The employer-employee relationship is very crucial when it comes to any employment bond that an employee has signed while joining the company. Usually any fresher who is looking for a job would require training when that fresher joins any new company without any previous experience. In such scenario, the company’s invest their time and money in imparting certain training for the skill development of its employee basically to get a competitive edge against their competitors. The employment bonds, are usually an answer to such expenditure incurred by the employer on a particular employee which is clothed with a negative covenant.

What is Employment Bond?

Employment Bond is a contract between an employer and an employee with a negative covenant. Whenever there is an employment bond, it would consists of clause mentioning the minimum time period required for any employee to remain employed with the company and if there is any violation of the time period agreed, that essentially would result in payment of a specified amount of compensation required to be paid by the employee to the employer as per the terms signed in the agreement.

Validity of Employment Bond?

The main question that needs to be understood is whether such negative covenant agreements are even valid and enforced by the Courts in India or not. Let us first examine as to under which situations would this kind of employment bond are valid:-

1. Employment Bond is required to be signed on a stamp paper for it to be valid and enforceable.
2. The Agreement/Bond must be signed with free consent and without force, coercion, fraud or misrepresentation.
3. The terms must be reasonable.

Resignation permitted?

Main question which requires to be addressed is whether during the subsistence of this kind of employment bond agreement, can a employee resign? The answer is Yes they can resign but if the resignation is allowed, what would be the consequences? The consequences actually would depend on the terms of the agreement and the expenditure incurred by the employer on the employee and other facts would be relevant i.e. tenure served by the employee, etc.

Supreme Court has in the case of Sicpa India Limited v. Shri Manas Pratim Deb directed an employee who breached the employment bond after assessing the stipulated damages incurred by the company considering the training expenditure and the reasonability of the time specified in the agreement. The actual loss suffered by the employer was directed to be paid by the employee.

Another point considered by the Supreme Court was if such clauses are hit by Section 27 of the Indian Contract Act, 1872 or not. If the clause is majorly one-sided and is in retrain of trade then such kind of agreements have not been enforced by the Courts and such agreements are declared as null and void in tune with Section 27. No injunction in such cases is granted by the Courts anywhere. This view has been upheld in Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan and Anr where the Supreme Court held that a restrictive covenant which extends beyond the tenure and terms of the agreement is void and non-enforceable. Reference can also be made to Niranjan Shankar Golikari v. Century Spg & Mfg Co. Ltd where the test to determine the validity of such restrictive and negative covenant vis-a-vis Section 27 of the Indian Contract Act was discussed and it was held that “A negative covenant that the employee would not engage himself in a trade or business or would not get himself employed by any other master for whom he would perform similar or substantially similar duties is not therefore a restrain of trade unless the contract as aforesaid is unconscionable or excessively harsh or unreasonable or one sided”.

Thus, the employment bonds though can be valid and enforceable however for that it should not be against the basic principles and must not unreasonable while putting restriction for doing any trade or business. The conclusion would though majorly depend on the facts and circumstances of a particular case and how effective it can be proved whether a condition which is alleged to be violated is a negative covenant falling in the realm of being null and void or not.