WHAT ARE THE ELEMENTS OF EMPLOYMENT BOND?

Employment bond contains terms and conditions stating the training given to the Employee and the money & time spent by the company in imparting such training, the Employee will remain in the services of the company for a particular period. In case the Employee breaches the provisions of the Agreement, the Employee will be liable to pay a certain sum of money, be it the expense incurred by the company in training of the Employee. This bond may also contain some provisions on confidentiality and non-competition clauses to safeguard the trade secrets.

ARE EMPLOYMENT BOND LEGALLY ENFORCEABLE/ VALID UNDER INDIAN LAWS?  

Indian Labor laws are silent on this aspect of employment bond and do not contain any specific provisions in this regard.  Employment agreement with the negative covenant is valid and legally enforceable according to Indian Contract Act provided below criteria are met.

An employment bond needs to be a valid contract, hence, there needs to be an offer made by an employer and acceptance of that offer by an employee. If the parties agree with their free consent i.e., without force, coercion, undue influence, misrepresentation and mistake.

Following are the requirements of a valid employment bond agreement.

1. The agreement must be signed by the parties with free consent.
2. The conditions stipulated must be reasonable.
3. The conditions imposed on the employee must be proved to be necessary to safeguard the interest of the employer.

Bonds are applicable only if the company has spent money not only on training but also spent time on the personal grooming and enhancement of the employees that helps employees perform better.

Most importantly the organization or employer needs to prove that the bond is legal, it should not be one sided, unconscionable or unreasonable and just favors the employer.

GROUNDS ON WHICH LEGALITY OF AN EMPLOYMENT BOND CAN BE CHALLENGED?

The validity/enforceability of the employment bond can be challenged on the ground that it restrains the lawful exercise of trade profession or trade 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 which directly or indirectly either compels the employee to serve the employer or restrict them from joining a competitor or other employer is not valid under the law. Whenever an agreement is challenged on the ground of it being in restraint of trade, the burden of proof is upon the party supporting the contract to show that the restraint is reasonably necessary to protect his interests.

The court always questions the reasonability of the bond for it to be accepted legally. For e.g. if an employer has developed a particular software and the employee has the knowledge of that software then, refraining that employee via bond from using that software for another employment is legal hence valid. But under unreasonable circumstances, an employment bond is not recognized as legal and thereby comes unenforceable.

Article 19 of Indian Constitution talks of fundamental rights, as per the Article 19 the Constitution the write work is a fundamental right, and under no circumstance does the Fundamental rights under Article 19 be waived by any person nor can any person be forced to do something that amounting to the violation of the rights mentioned under Article 19.

As per the Indian Contract Act contracts entered between two parties if is one sided then such contract would be null and void.

Again, as per the Indian Contract Act no contract can be enforced on any person if the contract which is being so enforced causes any harm to the person on whom it is enforced and if performed would violate principles of natural justices.

As per Sec 368 of Indian Penal Code if any person or institute holds back any document or any use any legal document or threatens any legal suits or actions and thus forces a person to perform any act against his wishes or which is illegal or wrong as per the statute of Law of the land.

The Supreme Court of India has clearly stated that no employee can be forcefully employed against his will, just because he has signed a contract with the employer. The Court also has stated that the employer cannot hold back any personal document of the employees as they are earned by the employees and the company has no claim on the same. These acts may land officials in charge concerned in jail

WHAT ARE REMEDIES AVAILABLE ON BREACH OF EMPLOYMENT /BOND CONTRACT?

In the event of breach of employment bond, the employer might incur a loss and, therefore, may be entitled for compensation. The amount of compensation usually stated in contract, Usually, the court determines the reasonable compensation amount by computing the actual loss incurred by the employer having regard to all circumstances of the case. Even if the bond stipulates payment of any penalty amount in the event of 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 for reasonable compensation as determined by the court.

The court normally considers the actual expenses incurred by the employer, the period of service by the employee, 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 imparting training to the defendant for which an employment bond was executed under which the defendant had agreed to serve the plaintiff company for a period of three years or to make a payment of INR 200,000. The employee left the employment within a period of two years. To enforce the agreement the employer went to the court, which 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 200,000 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.

KEY TAKEAWAYS & FINAL REMARKS

An employment bond should be used with caution only when needed, always needs to be reasonable and should not be one sided along with reasonable compensation and proportionate to the damage caused to the employer.