Employment Bonds: A Guide to Understanding and Drafting

by  Adv. Priyanka Sampathy  

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Employment bond

Introduction

  • An employment bond is an agreement that defines the terms of employment between the employer and the employee.
  • It mentions duties, responsibilities, rules, and regulations for joining a company under the employer and contributing to their production.
  • A stipulation is included in consideration that the employee is being trained and a certain amount is being spent during the training process.
  • The enforcement of employment bonds for suitable employees is increasing rapidly regarding privacy concerns and skill training to increase company production.
  • The employee must work under the employer for a time specified in the bond or refund the training cost and expenditure.
  • The employee must provide services to the employer for a specified duration.
  • If an employee violates the bond specified duration, they are liable to pay for the incurred training charges.

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Employment Bond

  • An employment bond is used for maintaining confidentiality, a non-compete clause, and getting the training costs reimbursed in case of any violation by the employee.
  • Reserving the trained employee for a specified time is also a vital object in the employment bond, as the training should not be rendered without any meaning or lucrative production for the company.
  • The specified duration should not be exceptionally long, and the amount of liability or reimbursement must not exceed the definite training amount spent by the employer.
  • In India, the legality of employment bonds is ensured only if the penalty is not unreasonable in case of violation of terms and conditions. 
  • According to the Indian Contract Act, the rights and interests of an employee are upheld more than that of an employer, as the livelihood of an employee cannot be bound by any means. It will prevail, even if an existing contract with the employer exists.
  • Under Indian law, agreements with negative covenants are legally valid and are enforceable only if they were decided by the parties involved having mutual consent over the matter.
  • It is not valid legally if any traces of fraud, coercion, influence, or misinterpretation are found. The employer or the employee can contact a lawyer online to understand each clause elaborately.
  • Similarly, employment bonds are also the contract of employment with negative covenants.
  • According to the law, the employer will be reimbursed in case of violation of the contract by the employee only if the refund amount is of considerable value. The employment bond should be reasonable to make it valid and legally enforced.

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People Also Read: Legal Action Against Employee Not Serving the Notice Period In India

Challenging the Enforceability of Employment Bond

As defined by Section 27 of the Indian Contract Act 1872, the employment bond can be challenged under the prohibition of any restraint of professional and trade as this is void under Section 27.

The terms and conditions mentioned in an employment bond may compel the employee to provide compulsory services or restrain the employee’s livelihood by not allowing them to join other rival companies or any other employment is not allowed.

The employee has the power and right to resign if the stipulated time duration is completed.

There are a few requirements for a valid employment bond:

  • The employment contract must be signed and reviewed by both parties under free mutual consent, i.e., no fraud, forgery, or coercion is involved while forming an employment bond. Contacting or seeking advice from a lawyer online will help reduce any risks involved, as the parties can understand each component thoroughly.
  • The terms and conditions stated in an employment bond must be reasonable, and the employer has to provide enough necessary material to prove the reason for the conditions imposed on the employee to refrain from violating the company’s confidential information and interests. This will safeguard both the employer’s interests and the employee’s interests.
  • Executing the employment bond on a stamp paper of an appropriate value is necessary to make it legally valid and enforceable.
  • The period mentioned must be reasonable, and the employee must not be forced to work under the employer after the specified duration. It is the choice of the employee to join the company again.

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An employment bond is employer-friendly

  • An employment bond can be very useful to employers as fresher employees tend to quit jobs in a few months, leading to the company’s expenditure wastage.
  • It is to safeguard the interest of the company and employers and to protect the trade secrets and confidential information of the company.
  • The employer is spending money and time on the newly hired employees to train them for the better production quality of goods and services. 
  • By any chance, if the employee poses a threat to a company’s image or success and breaches the employment bond that both parties mutually signed, the employer can file a case in a Court of law against the employee to receive compensation or for restraining the employee from leaking confidential data of the company.
  • The employer can demand a compensatory amount in the case of a violation of the employment bond. A lawsuit will be filed in the Court of law if the employee fails to compensate the desired amount, which is reasonable under the terms and provisions of law. 
  • The Court then shall decide if the terms and conditions mentioned in the employment bond are considerable and appropriate.
  • The amount compensated will be equivalent to the sum of the money spent by the employer to train and improve the newly hired employee.

Conclusion

In today’s business world and companies, an employment bond is useful to protect the company’s rights and the employee’s rights and free trade options.

This contract acts as a prevention to the employees who get trained and then resign without completing the required jobs and services. It ensures the stability of the company’s productive measures and the economic efficiency of its business.

The complexity of today's business structure has led companies to protect their rights and interest through employment bonds which discourage any unnecessary investment in employees. It is prepared with a negative covenant. Consult a lawyer before entering into any contract to understand every formality and clause which may cause future litigations.

Adv. Priyanka Sampathy

Adv. Priyanka Sampathy

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Priyanka Sampathy is a legal consultant who prioritises ethical and professional conduct while striving to achieve desired outcomes. With over 15 years of independent practice, she has significant expertise in handling legal cases. Her exceptional communication skills enable her to express arguments in a clear and persuasive manner, both in writing and verbally, in Hindi, English, and Telugu.

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