Top 8 things to help you verify the legality of Employment Bonds
Employment training bond is an agreement entered by the employee and the employer stating that the employee is required to serve the agreed period, and there are restrictive covenants that subject the employee to pay a said amount for any loss incurred due to voluntary resignation. Well, that’s the brief part of the scenario. Majority of the employable population in India go with a feeling that the agreement is legally valid, and alarmingly employers take a downloadable copy of the agreement from online without any knowledge of the legal validity. The Indian Contract Act, 1872 and various judgments made by High Court and Supreme Court of India govern the aspect of the legality of such employment contracts which will be covered in this blog.
Legal enforceability of the Employment Bonds:
- Employee by signing a contract of employment does not sign a bond of slavery and therefore, the employee always has the right to resign even if he has agreed to serve the employer restrictive covenants
- Restrictive covenants may be considered valid if they are reasonable.
- Restrictive covenants have to be proved that these are meant for the freedom of trade.
- Agreement must be signed by the parties with free consent
- The conditions stipulated in the bond must be reasonable
- The conditions imposed on the employee must be proved to be necessary to safeguard the interests of the employer.
- Agreement has to executed on a stamp paper of Appropriate value
- In the event of breach of contract by the employee, the employer shall be entitled to recover the damages only if a considerable amount of money has been spent on training
Real life examples:
- S. Gobu V The State of Tamil Nadu
Major takeaway: if the employee leaves the service before the stipulated period and has been invested on by the employer, then as per the agreement is bound to pay to the organization for the damages.
- Satyam Computer Services Limited V Ladella Ravichander
Major takeaway: Though employer showed that it incurred a loss of INR 2L on the employee who abruptly left the job, the Andhra Pradesh High Court held that such claim by the employer is unreasonable, and after verification gave a judgment that an amount of INR 1L was the reasonable amount which employee would pay the firm.