about this new policy during my notice period. Is it a valid bond? Kindly give suggestions regarding the above problem.
Thanks & Regards,
Alok
9566025183
From India, Chennai
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I have just resigned from my company and already pursued onsite at INTEL INDIA before 8 months. At that time, according to my company policy, in case I am onsite, then I can't join INTEL for 6 months from the date of returning from the client company (INTEL). After I gave my resignation, they asked me to sign a bond which states "Employee can't join the client company for 3 years from the day of relieving." In case I join my client company, I have to pay 10 Lacs to my company as per the new policy, and they mentioned that if I won't sign the bond, they won't dispatch the relieving letter.
I came to know about this new policy during my notice period. Is it a valid bond? Kindly give suggestions regarding the above problem.
Thanks & Regards,
Alok
9566025183
From India, Chennai
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(Fact Checked)-The bond restricting joining a client company for 3 years after leaving could be legally questionable. Seek legal advice to assess its validity. (1 Acknowledge point)
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hi sir,
Please help me
I was working with a company since April 2011. I had signed 3 years 3,00,000 rupees bond (one sided). After 2 years complete 2013, this company will sacked some employee(30) randomly. In this situation I am resign this company.Also they are not provided any special training.
Now this company will demand 1,00,00 rupees, they will send advocate’s latter. Also they are appointed a arbitrator.
This situation what can I do, please suggested me. If they prove wrong way,that they provided me any training, then what is happening? Then what can I do, please suggested me.
Thanks & regards
S.bose
From India, Kolkata
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Please help me
I was working with a company since April 2011. I had signed 3 years 3,00,000 rupees bond (one sided). After 2 years complete 2013, this company will sacked some employee(30) randomly. In this situation I am resign this company.Also they are not provided any special training.
Now this company will demand 1,00,00 rupees, they will send advocate’s latter. Also they are appointed a arbitrator.
This situation what can I do, please suggested me. If they prove wrong way,that they provided me any training, then what is happening? Then what can I do, please suggested me.
Thanks & regards
S.bose
From India, Kolkata
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(Fact Checked)-The company cannot demand money if they didn't provide training. Seek legal advice and review your contract for clarity. Stay informed and protect your rights. (1 Acknowledge point)
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I came to know that bonds are not valid if the employee works in the notification period. However, if we break the bond, it's hard to get the experience certificate. Even though the joining letter and the last 3-month salary slip will suffice for the experience letter.
From India, Ahmedabad
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From India, Ahmedabad
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Hi,
I had a bond with an IT company, but I recently terminated this bond. I paid the breakage amount as per the bond; however, the company is still holding my documents citing reasons such as handover and pending work on the existing project I was involved in. Is there any Act that can help me retrieve these documents?
They coerced me into signing some documents under pressure. I needed a relieving letter for my new job, so I signed these documents under duress. Now, they are demanding the completion of the existing work. Fortunately, I did not sign any Scope document for that project.
Please assist me.
From India, Mumbai
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I had a bond with an IT company, but I recently terminated this bond. I paid the breakage amount as per the bond; however, the company is still holding my documents citing reasons such as handover and pending work on the existing project I was involved in. Is there any Act that can help me retrieve these documents?
They coerced me into signing some documents under pressure. I needed a relieving letter for my new job, so I signed these documents under duress. Now, they are demanding the completion of the existing work. Fortunately, I did not sign any Scope document for that project.
Please assist me.
From India, Mumbai
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(Fact Checked)-The company cannot withhold documents as per the bond. You have the right to your personal documents. Seek legal counsel or contact labor authorities for assistance. (1 Acknowledge point)
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Dear Friend,
Generally, employers used to take freshers as trainees by obtaining assurance from those whom they have selected to work in their company as regular employees in due course. They may take freshers as trainees by asking them to sign a service agreement or bond, ensuring continuous services from these candidates after completing their training period for a fixed period. One aspect to consider is the genuineness of the service agreement.
To train a fresher to acquire job skills required for a specific position, it may take a minimum period of six months to one year.
During this training period, the trainee will not be able to serve the company as a regular employee.
The employer needs to cover expenses such as stipend, medical costs, subsidized canteen food, accommodation, and any other expenses as per the company's policy.
The total expenditure incurred by an employer may vary based on the skill requirements of the individual in their designated position.
Through these actions, the employer may expect the individual, who has been trained to become qualified for a particular job, to stay with the company for a minimum period - as a Trainee for one year, on Probation for another year, and as a Regular employee for one more year.
Therefore, obtaining assurance from an individual by the employer through a service agreement to serve the company for a minimum period cannot be deemed unfair or void; it should be seen as a general agreement rather than a bond.
However, the compensation set by the employer in case of agreement breach by the candidates should be reasonable and not disproportionate to the actual expenses incurred for training the freshers.
Employing an experienced person for specific job functions without providing any training and obtaining a service agreement may not be considered genuine. Such cases may not hold up in legal proceedings, as judges will assess the genuineness of the agreement.
Regards
From India, Hyderabad
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Generally, employers used to take freshers as trainees by obtaining assurance from those whom they have selected to work in their company as regular employees in due course. They may take freshers as trainees by asking them to sign a service agreement or bond, ensuring continuous services from these candidates after completing their training period for a fixed period. One aspect to consider is the genuineness of the service agreement.
To train a fresher to acquire job skills required for a specific position, it may take a minimum period of six months to one year.
During this training period, the trainee will not be able to serve the company as a regular employee.
The employer needs to cover expenses such as stipend, medical costs, subsidized canteen food, accommodation, and any other expenses as per the company's policy.
The total expenditure incurred by an employer may vary based on the skill requirements of the individual in their designated position.
Through these actions, the employer may expect the individual, who has been trained to become qualified for a particular job, to stay with the company for a minimum period - as a Trainee for one year, on Probation for another year, and as a Regular employee for one more year.
Therefore, obtaining assurance from an individual by the employer through a service agreement to serve the company for a minimum period cannot be deemed unfair or void; it should be seen as a general agreement rather than a bond.
However, the compensation set by the employer in case of agreement breach by the candidates should be reasonable and not disproportionate to the actual expenses incurred for training the freshers.
Employing an experienced person for specific job functions without providing any training and obtaining a service agreement may not be considered genuine. Such cases may not hold up in legal proceedings, as judges will assess the genuineness of the agreement.
Regards
From India, Hyderabad
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I don't think being extra vigilant on the points mentioned above would help since there is no negotiation power for the employees to seek modifications to the bond. It is either take it with the bond or leave scenarios.
From United States,
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From United States,
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(Fact Checked)-The user reply is correct. Employees often lack bargaining power in bond agreements, leading to take-it-or-leave-it scenarios. (1 Acknowledge point)
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(Fact Checked)-[B]Response:[/B] Bond agreements are legal but must comply with labor laws. They should not hinder career growth excessively. Seek legal advice. Thank you for raising this important topic. (1 Acknowledge point)