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Employment Bonds

1. Introduction:

To win in the marketplace you must first win in the workplace. Nowadays, an employee accepts a job based on the terms and conditions of the employer. Many organisations, particularly multinational corporations, now require their employees to enter into Employment Bonds or restrictive covenants in their contracts. An Employment Bond is an agreement which stipulates the agreed-upon terms and conditions under which the employee will work for the employing entity for a defined amount of time after joining. If an employee quits his or her work before completing the required time period, the employee must pay a penalty to the employer.

2. Are Employment Bonds Legal?

In order for an employment bond to be valid or legal under Indian law, it must be established that:

I. The employer has incurred expenses on the employee’s training,

II. There has been a breach of the minimum service clause, and

III. Legal injury has been caused to the employer by such a breach.

In Shree Gopal Paper Mills Ltd vs. Surendra K Ganeshdas Malhotra1 , it an agreement stating that the employee will have to work with the employer for 20 years was found to be oppressive. The same was not enforced and the Court refrained from stopping the employee to seek employment elsewhere. In Jet Airways (I) Ltd vs. Jan Peter Ravi Karnik2 , it was held that a bond of 7 years was restrictive in nature. Further, the court observed that the training given to a pilot was a common trade practice, so there was no reason for such a unilateral clause. In Subhir Ghosh vs. Indian Iron and Steel Company3 , an employment bond was held valid as it was reasonable. The amount payable was in fact the training amount and was not in the nature of a penalty. It is clear from the aforementioned cases that an employment bond, by itself, is not invalid in India. But if the bond puts an unreasonable restriction on the employee, without any commercial justification, the same would be held to be invalid. The Courts herein opt for a “substance over form” approach, i.e., to actually look into the wording of the bond rather than categorising the same as valid or invalid on the face of it

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