Employment Bonds are within employment contracts or in simple terms, a bond within a contract issued by an employer to an employee which states the terms and conditions of the two parties working together. It includes additional clauses or a time period, indicating for how long an employee should stay with the company. If the employee does not uphold his or her end of the contract, then he or she would be required to refund the amount stated in the bond.
In this current economic environment, businesses incur huge expenses in the form of training and prepping of an employee to ensure that they always produce the best quality or services or goods. Competition is also a factor that pushes companies toward better quality or workmanship of its employees. With today’s attrition rate being as high as it is, the employer, for the general and smooth running of the entire company needs to ensure that an employee leaving does not abruptly affect it in any way. The loss faced by an employer is often overseen, reality is that with every employee leaving, the company has lost valuable time that was invested, training period provided, expenses on resources, faces delays in projects, financial loss and if all is worse, even reputation may be lost. To save an employer from everything mentioned above, employment bonds are used.
Validity Of A Bond
Just like all other bonds, the Employee Bond’s validity depends on the circumstantial evidence. Section 27 of the Indian Contract Act, 1872, states that any agreement made in restraint of trade and profession is considered void.
For an employee bond to be valid, the employer should be able to prove that the said bond is necessitated to prevent diversion of business, and because he has invested a certain amount in training an employee. Basically, under section 27, an employer is not permitted to put a restriction, directly or indirectly forcing the employee to work for the employer or restricts the employee to work for a competitor.
As per the Bonded Labour System (abolition) Act, 1976, bonded labour is outlawed. No person shall be required to stay for a particular tenure at a company out of compulsion.
Example: A company may require an employee to pay a lump-sum amount in case the employee decides to leave the company before the end of a 2-year contract, which the employee signed. Such agreements cannot be legally enforced and are usually ignored by employees.
In some cases, the company may withhold important documents and/or the full and final settlement of the employee. The company is not allowed to do so if an employee leaves an organisation.
An employee can leave or resign a company even after signing an employment bond to serve for a particular time. Any restriction imposed on an employee that compels them to work for a time period or restricts them from joining a competitor is void under the Indian Law.
Such restrictions are:
- Restriction on joining a competitor.
- Restriction on joining another employer.
- Compelling the employee to work for a certain period.
It is important to note, the government has kept in mind the pressuring tone of an Employee Bond and has given the employee to walk out of a company even if he or she has signed a bond that states a fixed period of time to work.
What Must A Valid Employee Bond Contain?
- The bond should be signed by both parties with mutual free consent. (In some practices, witnesses are also present and are required to sign in the document.)
- The conditions stated (time and compensation) must be reasonable.
- In order for an employment bond to be enforceable, it has to be executed on stamp paper of appropriate value.
- The employer should be able to demonstrate the amount of time, money and technology spent on training the employee.
- Not a must, but should generally include a confidentiality clause.
Why An Employment Bond Is An Employer’s Best Friend?
Apart from saving the employer from losing time and money on training and grooming an employee, the Employment Bond also protects the interest of the employer with respect to protection of trade secrets.
In other words, if the employer can produce an Employee Bond mutually signed by the employer as well as the employee, and said employee poses a potential threat to the company’s well being, the employer can hold this Bond as a way of securing his company’s information.
Breach Of Contract
An employer can avail of a compensatory amount only in case of dispute or breach of contract by an employee. A suit would be filed at a court in case the employee doesn’t pay the amount stipulated in the contract. The court will then deem if the terms and conditions of the contract are appropriate and reasonable. If they are, then the amount refunded shall be equivalent to reasonable expenses incurred by the employer on training and skill development of the employee.
In case an employer has unreasonable and undefined clauses in an employment bond, then a court shall deem the bond to be void and the employee would be independent of such bond.
An employment bond is reasonable because it protects the interest of the employer. 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 organisation, or retention. Yet, this does not encourage an employee to stick with the organisation. A bond does not encourage, but rather discourages employees from staying with the organisation. In this day and age, it is important for an employer to understand the factors that affect retention and address those factors. Instead of an employment bond, the company should offer positive alternatives to employees such as structured employment contracts, structured salary, compensation, employee growth, etc.
If you are an employer in need of employment bond, then click the button below and submit your request. You can draft your documents using our ready to use legal documents which you create your document online for your personal and/ or business use.