Legal Question in Employment Law in India

24.01.2016

Dear Sir / Madam,

A performance or service bond of any form or nature whatsoever being deemed bonded labour and against the principal of natural justice is illegal and a criminal offence. To explain this concept further, if you were not to resign from service, but if the Company were to terminate your services during the bond period, in such an event, does your Appointment Letter specifically state that if the Company terminates your services anytime during the bond tenure, the Company will reimburse you a year's CTC ? Certainly not. In the worst case scenario should the Company disagree to waiver, the Company can at the most recover the balance amount for the bond period not served by you after adjusting your notice period i.e since the remaining bond period is 5 months, if the notice period is 3 months, and you have served the notice period during the bond period, the Company can at most legally recover the balance 2 month's notice period salary from your full and final settlement and the Company should pay and settle the net amount due to you thereafter.

Regards,

1) The Employment Bond is basically an agreement which the company and the employee enter into which among the other terms contained therein states that in consideration of the training given to the Employee and the money 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.

2) Where the company feels that the Employee may not be able to pay the amount, the company has a Guarantor who guarantees that they would take responsibility to ensure that the Employee adheres to the terms of the Bond. In case of breach, the Guarantor will be jointly liable to pay the Bond amount to the company. The Bond may also contain confidentiality and non competition clauses. The legality of the Bond shall depend upon whether there was consideration in the form of training or otherwise.

3) Where the company has spent a lot of time and money in training the Employee in return for which the Employee signs a bond for a reasonable period is seen as a reasonable restriction. The same however cannot be said in a case where the company without giving any consideration requires the Employee to sign a bond period.

4) The Bond may also contain a stipulation that a certain amount has to be paid in the case where there is a breach of the provisions of the Bond. This sum which is fixed under the contract is called �liquidated damages�. However, under the Indian law, the courts will not automatically grant the liquidated damages merely because it is stipulated in the contract. The court will grant compensation only if the company has actually suffered a loss as a result of the Employee's early termination of contract.

5) Hence the company which goes to court should prove that it has suffered a loss to the extent of its claim in order to get that amount, though it has been fixed under the contract. This could be easier in cases where the company has records to show that it has incurred expenses for providing training to the Employee and that the Employee has left in the middle of a project etc. However, the company cannot get an amount higher than that fixed under the contract.

6) A company to protect its trade secrets or confidential information may obtain an order from the courts to prevent its ex Employee from divulging such information to his/her new employer. Again, the company will have to prove that its ex Employee had access to such information and that there is a possibility of such information being leaked.

7) If the bond is a valid contract, company may go to court. Much depends upon the wording on the bond u executed to the company.

8) Any conditions which violate the fundamental rights as defined in constitution / are not tenable in the eyes of law, will again mar the validity of bond.

9) There are conditions which both parties need to fulfill while executing the contract. Contrary to that bond in question cannot be said to exist as a legal contract.