Table of content

• What is an Employment Bond?
• Reasons for its existence!!
• Legality of Employment
• Validity of Employment Bond.
• Challenging enforceability of employment bond.

What is an Employment bond?

An employment bond is a document that includes terms and conditions of employment that have been agreed upon by both the employee and the employer. This type of contract agreement or bond usually specifies the minimum employment period and conditions, such as salary, job profile, and designation.

It is a legally enforceable agreement between an employee and his or her employer that if the employee leaves the company before the agreed-upon term, the employee will have to pay a certain amount to the company. This agreement is usually made when a new employee joins the company.

Reasons for its existence!!

It enables the employer to claim compensation for time and resources spent on training an employee. If a bond is considered a valid contract, the company can go to court. The main reason for an employer to include an employee bond is to prevent the employee from leaving the organization, or from retention.

The legality of Employment Bond.

An employment bond must be a legally binding contract, an employer must make an offer, which must be accepted by the employee.

In India, employment bonds are legal as far as they prescribe a reasonable penalty in case of violation. Nonetheless, the Indian Judiciary has preserved the interest of employees over the interest of employers.

For an employee bond to be valid, the employer should be able to prove that the said bond is necessitated to prevent the diversion of business and because they have invested a certain amount in training an employee. Under Section 27, an employer is not permitted to put a restriction directly or indirectly that forces the employee to work for the employer or restricts the employee to work for a competitor.

Validity of Employment Bond

The validity/enforceability of the employment bond can be challenged on the ground that it restrains the lawful exercise of trade profession or trade or business. As per section 27 of the Contract Act, 1872, any agreement in restraint of trade or profession is void.

The contract with negative covenants is valid and legally enforceable if the parties agree with their free consent, without undue influence, coercion, fraud, mistake, and misrepresentation.

Generally, there are three main types of negative covenants in use surrounding a bond.

1. Duration of Stay with the Firm:

This part of the agreement of the contract fundamentally decides the time period you are going to work with the firm.

2. Not joining competitors after quitting for a certain time period:

It states that for example, a worker in the sales sector is working for an educational publication house where his job is to distribute the books to various clients including students, schools, and other distributors. In this case, if the person is leaving the sales job to join the educational publication house, then he is not allowed to join any other publication house for the next 12-18 months.

3. confidentiality

It states that a person leaving the job cannot share any information with a competitor firm related to data, software, business architecture, terms of service, and various other miscellaneous confidential matters associated with the company the person is leaving.

Challenging enforceability of employment bond.

Courts have generally held that employees’ rights to livelihood must prevail over employers’ interests, notwithstanding a pre-existing agreement between the two.

The compensation awarded should be reasonable to compensate for the loss and should not exceed the penalty.

Bonded labor is a violation of human rights.

There are mainly two factors upon which the employment bond can be challenged mentioned below-

1. 27 of Indian Contract Act:

Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void. Exception 1. Saving of agreement not to carry on the business of which goodwill is sold.

 19 (1)(g) of the Indian Constitution:

Protection of certain rights regarding freedom of speech etc

(1) All citizens shall have the right

(a) to freedom of speech and expression;

(b) to assemble peaceably and without arms;

(c) to form associations or unions;

(d) to move freely throughout the territory of India;

(e) to reside and settle in any part of the territory of India; and

(f) omitted

(g) to practice any profession, or to carry on any occupation, trade, or business

 Note: The content of this article is intended to provide a general guide to the subject matter and the same shall not be treated as legal advice.