Employee Bond Agreement in India: Understanding its Legality
In India, the concept of employee bond agreements has gained significant attention in recent years. An employee bond agreement is a legal document signed between an employer and employee, typically at the time of joining, which outlines the terms and conditions of employment. The agreement typically includes a clause that requires the employee to serve a specific period with the employer, failing which the employee would be liable to pay a predetermined amount as compensation.
While employee bond agreements have become a common practice in India, there has been a lot of debate around their legality. Some argue that such agreements are not enforceable under Indian law, while others believe that they are. So, what is the truth? Let`s take a closer look.
The Legal Framework
Under Indian law, employee bond agreements fall under the purview of the Contract Act, 1872. According to Section 27 of the Act, any agreement that restricts a person from carrying on a lawful profession, trade or business is void. This means that any clause in an employee bond agreement that seeks to restrict the employee from taking up employment elsewhere or engaging in any other lawful profession or business is unenforceable.
However, this does not mean that employee bond agreements are illegal. Section 14 of the Contract Act states that any agreement made by competent parties, based on mutual consent, for a lawful consideration and with a lawful object is a valid contract. In other words, if an employee bond agreement is drafted correctly, with due consideration to the above factors, it can be legally enforceable.
To ensure that an employee bond agreement is legally enforceable in India, employers must pay close attention to the following considerations:
1. Reasonable Time Period: The period for which an employee is required to serve the employer must be reasonable. While there is no fixed period of time specified under Indian law, courts have held that a period exceeding two years is generally considered unreasonable.
2. Compensation Clause: The agreement must specify the amount of compensation that the employee would be required to pay in case of a breach of contract. The amount must be a genuine pre-estimate of the loss suffered by the employer due to the breach.
3. Mutual Consent: The agreement must be entered into with the mutual consent of both parties. This means that the employee must understand the terms and conditions of the agreement and agree to them voluntarily.
In conclusion, employee bond agreements are legal in India, provided they are drafted carefully keeping in mind the legal framework and the key considerations mentioned above. If an employee bond agreement is not drafted correctly, it can be deemed unenforceable by the courts. Therefore, it is important for both employers and employees to understand the legal implications of employee bond agreements before signing them.