Employment Bond And Consequence Of Breaking It

Coverage of this Article

Key Takeaways

-A bond, according to the Indian Contract Act of 1872, is an agreement between the employer and the employee, as well as an understanding with a negative covenant.

Employment Bond- Definition

-A bond, according to the Indian Contract Act of 1872, is an agreement between the employer and the employee, as well as an understanding with a negative covenant. Negative covenant contracts are lawful and legally enforceable if the parties agree freely and without undue influence, coercion, fraud, mistake, or misrepresentation.

Negative Covenant Attached to Employment Bond.

-Not joining Competitor for a set period of time after Exit: For example, a salesperson may work for an educational publishing business, where his job entails distributing books to a variety of clientele, including students, schools, and other distributors. If the employee is quitting the sales position to work for the educational publishing business, he is not permitted to work for any other publishing firm for the next 12-18 months.

When an Employment Bond is Valid

-The bond's terms and conditions must be appropriate and represent the company's investment in the employee.

When is it possible for an employer to compel an employee to follow the provisions of an employment bond contract

-The company has spent money on the employee for the purpose of training and grooming.

Clause of Confidentiality

-In this scenario, if a sales employee believes that he or she can share data with other companies while moving, it is illegal to reveal the data he or she gathered while working for the prior firm. Because the business owners give you a wage for serving them.

Case Laws

-The High Court affirmed in High Polymer Labs Pvt Ltd v. RK Mutrej ILR 1983 Delhi 213and Le Passage to India Tours v. Deepak BhatnagarI A Nos. 15636/2013, 16770/2013 & 16817/2013 in CS(OS) 1881/2013 that Section 27 of the Indian Contract Act, 1872, bans a contract that prevents an employee from working for a rival after serving an employer.

Conclusion

-If an employer pays for an employee's training, he or she can either serve the firm's notice period or pay a fair fine to compensate the training costs that the firm had to fund for the employee.

Key Takeaways

• A bond, according to the Indian Contract Act of 1872, is an agreement between the employer and the employee, as well as an understanding with a negative covenant.
• An employment bond is valid and legally binding if certain conditions are fulfilled and the same is mentioned in this present article.
• If you are being harassed by a company that has your documents and is attempting to extort money from you or force you to stay with them, let us look into the legal provisions that are available to you to assert your work-rights.
• In cases of fraud, where an employer threatens an employee with large quantities of money or confiscates the employee's documentation, the employee should promptly seek support from an authorised organisation.

Employment Bond- Definition

A bond, according to the Indian Contract Act of 1872, is an agreement between the employer and the employee, as well as an understanding with a negative covenant. Negative covenant contracts are lawful and legally enforceable if the parties agree freely and without undue influence, coercion, fraud, mistake, or misrepresentation.

In simple terms, it means that both the employer and the employee should freely consent to the bond without any outside pressure or the other conditions described above. However, there are a number of other stipulations that can render the employment bond void.

Negative Covenant Attached to Employment Bond.

Negative covenants are used in three different ways when it comes to bonds.

1. Duration of Stay with the Firm: This section of the contract agreement determines the length of time you will work with the firm.
2. Not joining Competitor for a set period of time after Exit: For example, a salesperson may work for an educational publishing business, where his job entails distributing books to a variety of clientele, including students, schools, and other distributors. If the employee is quitting the sales position to work for the educational publishing business, he is not permitted to work for any other publishing firm for the next 12-18 months.
3. Confidentiality: It indicates that a person leaving a job cannot reveal any data, software, business architecture, terms of service, or other confidential items associated with the company they are leaving with a competitor firm.

When an Employment Bond is Valid

An employment bond is valid if following conditions are fulfilled:

1. Both parties must freely consent to the agreement being signed.
2. The bond's terms and conditions must be appropriate and represent the company's investment in the employee.
3. The bond's requirements must be satisfactory in order to protect the employer's interests.
4. Every bond is only valid if it is printed on stamp paper of sufficient value and is enforceable.
5. Ensure that there is training documentation that may be used as evidence and proof in court to show that the employee received enough training.
6. To preserve and secure the company's trade secrets, the agreement must include a non-competition clause and a confidentiality clause.

When is it possible for an employer to compel an employee to follow the provisions of an employment bond contract

If the following conditions are met, employment bonds are enforceable:

1. The company has spent money on the employee for the purpose of training and grooming.
2. The spending is in lieu of a pledge from the employee that he or she will not leave the job before the conclusion of the contract period.

If your company, for example, did not spend any money on your training, they cannot impose a penalty on you when you leave. If your employer is doing so, it is clearly a form of deception.

Resignation in ahead of Bond

The case between Sicpa India Limited and Shri Manas Pratim Deb (M/S. Sicpa India Limited v. Shri Manas Pratim Deb RFA No.596/2002) was the most important case that went to court in relation to this problem. Employee Manas was required to work for the organisation for 36 months, according to the company. A penalty of Rs. 200,000 would be due to the company if the contract is broken in the middle.

In this case, the court ordered the employer to reveal the true cost of training the employee, which came to Rs. 67,595. The court ruled in favour of the employee and deemed the amount owing to the firm to be Rs. 22,532 only, based on the fact that the employee had served the company for two years.

The case establishes that, regardless of the size of the employment bond, the employer will pay just what is appropriate in the circumstances. Alternatively, an employee may only be responsible for the amount that could result in a loss to the organisation.

The corporation mentions a large bond amount in order to retain an employee for a long period of time.

The court, on the other hand, is always on the employee's side. Furthermore, the company's training is solely for the advantage of the corporation, not the other way around. As a result, regardless of what is in the bond, the court declares a reasonable sum.

Clause of Confidentiality

In this scenario, if a sales employee believes that he or she can share data with other companies while moving, it is illegal to reveal the data he or she gathered while working for the prior firm. Because the business owners give you a wage for serving them.

According to Kris Lakshmikanth, CEO of Head Hunters, the same would be enforced for a limited period of time after which the employee will be free to share the data with other companies or for personal gain.

What are the Employees' options for dealing with the Bonds?

If you are being harassed by a company that has your documents and is attempting to extort money from you or force you to stay with them, let us look into the legal provisions that are available to you to assert your work-rights.

According to an Indian statute, bonded labour no longer exists, which means you can't engage someone on a fixed contract or a bond.

Article 19 of the Indian Constitution, which deals with fundamental rights, states that a person can work in any organisation without being bound by a contract or a bond.

Any one-sided bond is declared null and void under the Indian Contract Act.

According to Section 368 of the Indian Penal Code, any type of extortion or injury to an employee by the employer taking documents will result in the company directors being sentenced to 2+ years in prison.

No employer can bind any employee by any bond; India's legal system clearly abolished the bonded labour system long ago; and no one can bind another by any contract to waive his legal rights guaranteed under the Indian constitution; Article 19 guarantees the right to work, which neither the employee can waive on his own volition nor the employer can force. Employer can, however, bind his employee to pay any fees made by the employer as part of the training offered to the employee.

Case Laws

The High Court affirmed in High Polymer Labs Pvt Ltd v. RK Mutrej ILR 1983 Delhi 213and Le Passage to India Tours v. Deepak BhatnagarI A Nos. 15636/2013, 16770/2013 & 16817/2013 in CS(OS) 1881/2013 that Section 27 of the Indian Contract Act, 1872, bans a contract that prevents an employee from working for a rival after serving an employer.

The Delhi High Court found in Pepsi Food Ltd v. Bharat Coca-Cola Holding Pvt Ltd1999 VAD Delhi 93, 81 (1999) DLT 122, 1999 (50) DRJ 656, ILR 1999 Delhi 193, (1999) IILLJ 1140 Delthat a negative covenant prohibiting employees from undertaking for 12 months after leaving the plaintiff's service was a violation of Section 27. It found that such contracts are invalid, invalid, and against public policy, and that injunctions cannot allow what the law prohibits.

In Trigo Quality Production Services v. Kaushik Pal Chaudharyfiled on April,2017,the petitioner sued the respondent, a former employee, in a civil court in Pune, alleging that he signed a contract with a noncompete clause that barred him from working for a competitor for a year after quitting his position. However, the court decided in Chaudhary's favour.

Conclusion

If an employer pays for an employee's training, he or she can either serve the firm's notice period or pay a fair fine to compensate the training costs that the firm had to fund for the employee. Furthermore, in cases of fraud, where an employer threatens an employee with large quantities of money or confiscates the employee's documentation, the employee should promptly seek support from an authorised organisation.