Employment Bond & Its Enforceability

Key Takeaways

• The employment bond is an agreement which the company and the employee enter which states the terms relating to the trainingterm of service, a sum which he/ she will be liable toif failed to followagreement provisions.
• It contains details regarding contract details, pay &benefits, contract’s nature, work hours, schedules, overtime, leaves allowed, grievance procedure, probation period, confidentiality of business information etc.
• In Contracts Act, 1872, contractual clauses are taken up, and it states that contract is legal even if it imposes certain terms& conditions and restrictions if such conditions and restrictions are valid.
• One may move to the court if the bond is a valid contract. The liquidated damages mentioned in the contract must be proportionate to the loss caused, and not more.
• The employment bond now a daily part of every firm that hires their employee and some it essential as any contract which in is writing help in maintaining the transparency in future between both the employer and its employee.

Employment Bond

The employment bond is an agreement which the company and the employee enter which states the terms relating to the training given to the employee and the money spent in imparting such training by the company, term of service, a sum which he/ she will be liable to pay if failed to follow or breaches the agreement provisions be it be expenses incurred by the company.

Where the company is of the view that the employee won’t be able to pay the amount, it has a Guarantor who guarantees that they would take accountability to ensure that the Employee adheres to the terms of the Bond. In case of any breach, the guarantor is jointly liable to pay the amount mentioned in the bond.

The bond contains the non-competition and confidentiality clause. The legality of a bond depends upon whether there was a consideration in the form concerning training or otherwise.

Details in Employment Bond

The details in a bond involve:

Contract Details

In this, it includes the full name of the employer and employee, the address of the employer, the workplace and where the employee is permitted to work, the job title or nature of work or brief description of the job, and lastly the date of commencement of employment.

Pay & Benefits

It includes the wages or salary details, the rate of overtime work, only other cash benefit they are entitled to, any payment in kind that they might receive, any deduction from employee’s remuneration, any additional benefit that the employee might receive, any approval for deduction required by law, method of calculating the wages and any pension scheme exists or not and if exists then on what conditions.

Contract’s Nature

Whether the contract is permanent or a temporary one, the duration of the temporary contract, period of notice required to end the employment, and if employment is of temporary nature, then the tenure period of such employment.

Work Hours, Schedules, Overtime

The number of working hours in a day and a week, the alternative work schedule, scheduled procedure, definition of overtime and pay, the advance notice of the overtime and right to refuse overtime, workload standards, and attendance requirements.

Leaves

It states the annual entitlement leave, the role of seniority in scheduling vacations, details of any other paid leave entitlements, sick leaves, conditions concerning leave.

Disciplinary Procedure

It contains the details of the disciplinary procedure and the conditions under which the employer can end the contract.

Grievance Procedure

The definition of the term grievance is provided, right of employees to union representation, right to use work time for grievance investigations and grievance procedure, and time limits to each step.

Probation Period

Purpose & duration of the probationary period and benefits that will come into effect when the probationary period is completed.

Health and Safety

Here the employer’s and employees’ responsibilities are explained.

Confidentiality of Business Information

Details of confidentiality requirements and use and misuse of electronic communications and the Internet.

Evaluation of Performance

It provided the frequency and criteria for evaluations.

Retirement Policy

Any collective or third-party agreement which affects the employee’s terms and conditions.

Acceptance

Here the employee signs they accept the contract and terms& conditions mentioned.

Uniforms and Tools

Here the allowance for or provision concerning the uniforms or tools for affected employees is mentioned.

Legal Validity of Employment Bond

In Contracts Act, 1872, contractual clauses are taken up, and it states that contract is legal even if it imposes certain terms& conditions and restrictions if such conditions and restrictions are valid. An agreement in the said act depends on whether it’s enforceable. An agreement is a promise or set of promises that are forming considerations for each other. When the proposal made is accepted, it forms an agreement. So basically, an agreement is the sum of an offer and its acceptance. When such agreement is enforceable by law, it forms a contract.

An offer is the starting point in agreeing. Every agreement starts with one party making an offer to sell something or to provide a service, etc. When one person who wishes to create a legal obligation, communicates to another his will to do or not to do a thing, to get the approval of that other person towards such an act or abstinence, the person is said to make a proposal or offer.

Acceptance is the second stage of a contract. It an assent of the offeree’s willingness to be bound by the terms of the proposal communicated to him. For acceptance to be valid, it must be unconditional and communicated to the offeror.

The other essential condition of a contracts that there shall be lawful consideration and with a lawful object, parties must be competent to contract. The person is said to be competent under the Contract Act if the person is of sound mind, attained the age of majority according to the law to which he is subject, and is not disqualified from contracting by any law. Therefore, minor persons of unsound mind and persons disqualified from contracting by any law are incompetent to contract.

The service bond may contain a certain amount that has to be paid where there is a breach of the bond and this sum is called liquidated damages. The courts in India do not automatically grant the liquidated damages merely on the grounds that it was stipulated in the contract. The compensation is only granted if any loss has been suffered by the company because of the early termination of the employee.

Therefore, the burden is on a company to prove that it has suffered the loss by early termination of the employee.

Hence a case 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 1 year would be seen as a reasonable restriction. The same, however, cannot be said in a case where the company giving no consideration requires the Employee to sign a bond period.

This could be easier 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.

The company has the power to claim the protection of its trade secrets or confidential information from the court but has to prove that the employee had access to such information and there is a possibility of it being leaked.

Remedies for Renunciation of Employment Bond

One may move to the court if the bond is a valid contract. The liquidated damages mentioned in the contract must be proportionate to the loss caused, and not more. Where expenses concerning training have been incurred, then damages can be claimed regarding the monetary loss incurred to the company. The employment bond is not enforceable if it’s unreasonable, one-sided, or unconscionable.

While drafting an employment bond, there is a need to mention the compulsory employment period and amount of penalty imposed in breach of such condition. The term reasonable is not defined in legislation but can be determined by considering the circumstances and the issue involved in each case.

In Sicpa India Limited v Shri Manas Pratim Deb (MANU/DE/6554/2011), the plaintiff incurred an expenditure worth Rs 67,595 towards imparting training to the defendant. The employment bond was executed, and the defendant agreed to serve the plaintiff company for three years or to make a payment of INR 200,000. The defendant left the job after serving for 2 years and the plaintiff moved to the court to implement the agreement. Compensation worth Rs 22,532 to the employer granted for breach of contract by the employee.

It is important to note that though the bond lays down 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 determining 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 RS 22,532 as a rational compensation for leaving the employment a year before the agreed period.

Abandonment of Bond on Notice

Where there is a default in providing the services mentioned in the bond, a notice must be issued and that notice must be clear. The same would amount to a decree granted in default. So making it mandatory that all the bond proceedings should be faced to avoid unnecessary adverse orders.

Statutory Body for Rectification

The party aggrieved with the non-compliance of the terms of the bond can sue before the court for claiming the damages. It’s in the court’s hand to determine the reasonable compensation that is to be granted by considering the actual loss incurred by the employers.

Pros of Employment Bond

The employment bond helps in ensuring job security, a better quality of work, enables the ability to grow better and get a better experience and helps in ensuring the adaptability of the fresh employees.

Cons of Employment Bond

Sometimes these bonds are for a long time, sometimes some really important personal issue that makes employee leave that job however the same is overlooked by the company and making that employee blacklisted by company, the interest of the employee changes as after a certain number of months in the organization, a candidate discovers what they want and then bond with the employer becomes a hindrance to professional growth.

Conclusion

The employment bond now a daily part of every firm that hires their employee and some it essential as any contract which in is writing help in maintaining the transparency in future between both the employer and its employee. However, it can be seen that the major reason behind withholding this bond is that to keep the collateral that employees on the excuse of an unfulfilled contract, and these include full& final settlement and the relieving letter. This will help in forcing the fulfilment of the bond period.