Lawfarm Team
Asked May 06, 2016

Employment Bond is not fair.

  • 1 Answer
  • 650 Views

I am working as software employee in company where I committed the bond on notary paper and due to some personnel issues I resigned after 2 months. I took only one month of salary but while leaving the company they asked me to write a letter that I will pay Rs. 1 lakh within 2 years . What is the legal validity of my letter for them to proceed legally? I don't think 1 lakh is a fair amount.

Answer 1

Answer framed by Arushi Malik, Lawfarm Researcher:

The competition in the corporate world has increased manifold. Business houses incur expenditure on imparting training to the employees and hence, after investing so much on the employees they want them to serve the company for a minimum number of years. This is how Employment Bonds came into picture.

 

Employment bonds are agreements between employee and employer where it contains the terms and conditions of employment. They contain a clause which requires the employee to serve the employer compulsorily for a specific period of time or else refund the amount specified as bond value. Employment bonds/agreements are legally enforceable as long as they have been entered with the free consent of the parties and are not unreasonable or one-sided.[1]

Therefore, the employment bond you have signed is valid and legally enforceable. You could challenge the employment agreement under The Contract Act, 1872. The Contract Act provides that any agreement in restraint of trade or profession is void.[2] Therefore, any terms and conditions of the agreement which directly or indirectly either compels the employee to serve the employer or restrict them from joining competitor or other employer is not valid under the law. The employee, by signing a contract of employment, does not sign a bond of slavery and, therefore, the employee always has the right to resign the employment even if he has agreed to serve the employer for specific time period.[3] Yet again I will re-iterate what I have mentioned before that if the terms of the agreement are reasonable then it cannot be challenged.

 

Since in your case you have breached the employment agreement, your employer has full right to avail the remedy for such a breach of contract. The remedy in such a situation is compensation. The amount of compensation should be such so as to compensate the employer for the loss suffered by him and it should not exceed what is mentioned in your contract.[4] So, if you feel that the amount your employer is demanding from you is unreasonable you can approach the court and then court can decide the reasonable amount you are liable to pay to your employer. In the case of Sicpa India Limited v Shri Manas Pratim Deb,[5] the plaintiff (the company) had incurred expenses of INR 67,595 on training the defendant (employee) for which an employment bond was executed for three years lock-in period. The amount/penalty mentioned in the bond was INR 2,00,000. The employee left within two years. When the company went to court it was awarded a sum of INR 22,532 as compensation for breach of contract by the employee. It is crucial to note that though the bond stipulates a payment of INR 2,00,000 as compensation for breach of contract, the judge had 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 three years period and awarded a sum of INR 22,532 as reasonable compensation for leaving the employment a year before the agreed time period. Therefore, the bond you signed on a notary paper is perfectly valid and legally enforceable.

 

The only recourse you can take is to approach the court for deciding the reasonable amount of compensation you have to pay to your employer, and to prove to the court that the amount your company is asking you is unreasonable, compared to what they have spent on you.

 

References:

[1] India: Enforceability of Employment Bond, available athttp://www.mondaq.com/india/x/237806/employee+rights+labour+relations/Enforceability+of+Employment+Bond(last visited on 5 May, 2016)

[2] Sec 27, The Indian Contract Act, 1872

[3] Central Inland Water Transport Corporation v Brojonath Ganguly (1986) II LLJ 17 SC

[4] See footnote 1.

[5] MANU/DE/6554/2011

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