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An Employment Bond is an agreement between an employer and employee defining employment terms including a stipulation that in consideration of providing training to the employee and the amount spent on giving this training, the employee will have to remain in the service of the employer for a specific period of time.
In case the employee violates this term the bond, they will become liable to indemnify the employer for the costs incurred on the training imparted. Employment bonds are generally used to maintain confidentiality, enforce a non-compete clause, get reimbursement for the expenses incurred on the employee’s training, etc.
Another important object of an employment bond is to retain a trained employee for as long as possible. This is done in order to ensure that the resources and time of the employer are not rendered meaningless in training with no benefits derived due to early resignation by employees.
It has to be ensured that the period for which the bond is in effect to not an excessively long period and the amount of such reimbursement is not more than the actual amount spent by the employer on training the employee.
In India, employment bonds are legal as far as they prescribe a reasonable penalty in case of violation. Nonetheless, the Indian Judiciary has preserved the interest of employees over than the interest of employers. Keeping in mind the provisions of Indian Constitution and the Indian Contract Act, 1872, the courts upheld that the right to livelihood of an employee prevails in spite of an existing agreement with the employer.
Contrary to this, Article 21 of the Constitution gives the right to privacy to the employer and the courts are required to assimilate partial or complete restraint on the employee based on any similarity or diversification of work which may affect the employer’s business. An employment bond cannot be challenged in the court if the terms of the bond are reasonable and valid, and have been executed by mutual consent of both the employer and employee without any force or coercion.
The restraints can be enforced only when the employee is in the service of the employer and cannot be implemented after the employee has left the employment. However, the stipulation non-disclosure of confidential information and non-solicitation of customers and employees would remain in force even after termination of employment.
Similarly 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 they have invested a certain amount in training an employee. Under Section 27, an employer is not permitted to put a restriction directly or indirectly which forces the employee to work for the employer or restricts the employee to work for a competitor.