You got a new job, but your company has made you sign a bond saying that you cannot quit the job before a period of one year or else you will have to pay two lakh rupees to your employer.
What are the legal provisions you should know about to get out of this situation? Figure that out ahead in this blog.
This is a situation faced by many young professionals. Bonds or agreements like these are often used by employers to retain employees for a certain minimum period. Employers induce fear in the minds of the employees. Sometimes, the employer may also use this as a strategy to extort money from the employee to get back at him. Little do the employees know that many times, these bonds are not legally enforceable.
Go to the end of the blog to read our tips and suggestions.
This blog post focuses on explaining laws related to contracts to help people stuck in such situations.
Table of Contents
- Whether such bonds are valid in India?
- Bonds are only enforceable when there is a valid consideration
- Can you resign without worrying about paying the penalty?
- What if the employer asks for a cheque without a date? Is that going to be a problem?
- Remedies available to you in case your employer holds your salary or any documents
- Tips and suggestions by Lawbriefcase
Whether such bonds are valid in India?
These bonds are agreements. Agreements are dealt with under the Indian Contract Act, 1872 (hereinafter referred to as the “Contract Act”). For these bonds to be valid, they have to fulfill the conditions laid down in Section 10 of the Contract Act.
Therefore, the validity of the bond has to be assessed in every case.
This blog post will teach you how to assess the validity of such bonds.
Bonds are only enforceable when there is a valid consideration
The bond is valid when there is a valid consideration as per Section 10 of the Contract Act mentioned in the bond. A good example of a valid consideration would be when the employer has spent money on some special training of the employee, or when the employer has given some stock options or share equity to the employee. The valid consideration has to be mentioned clearly in the bond.
Stock options are usually known as Employee Stock Option Schemes (ESOS). Mere mentioning in the bond that the employee has stock options does not make it a valid consideration. The employee must exercise the ESOS, only then can the valid consideration come into existence.
It has been clearly given in the case Sicpa India Limited v. Shri Manas Pratim Deb RFA No.596/2002, the plaintiff had incurred an expense of INR 67,595 towards imparting training to the defendant. For the same, an employment bond was executed under which the defendant had agreed to serve the plaintiff company for a period of three years or to make a payment of INR 2,00,000. The employee left the employment within a period of two years, the employer went to the court. The court awarded the compensation of INR 22,532 to the employer for the breach of contract by dividing the expenses incurred by the employer and the number of years the employee had worked in that company.
A circumstance when the bond is not valid
The bond is not valid when there is no consideration mentioned in the bond that specifies the amount spent for the training purposes of the employee. For a valid bond, there must be a valid consideration. Without consideration, the bond is not valid. The employer cannot force or threaten the employee to work in their company.
Can you resign without worrying about paying the penalty?
Of course, you can resign from the job when the bond is illegal.
You just need to give a proper resignation letter to the person in charge.
Check the bond you signed and see if the following essentials are present:
- Free consent of parties
- Competency to enter into a contract
- A lawful consideration
- A lawful object/purpose
- The contract is not illegal due to any law in force
All the above essentials have to be present in the bond signed by you for it to be legal. Even if one of the essentials is missing, the contract cannot be called a contract. It will be a mere agreement that cannot be enforced in court and is, thus, not valid. And voilà! You’re free to resign.
If anyone tells you that you are getting paid and that is a valid consideration, then tell them that your salary is against the work you’re doing for the employer—that’s a separate contract altogether. There can be no term in this contract of employment that restricts you from exercising your right under Article 19(1)(g) of the Indian Constitution, 1950. Article 19(1)(g) lays down your fundamental right to freedom of trade and profession.
Always keep a copy of the bond. It is your right to have one.
However, do keep in mind that you’ll most likely have to serve the notice period you agreed to when signing the job offer. But the bond that imposes a penalty for leaving early must have valid consideration to be upheld by the courts.
According to Section 27 of the 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: When someone sells the goodwill of a business, they may agree not to carry on a similar business within specific limits, so long as those limits are considered reasonable by the court.
This means that your employer cannot stop you from doing a similar job elsewhere.
What if the employer asks for a cheque without a date? Is that going to be a problem?
Never give your employer a cheque. They do this to sue you under Section 138 of the Negotiable Instruments Act, 1881.
However, if they insist, at the very least, you should get them to sign a paper that clearly states the purpose of the cheque and that it bears no date.
Some companies take blank cheques when employees join and later use them to file legal cases.
The employer can sue the employee under Section 138 for cheque bounce or insufficient funds. To know more about this, you can read this: https://docs.google.com/document/d/17SrER3on9OnX7QRJyZDFErFS_vtGWSSIO9kSctGuc_8/edit?tab=t.0#heading=h.7q17x2z0bq0l
Always mention the purpose of the cheque in writing. This limits the employer from misusing it in the future.
Remedies available to you in case your employer holds your salary or any documents
You can file a criminal complaint against the employer for fraud and extortion under these sections of the Bhartiya Nyay Sanhita, 2023. You can go directly to the police station and lodge an FIR.
If your bond is illegal, you can quit the job without worry. If your employer is holding documents or salary, you can file a criminal suit under:
- Section 308 – Extortion
- 318 – Cheating and Fraud
Even if the police hesitate, ask them to record your complaint under these criminal sections. If they still deny, go to the DCP office and submit a written complaint.
You can also take help from your State Legal Services Authority for free legal aid.
Tips and suggestions by Lawbriefcase
- Do not sign a bond if it does not have a valid consideration, even if it costs you the job.
- Do not give a cheque to your employer. If you must, get it in writing that the cheque is undated and for a specific purpose.
- Do not hand over your original mark sheets or documents.
- If threatened, go to the police. If they say it’s a civil case, assert the charges under Bhartiya Nyay Sanhita, 2023 for extortion and cheating.
- Never hesitate to protect your rights. Employers cannot win such cases easily.
