EMPLOYMENT BOND IN INDIA

WHAT DOES AN EMPLOYMENT BOND MEAN?

An Employment Bond is an agreement between an Employer and an Employee containing several employment terms, one of them stating that, in consideration of imparting training to the Employee and the amount spent on imparting such training, the Employee shall remain in the service of Employer for a particular period of time. In case the Employee breaches this term of Employment Bond, Employee shall become liable to indemnify the Employer for the costs which were incurred on his/her training.

IS IT JUSTIFIED TO IMPLEMENT AN EMPLOYMENT BOND?

There are a plenty of reasons for using Employment Bonds such as to maintain confidentiality, non-competition clause, reimbursement of expenses incurred on training etc. Another important factor is to retain the trained Employees in the Employment for the longest period possible. This is done in order to ensure that the resources and time of Employer are not rendered meaningless in training with no benefits derived due to early resignation by Employees and/or non-service of applicable notice period.

HOW SHOULD AN EMPLOYMENT BOND BE FRAMED?

The Employer should keep in mind that the period of the Bond is not too high, the payable amount should not exceed the actual amount spent on training the Employee, there should be enough evidence of training in case the Employer wants to take a legal remedy and there should be a confidentiality clause that will legally protect the Employer’s trade secrets or business information and data in case the Employee leaves the Employer.

WHAT REMEDIES ARE AVAILABLE TO EMPLOYER?

In the event of breach of an Employment Bond, Companies may withhold important Employee collateral so that the Employees don’t break the Employment Bond. These include relieving letter and full and final settlement. Employees are aware of the importance of a relieving letter which may force them to fulfill the bond period. An Employer has the right to claim what is spent on training, enhancing and grooming the Employee. Further, an Employer gets a legal remedy if he can prove that Employee has divulged the trade secrets to a competitor. In addition to restraining Employees from using confidential information after the termination of Employment, by way of seeking injunction and claiming damages, Employers can also take criminal action against the Employees in addition to civil remedies.

WHAT IS THE LEGALITY OF EMPLOYMENT BOND IN INDIA?

In India it is legal to execute with bonds/agreements that prescribe a reasonable penalty in case of breach. However, Indian courts prioritize the protection of rights of an Employee seeking employment over protecting the interests of the Employer seeking to protect itself from competition. In view of the Constitution of India and the provisions of the Indian Contract Act, 1872 courts have generally held that the right to livelihood of the Employees must prevail in spite of an existing agreement between the Employer and the Employee.

At the same time, article 21 of the Constitution of India gives the right to privacy to an Employer. The court needs to incorporate either partial or total restraint on Employee depending upon the similarity or diversification of work which might or might not hamper the market for Employer.

Therefore, the Employment Bonds cannot be challenged in the court of law if the terms of the Bond are reasonable and valid and have been executed by mutual consent of the parties without any force or coercion.

WHAT ARE THE CONSTRAINTS/RESTRICTIVE ELEMENTS THAT MAKE AN EMPLOYMENT BOND UNENFORCEABLE?

Section 27 of the Indian Contract 1872 gives us an understanding that all agreements in restraint of any trade or profession are void. As long as an Employee does not have the motive to cheat, mistrust or cause irreplaceable loss to the company, trade or business, reasonable restraints are permitted and do not render the contract void.

The restraints can be enforced only when the Employee is in the service of the Employer and these restraints cannot be enforced after the Employee leaves the service of the Employer – irrespective of whether the Employee leaves voluntarily or as a result of his services being terminated. However, the only restrictions that would be enforceable in an Indian court after the termination of employment would be non-disclosure of confidential information and non-solicitation of customers and Employees.

WHAT ARE THE BEST ALTERNATIVES TO AN EMPLOYMENT BOND?

There are a plenty of reasons why the Employees leave the Employer such as dissatisfaction pertaining to compensation, salary structure, growth rate, work hours or non-maintenance of balance between work and personal life. So, there is an arduous task that lies before the Employer to fill the loopholes and make the work environment friendlier for employees. There is also a common perception that an Employee leaves the manager and not the job. So an Employee should be given more freedom to do his/her job and micromanagement should be avoided as far as possible. Benefits awarded to Employees such as retention bonuses are a positive and effective alternative over Employment Bonds.

HOW SHOULD AN EMPLOYEE APPROACH AN EMPLOYMENT BOND?

If the Employee feels that the terms of Employment Bond are too strict and vague then he/she should refrain from signing it. The Employee, as far as possible, should negotiate the terms and conditions of the Bond with the Employer so that there is no misunderstanding and it saves all kinds of hassle in future. In other case if an Employee has to terminate a Bond then he/she must ask the Employer what the alternatives are. There might be a possibility that the Employer is willing to build a smooth transition for the Employee such as serving a notice period or letting off after completing the pending work.

In the event of an Employee signing an Employment Bond the terms of which are neither vague nor unreasonable, he/she shall become liable to compensate the Employer for all the expenses incurred on his/her training at the time of terminating the Bond before the agreed time period.

CONCLUSION

Keeping in view the various court decisions, it is understood that Employment Bond is legally enforceable as long as the conditions of the Bond are reasonable and protects the interests of both Employer and Employee. At the same time, the Employee is at liberty to choose his place of employment and he/she cannot be compelled to work for any Employer by enforcing the Employment Bond.

Next time when you need an Employment Agreement / Bond, please click here

Get Employment Agreement From Docket

An Employment Bond is what employers and employees use to clearly outline the rights, responsibilities, and obligations of the parties during the work period.

WHAT DOES AN EMPLOYMENT BOND MEAN?

An Employment Bond is an agreement between an Employer and an Employee containing several employment terms, one of them stating that, in consideration of imparting training to the Employee and the amount spent on imparting such training, the Employee shall remain in the service of Employer for a particular period of time. In case the Employee breaches this term of Employment Bond, Employee shall become liable to indemnify the Employer for the costs which were incurred on his/her training.


IS IT JUSTIFIED TO IMPLEMENT AN EMPLOYMENT BOND?

There are a plenty of reasons for using Employment Bonds such as to maintain confidentiality, non-competition clause, reimbursement of expenses incurred on training etc. Another important factor is to retain the trained Employees in the Employment for the longest period possible. This is done in order to ensure that the resources and time of Employer are not rendered meaningless in training with no benefits derived due to early resignation by Employees and/or non-service of applicable notice period.

HOW SHOULD AN EMPLOYMENT BOND BE FRAMED?

The Employer should keep in mind that the period of the Bond is not too high, the payable amount should not exceed the actual amount spent on training the Employee, there should be enough evidence of training in case the Employer wants to take a legal remedy and there should be a confidentiality clause that will legally protect the Employer’s trade secrets or business information and data in case the Employee leaves the Employer.

WHAT REMEDIES ARE AVAILABLE TO EMPLOYER?

In the event of breach of an Employment Bond, Companies may withhold important Employee collateral so that the Employees don’t break the Employment Bond. These include relieving letter and full and final settlement. Employees are aware of the importance of a relieving letter which may force them to fulfill the bond period. An Employer has the right to claim what is spent on training, enhancing and grooming the Employee. Further, an Employer gets a legal remedy if he can prove that Employee has divulged the trade secrets to a competitor. In addition to restraining Employees from using confidential information after the termination of Employment, by way of seeking injunction and claiming damages, Employers can also take criminal action against the Employees in addition to civil remedies.

WHAT IS THE LEGALITY OF EMPLOYMENT BOND IN INDIA?

In India it is legal to execute with bonds/agreements that prescribe a reasonable penalty in case of breach. However, Indian courts prioritize the protection of rights of an Employee seeking employment over protecting the interests of the Employer seeking to protect itself from competition. In view of the Constitution of India and the provisions of the Indian Contract Act, 1872 courts have generally held that the right to livelihood of the Employees must prevail in spite of an existing agreement between the Employer and the Employee.

At the same time, article 21 of the Constitution of India gives the right to privacy to an Employer. The court needs to incorporate either partial or total restraint on Employee depending upon the similarity or diversification of work which might or might not hamper the market for Employer.

Therefore, the Employment Bonds cannot be challenged in the court of law if the terms of the Bond are reasonable and valid and have been executed by mutual consent of the parties without any force or coercion.

WHAT ARE THE CONSTRAINTS/RESTRICTIVE ELEMENTS THAT MAKE AN EMPLOYMENT BOND UNENFORCEABLE?

Section 27 of the Indian Contract 1872 gives us an understanding that all agreements in restraint of any trade or profession are void. As long as an Employee does not have the motive to cheat, mistrust or cause irreplaceable loss to the company, trade or business, reasonable restraints are permitted and do not render the contract void.

The restraints can be enforced only when the Employee is in the service of the Employer and these restraints cannot be enforced after the Employee leaves the service of the Employer – irrespective of whether the Employee leaves voluntarily or as a result of his services being terminated. However, the only restrictions that would be enforceable in an Indian court after the termination of employment would be non-disclosure of confidential information and non-solicitation of customers and Employees.

WHAT ARE THE BEST ALTERNATIVES TO AN EMPLOYMENT BOND?

There are a plenty of reasons why the Employees leave the Employer such as dissatisfaction pertaining to compensation, salary structure, growth rate, work hours or non-maintenance of balance between work and personal life. So, there is an arduous task that lies before the Employer to fill the loopholes and make the work environment friendlier for employees. There is also a common perception that an Employee leaves the manager and not the job. So an Employee should be given more freedom to do his/her job and micromanagement should be avoided as far as possible. Benefits awarded to Employees such as retention bonuses are a positive and effective alternative over Employment Bonds.

HOW SHOULD AN EMPLOYEE APPROACH AN EMPLOYMENT BOND?

If the Employee feels that the terms of Employment Bond are too strict and vague then he/she should refrain from signing it. The Employee, as far as possible, should negotiate the terms and conditions of the Bond with the Employer so that there is no misunderstanding and it saves all kinds of hassle in future. In other case if an Employee has to terminate a Bond then he/she must ask the Employer what the alternatives are. There might be a possibility that the Employer is willing to build a smooth transition for the Employee such as serving a notice period or letting off after completing the pending work.

In the event of an Employee signing an Employment Bond the terms of which are neither vague nor unreasonable, he/she shall become liable to compensate the Employer for all the expenses incurred on his/her training at the time of terminating the Bond before the agreed time period.

CONCLUSION

Keeping in view the various court decisions, it is understood that Employment Bond is legally enforceable as long as the conditions of the Bond are reasonable and protects the interests of both Employer and Employee. At the same time, the Employee is at liberty to choose his place of employment and he/she cannot be compelled to work for any Employer by enforcing the Employment Bond.

Next time when you need an Employment Agreement / Bond, please click here

Sanjna

Legal Consultant

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