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The most rampant, talked-about and perplexed case in this is the employment bond. Many companies these days, especially the multi nationals make their employees sign an employment bond that generally bars an employee from quitting the organisation and/or joining some other organisation before s/he completes a certain period of time in this employment.
The reason for this is also that in the present economical structure after frittering a substantial amount of time, energy and money on an employee for his training etc, the company suffers a lot, if, the employee shifts to a different employment using the skills and training acquired by him from the previous job.
Under this scenario, the most pertinent query that comes to our mind is whether such routine to retain an employee is effectual, acceptable and enforceable under the law.
The first thing to be kept in mind while trying to understand if the bond is valid is ascertaining that the bond is a valid contract under the Indian Contract Act, 1872 i.e. it must be an agreement enforceable by law. Employment agreement with the negative covenant is valid and legally enforceable if the parties agree with their free consent i.e. without force, coercion, undue influence, misrepresentation and mistake. Since 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.
Bonds are applicable only if the company has spent money on the personal grooming and enhancement of the employees, but not just a training that helps employees perform better. Also to prove that the bond is legal, it should not be one sided or just favour the employer.
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 recognised as legal.
If the bond is a valid contract, one may move to the court. However, any act on the part of company e.g. retaining the original educational certificates/ creating any kind of impediments for the concerned employee to join a job(i.e. to earn) manhandling the concerned person etc. adversely tarnishes the cause of the company. Also, the amount of compensation a company can claim must be proportionate to the loss caused, and not more.
In case an employer has incurred monetary expenses for training the employee for the particular employment, he can claim for damages in respect of the monetary loss that he has incurred.
The employment bond will not be enforceable if it is either one sided, unconscionable or unreasonable. Therefore, it is pertinent to be cautious while drafting the employment bond because it is mandatory that the conditions mentioned in the employment bond, including the compulsory employment period and amount of penalty are reasonable in order for it to be valid under the Indian law. The term "reasonable" is not defined under the legislation and, therefore, the meaning has to be determined on case by case basis depending upon the issues involved and circumstances of the case.
Case in point: Sicpa India Limited v Shri Manas Pratim Deb, the plaintiff had incurred expenses of INR 67,595 towards imparting training to the defendant. For the same 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 and to implement the agreement the employer went to the court, which awarded a sum of INR 22,532 as compensation to the employer for breach of contract by the employee. It is vital to note that though the bond lays down 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 a reasonable compensation for leaving the employment a year before the agreed time period.
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