In this article, you will learn all about employment bonds under the Indian Contract Act, 1872. Yes, you can very well leave your job after signing a bond and fight the case with your company in the court of law where you are most likely to win. There are just a few cases where the company can win, the same are discussed in this article.
Now, we are going to discuss employment bonds. Did you know that no
employment bond can coerce you to stay in a job? Did you know that the amounts
mentioned in the employment bonds, need not be paid in most cases? Do you know
whether these employment bonds are legal or illegal? And what are the clauses
that render an employment bond as illegal? Or if you are a fresher and do not
know anything about employment bonds, then you must watch this article till the
end. Because whosoever working in this nation, must have already faced a bond,
or there is a big possibility that, in future, some or the other employer is
going to ask them to sign a bond.
In this article, we are going to know everything about employment
bonds. But, before we move forward, don't forget to share this article with
your friends and put your valuable comment in the comment section.
What is Bond?
The common definition of bonds is Bonds are the documents that force
you to stay put in some shitty jobs. That is called a bond. But bonds do have a
legal definition as well. Bonds are employment agreements with the negative
covenant which are covered under the Indian Contract Act 1872.
Under the Indian Contract Act 1872, agreement with a negative covenant
is valid if they are signed by both parties under free consent, without any
fraud, misrepresentation or mistake. This means, whatever documents, both the
parties, in this case, employees and employers, with their free will, without
any external pressure, without any mistake, without any misrepresentation, like
someone not reading the document before signing, Some cases like that or, or if
the document has some roundabout language which is difficult to interpret.
In such cases, if both parties sign the bond, then it is considered
valid. But there are hundreds of clauses in the act which render employment
bonds invalid. which we are going to discover in this episode in some time. Firstly,
in this definition, the first phrase that occurred was 'negative covenant'.
Now, what is meant by negative covenant?
A negative Covenant means an agreement which stops you from doing some
work. The agreement is not forcing you to do something, it is stopping you from
doing something. So that is called a negative covenant.
Three types of negative covenants are generally used in the bonds.
1. Duration of stay with the firm
Meaning staying employed with the company for a certain period.
For example, a workman joins a factory, which is into weaving fabrics. After
joining, the workman was trained to operate the machines, trained into the
weaving fabric, quality control etc. In that process, the company invested a
time of around 3-4 months. In return, the company asked the employees to sign a
bond which stated them to stay in employment with the company for a minimum of
24 months. And in case, they leave the company they would be imposed with so
and so penalty. They would have to pay a certain amount to the company as a
penalty or indemnity. So, this was the first type of negative covenant.
2. A non-compete agreement
In this, the company states, For example, a sales professional is
working for an educational publishing house where he sells books to various
clients, distributors and schools. In such a case, if he leaves the job, then
the company or the publishing house demands that he, for the next 12 to 18
months cannot join another education publishing house which is their direct
competitor. This is called the non-compete clause which is often found in
employment bonds. We would understand if this is valid or not in some time.
3. Confidentiality Agreement
For example, there is a software developer working for an IT company. His
confidentiality agreement states that he cannot share the details of the company's
software, design, data & program with any competitor after he leaves the
company. We would also discuss the validity of this clause in detail in this article.
Let’s understand what types of bonds are considered valid. So, keep
some pointers in your mind -
1. The agreement must be signed by both parties under free consent. Like
I told you in the definition, that both parties, employee and employer, must
sign the agreement with free consent. Also, there must not be any undue
influence, misrepresentation, mistake etc.
2. The condition stipulated must be reasonable and reflect the
expenditure of the employer on employee's training. Whatever condition is given
in the bond, whether it be the condition of penalty, or staying with the
company, it should be reasonable, Whatever the company has invested upon the
employee, in terms of his training and grooming etc. It should be reasonable
according to that. Now this reasonable word doesn't have an exact definition
anywhere in the law. But when such cases are presented in court, the court pays
attention to the word "reasonable".
3. A bond valid is whatever conditions stated in the bond, it should be
mentioned to safeguard the interest of the employer. And not as something to
extort an employee. Meaning the condition should serve to protect some interest
or law of the company, and not merely to extort or threaten the employee If it
happens, then again, the bond is considered invalid.
4. The bond must be executed on a stamp paper with a proper notary. Otherwise,
again that bond will be invalid.
5. If you are stating that the employee should stay with the company because
you have invested in his training etc., You must have that proper training
material to produce in the court, in case there arises a dispute and the
parties approach the court.
6. Your bond must at least have the confidentiality agreement and non-compete
clause, so that you can defend it. If it is not a part of your bond, you will
never be able to sue your employee against it.
When can you enforce these employee agreements or bonds?
It can be enforced when you have invested in the training of our
employee, grooming etc., You've spent your money, time and resources and against
this, your employee has signed a bond with you, with his consent and free will,
and he has agreed to work with you for a stipulated period of time because you
have spent some amount for my training etc. Now if that employee leaves or
resigns the company before the stipulated time, then this bond can be enforced
if the company has incurred some loss because of him leaving. So this was the
condition about when this bond can be enforced. So a lot of cases happen
online, where people are given the work of data feeding, and you are made to
sign some bonds, and afterwards, due to the site being down or due to ten other
reasons, you are not able to do that data operating work,
Or are unable to complete it or are not able to do it well, then
against it, you are sent heavy notices of Rs 50,000 or Rs 60,000 and you are
threatened that we have filed a case against you in so and so court,
and you will have to pay a certain amount.
These are all fraud cases. They are fake cases and have no validity at
all. Because there was no expenditure on your training, so in such cases, you
are not liable to pay anybody. So now we will understand that if any such cases
arise, how can it be challenged inside the court? by both, employee and
employer.
But before that, we would know about the three negative covenants
that I have told you. What rulings have the courts decided in some of the major
cases. Have they been decided in the favour of employees or in favour of the
employer?
The first negative covenant is resignation before bond duration. The
most important case regarding this has been of SIPCA India Limited vs Shri
Manas Dev. In this case, the company said that Manak Dev will have to work with
us for 36 months. If he resigns before 36 months, he will have to pay Rs
2,00,000 to the company. Manas left his company after two years rather than
working for 3 years. So the company filed a case in the court against Manas
Dev. In this case, the court first asked the company about the actual amount
spent on Manas's training. The company said the amount was Rs 67,000. And Manas
had already worked with the company for 2 years. The court finally ruled that
Manas only needs to pay Rs 22,532 to the company. He did not have to pay Rs
2,00,000 as a penalty to the company.
You may write any amount in the bond. But the actually reasonable
amount, the actual loss that the employer is bearing. Only that much amount
will be payable by the employee. The bond could be mentioning any amount, the
employee doesn't need to pay that amount. A lot of companies, just to keep
their employees in the job, quote huge amounts in the bonds There is no
significant investment on training or grooming of the employees. There's also
no such training which is benefitting the employee at any level. Those
trainings are designed only to benefit the companies.
So, all those cases don't stand valid inside the court and Court always
asks to pay only the reasonable amount, if any such case is accepted in court,
the employee has to pay a reasonable amount. Whatever amount may be mentioned
in the bond.
The second negative covenant is the Post Termination Obligation or the
Non-Compete clause. There are many such cases, I am citing the example of Trigo
Services Limited Vs Kaushik Pal Chaudhary. He had signed the non-compete clause
with his company. Stating that he would not join a competitor for a certain
period. When this case reached the court, the court again ruled in favour of Mr
Chaudhary. And stated that no such clause can be signed by the company. And
this is not the only case. There are many other cases like this too.
For example, Pepsico Food Limited Vs Bharat. High Polymer Limited Vs
R.K. Mukherjee, and there is a very recent case, Lee Passenger to India Tours
Vs. Deepak Bhatnagar.
In all of these cases the rulings mostly come in favour of the
employees. Any such non-compete agreement doesn't stand valid in court usually.
The third negative covenant is the confidentiality clause. Let me give you an
example for the confidentiality clause. Assume there is a professional working
in a sales job profile,
He might think that all the data, clients and leads have been fetched
by me. And so, these are my clients. If I join any other company, I can share
this data with them or I can sell the data gathered by me to any competitor. The
employee is completely at fault for thinking like this. If you are working with
a company & you've signed the confidentiality clause with them, then during
your tenure with the company, whatever data you gather, the latter has the
right over the same.
But in this case, The Head Hunter's CEO Mr Kris has said that all these
cases can stay valid up to a limited time only. That means the confidentiality
clause can stay valid for a reasonable time period only and not perenially. It
cannot be applicable for an indefinite period of time. If someone leaves a job
then up to a certain time limit, you must follow whatever is written in your
bond and as an employee, obey the confidentiality clause.
Now let us understand if, in the name of these bonds, any employer
is harassing you. He has withheld your original documents with him or is trying
to extort money from you, or is forcing you to stay put in the job. What should
be done in such cases?
And what are the Indian legal statutes or clauses that support you
firmly in such cases. Firstly an Indian statute says that any form of bonded
labour has been abolished. Meaning, no agreement cannot coerce you to continue
in any job. At the maximum, upon leaving the company you may be liable for a reasonable
compensation. But no agreement can forcefully keep you in the job. Second,
Article 19 of the Indian Constitution, which is about the fundamental rights, That
allows every person to work with their free will.
So, if any contract stops you from any action, it is a violation of our
fundamental rights. In such cases, the court imposes a very heavy penalty on
the employer. So, if any contract is stopping you from any work, it is a
violation of article 19. Other than this, the Indian Contract Act sees any
one-sided agreement as null and void. Generally, the employment bonds or
agreements are one-sided & mostly favours the employer,
So, As per the Indian Contract Act, such agreements are generally
considered null and void. The Indian Contract Act, Section 27 says all
agreements that stop you from working in your trade or profession, are
considered invalid. A lot of employers also, withhold the documents of
employees such as their Passports, Pan card, Aadhar Card etc. Or keep their
legal documents with them or threaten them to file court cases, that if they
leave the job or do not pay them a certain amount or do not fulfil certain
terms of the bond, they will file a suit against them.
Then, section 368 comes to our rescue. Section 368 of the Indian Penal
Code says that any type of extortion or harm, if you commit after threatening
someone that you would file a case against them, or you have taken someone's
legal documents, and you are extorting or threatening someone, then company's
management or directors can be punished for a minimum of 2 years by the court.
It can be more than that too. Since the company is a legal entity and not a
particular person. So, the company's management, the directors and CXOs, are
liable in such cases. And the punishment is awarded to them, under section 368.
So if any employer, in the name of bond, forces you to stay in the company, harrases
you or confiscates your legal documents and threatens to sue you, then you need
not be afraid at all. If the matter actually reaches the court, Your employer
can be jailed for up to two years.
So, overall, in conclusion, we can understand that if an employer is
spending on your training etc., and against it, wants you to stay with the
company for a reasonable certain period, then his demand is quite reasonable.
And the employer is rightful & justified in doing so. But if this demand is
unreasonable or the amount mentioned in the bond is too big, then it is not
considered valid in the court. No employer can harass or extort you in the name
of the bond. And these online frauds that we come across, where they fool and
threaten innocent employees in the name of bonds, they are not valid at all. Such
people should be reported to the police or complained about in the court. Now,
just don't stop here after reading the article.
Share this article with all your employee friends, so that they become
aware. If you are an employer, share it with your employer friends so that they
create a valid, legal bond or employment contract.