How to Handle a Service Agreement Break When an Employee Faces Genuine Personal Reasons?

Hello Everyone!!!

I am working in an IT company as an HR executive. We have a service agreement for the freshers who recently joined. They have completed their probation. Now, one of our employees wants to break the agreement with a genuine reason - her spouse is getting transferred to the US, and she has to go with him.

In such a situation, we have to allow her to break the bond, but we cannot let it go without any penalty; otherwise, it could create trouble in managing other people under the agreement. Please suggest what could be done so that it does not sound harsh on her, but at the same time, it should be acceptable to the management.

Hope for some replies.

Regards, Neha Khale

Hi Neha,

Since that employee has a very genuine reason, I don't think this should create any kind of problem for any of the employees. The best you can do is take a written statement explaining why she is leaving the company, along with the necessary proofs such as a copy of her VISA and tickets.

In that case, the other employees would not mind, and no one would misuse the same reason for the wrong purpose.

Chitra

Hi Neha,

Frankly speaking, you cannot do so if she has informed regarding going abroad with her husband. Signing a service agreement is just a psychological fear created in the minds of employees. You have to follow a long legal procedure, and without doing this, you cannot ask for any harsh treatment. The best way is you need to create a multi-skilled staff in your organization to take care of urgent needs for the organization.

In some cases, who knows, she is really going abroad with her husband or going to join some other company. In this case, new employers have paid the penalties and taken away the staff. The best approach is to let her go, and there is nothing that you can do about this. It is a very long process and time-consuming.

Regards,
Mahesh K Prasad
9820775178

Thanks, Guys,

Though she has a genuine reason, it impacts the entire recruitment and training process. Being a Subject Matter Expert (SME), it holds significant importance. She has a genuine reason; perhaps other students might follow suit and start looking for alternative job opportunities. This could pose a problem for us in the future. Is there a middle ground to resolve this issue without coming down too hard on the employee?

Regards,
Neha Khale

If you permit one to break the bond, others will also expect a similar waiver. The matter may be genuine. You cannot have two policies within the organization. But at the same time, what is the significance of an employment bond? Suppose an employee proves that by training him for a year or two the company had incurred nothing as cost but instead the organization had gained a lot by way of him, the bond is not going to stand. And you will be constrained to relieve him without any penal charges because the right to work anywhere as he likes is a fundamental right conferred on him and you cannot hold him. Normally, employment bond is just to avoid unnecessary attrition and it is justified in such cases where the training involves huge expenditure on the part of the employer. Therefore, if you feel that the reason for leaving is genuine, relieve her without giving much publicity among the other employees that no penalty has been recovered.

Regards, Madhu.T.K

Hi Neha,

The answer to your new question is to make employees multi-skilled and proficient in multitasking through training. This is crucial considering the high attrition rates in the IT industry.

Furthermore, service agreements often do not serve a significant purpose; they generally instill psychological fear, and their effectiveness largely depends on what is outlined in the employee's appointment letter.

Regards,
Mahesh K Prasad

Hi Neha,

I have also come across a similar situation. In these scenarios, we have gathered proof of the candidate's travel documents and the expenses incurred during the candidate's training. It has been observed that the departing individual effectively transfers knowledge to team members, ensuring a smooth handover process.

As a precautionary measure, in one instance, we obtained an agreement from the departing individual stating that they would not pursue a similar role with a competitor in India for the next two years. Additionally, we included a penalty clause in the agreement in case of a contract breach.

I hope the above information provides a solution.

Making an agreement to the effect that the person relieved will not take up an employment of similar nature with a competitor will sound as 'unfair labor practice' and will not stand in law as such agreements are voidable. It is a fundamental right of a person to choose a job he likes, and he alone can decide where or with whom he should work. Therefore, it is always desirable to keep away from such agreements/contracts.

Regards, Madhu.T.K

Dear Neha Khale,

Hello Everyone!!!

I am working in an IT company as an HR executive. We have a service agreement for the freshers who recently joined. They have completed their probation. Now, one of our employees wants to break the agreement with a genuine reason that her spouse is getting transferred to the US, and she has to go with him.

In such a situation, we have to allow her to break the bond, but we cannot do so without any penalty; otherwise, it could create trouble in handling other people under the agreement. Please suggest what could be done so that it doesn't sound harsh on her, and it is acceptable to the management as well.

Hope for some replies.

Regards, Neha Khale

Very simple. Inform her that since the decision to break the service is hers, it is solely her responsibility to accept the conditions outlined in the service agreement. In a company, such genuine reasons can arise repeatedly. Therefore, please do not escalate it into an issue and resolve it following the conditions set in the service agreement.

DPS Chauhan

The management always reserves the right to condone any penal clause or action. You can proceed; however, for safeguarding the future, you can request an application from her, and based on that, you can condone without creating any precedence in the future.

Hi friends,

I have encountered a great problem. I attempted to communicate with the individual who is breaking the bond, but she is not interested in making any adjustments. It seems that if she does not reach a settlement, it will encourage others from the same college who are under the bond to seek relief from the services. Please, please, let me know what I should do to persuade her to agree to some form of settlement.

Regards, Neha Khale

Hi Neha,

I have tried to let you know certain steps in my below replies. However, presently it is difficult to comment further since we are not exactly aware of the contents of the agreement. If we know the details, you might receive some strong advice from group members. It is appropriate at this point in time that you must seek some legal advice before it gets further complicated. I have gone through similar situations in my company in the past.

You may please provide your telephone number so that we may help you and share the details of our advocates who handled our case in the past years, or you may contact me on my cell: 9820775178.

Regards,
Mahesh Prasad

Hi Neha,

Is the employee asking for a relieving letter? A relieving letter is very important in finding a job. If the employee wants to leave without a relieving letter, let her go. I am sure her classmates would not follow suit as they would need it for future jobs.

If she asks for a relieving letter, in full and final settlement, you can ask her to pay the bond amount. If she is not willing to go for final settlement, don't relieve her. Let her go if she wants without getting relieved...

Hope this will help a little.

Regards

Hi Neha,

On humanitarian grounds, you can let her go. However, this should not become a regular practice. Develop a policy that allows for the release of any employee in exchange for a notice pay. You should not compel anyone. What does your policy state regarding this matter?

Thank you.

Hi Neha,

Only Mahesh has provided you with the best solution: under no circumstances can you stop your employee from leaving, unless you have a service agreement registered with the respective sub registrar. This is a very complex affair, and none of the organizations venture into this process. So, it is best to say goodbye to her with a big "cheese"!

Thank you, everyone,

I am really glad to have received many replies. I will surely get in touch with you, Mr. Mahesh, as this is indeed a serious problem. If we relieve her from the duties without taking any action, it implies that the bond is merely another piece of paper.

One of our colleagues inquired about the terms mentioned in the bond. It states that the person breaking the bond is required to pay an amount of Rs 50,000 to be relieved from the duties and will not be provided with any relieving benefits. She does not desire any relieving benefits or anything else. I believe it may be better to follow legal procedures and ask her to settle the matter through the court.

Thank you all once again.

Regards, Neha Khale

Dear All,

I am also facing a similar situation. One of our employees got a Govt. job and requested to be relieved at the earliest. After discussing with the management, we decided to cancel the agreement and relieve him, but asked for a 15-day notice period (as per policy it's 30 days). He is not ready for that and told us he needs to join on 1st July.

Friends, please let me know your opinion on this case and guide me to make a decision without causing trouble to other employees.

Regards,
Binu

Dear Nehakhale,

Generally, all service agreements have a clause that mentions an amount called Liquidated Damages, which the employee has to pay in case they breach the agreement for any reason whatsoever. Please check your agreement document to see if it mentions a liquidated damages amount. If it does, then the employee should pay that amount.

If there is no such provision, the amount can be negotiated mutually. However, be cautious in deciding it as the agreed amount will become a sort of precedent.

Thank you,
Mohan

Since the employee is leaving with the spouse, there is little you can do! The employee will leave anyway, no matter what! So it would be a good idea to relook at your bond clauses for future similar incidents.

Dear Neha,

I am afraid that by believing that her reason is genuine and waiving off the bond, you will be making a mistake that will cost you much more. Tomorrow, another person will come up with a reason, saying that their mother is sick, so they need to take care of their mother and hence want to move to another company closer to their hometown. Another person will come up, stating that they have an eye problem which prevents them from working long hours in the IT industry, and therefore, they want to make quick money by moving to a higher paying company. Can we say that any of these reasons are not genuine? Someone might want to pursue higher studies, some may want to join their spouse, etc. There can be a host of genuine reasons.

I would suggest that you either decide not to have a bond/agreement or if there is a bond, follow it judiciously. Waive it only for serious medical reasons that disable the employee from continuing to work. Otherwise, you will end up having an agreement in name only and still lose people, causing frustration for managers due to the wasted time spent molding trainees.

You can enforce the agreement and still maintain a human touch. For those who request waivers, I have clearly stated that I can understand their reasons from a personal perspective, but from an official perspective, regardless of the reason, the loss of the trainee equates to a loss of time, effort, and money invested in their training.

In this particular case, if you wish to be lenient, one suggestion would be to obtain an undertaking from the employee that they will not work for another company for one year or until the end of the agreement period and/or provide a relieving order after the agreement period.

I hope this helps clarify the situation.

Best regards

Hi,

One of my friends is working in the Service sector (ITES) and has a service agreement with the company. She wants to shift her career to higher studies and wishes to resign from the job or break the agreement.

How will it affect her?

Please reply immediately.

Dear Neha,

The point you have raised is quite interesting, considering the current scenario of job hopping among employees.

As HR professionals, we should understand that we need to be proactive in preventing such incidents. We are trying to make people stick with us by doing something that, in my opinion, is unethical and should not be practiced. Why can't we create a better working environment where people stick around and take pride in associating with us? Why can't we convince the higher authorities about attrition and the related issues by delving deep into the actual reasons for attrition? Why can't we develop a recruitment procedure where a prospective candidate is evaluated against a set of variables derived from the organization's values and systems? Why can't we work for an organization that is both system-centric and people-centric? Are we facing these issues because we are incompetent in developing such a system?

I know I have asked a lot of questions, but I believe these are the areas on which we really need to focus, considering the current scenario in its entirety.

Regards,

Rakesh K

Dear Neha,

Legally speaking, a breach is a breach unless it is due to circumstances beyond one's control. While I agree with Mahesh's view that the legal process is lengthy, and these service agreements are primarily intended to instill fear, your organization should seek specific quantified damages from the individual. This quantified claim must be well-founded and supported by reasoning. I suggest involving your accounts department to determine a fair figure. Request this amount in addition to the regular salary she is obligated to pay, such as salary in lieu of the notice period.

I recommend contacting her spouse and meeting with both individuals to discuss the situation. While I acknowledge everyone's right to work and earn a livelihood, it is essential for organizations to uphold their dignity, and no one should exploit them.

As a legal professional, I would have demanded a complete refund of the salary and benefits paid to the employee.

Regards,
Marine Lawyer

Every individual, when giving an undertaking, is aware of the conditions stipulated therein. Therefore, everyone signs it when he or she needs a job.

The reason for leaving may be genuine from your and others' viewpoints; however, there could be hundreds of other genuine reasons as well. Once subjectivity is introduced, it becomes difficult to enforce any policy objectively, and exceptions start to become the rule.

Please consider the following:

1. In case a person leaves without notice or with notice, is your organization in a position to pursue legal action? This is a very important consideration as the policy is formulated only after this decision.

2. What is your HR head's position in such matters? Do you generally make exceptions?

3. Your workload increases with each exception made, as more and more such requests come in, and you need to keep records and explanations for each case regarding under what circumstances such exceptions have been made.

Ultimately, what is the objective of taking such an undertaking or bond? It is to ensure that employees work for a certain fixed tenure without your intervention.

In conclusion, politely and firmly communicate the company's stance to the employee and enforce it. Recover the dues as per the bond. This will reduce your workload in the future and perhaps help the employee organize and meet the terms of the undertaking. I am confident that you and your finance department have already worked out the liabilities due in such cases.

All the best.

Hi everyone,

Thank you for a lot of suggestions. I agree with the points mentioned by all, but at times, the situation arises which is a bit hard to articulate completely. As a result, someone else may not be able to empathize and put themselves in others' shoes.

People who have already faced such situations can help understand the situation better.

I agree with those who say that the service agreement is just a bond to instill fear, but what if someone is not afraid and breaks it? What should be done in such a scenario? If no action is taken, what guarantees that others under the same bond won't do the same?

If we do not take any action against such cases, what is the significance of those legal papers?

I tried contacting her, but neither she nor her husband responded. The action I took was sending a legal letter to her. As a result, she won't be able to fly with her husband until she makes a settlement.

I hope I haven't been too harsh on her.

Please provide your suggestions.

Regards,
Neha Khale

Dear Neha,

I don't think you have been harsh by sending a legal notice. At the time of signing the agreement itself, the lady might definitely have thought about what she would do if her marriage is fixed with an outsider. If she didn't have long-term plans, she should not have signed the agreement. For the sake of entering a job, you sign an agreement and later when you want to break it, you want HR/organization to be humane, which is not just. Just like she has her own constraints, the organization has its own constraints/requirements because of which it is keeping such policies.

Also, one more point. I hope the agreement is not for a very long duration. I personally feel 2 years is the best, or 3 years maximum. You should not try to bind anyone for more than that. On one side, personal plans cannot be made for 3 years and above duration. Till 2 years, a little predictability will be there. On the other side, a maximum of 6 months is needed to train a person to make them billable. So, from the 7th month onwards, they are billable, and you are earning revenue. It is not fair to penalize if they leave after one to one and a half years of revenue earning for the company.

Thank you.

Hi,

My sister joined Hexaware two years ago. She signed a two-year bond but after one year, she was unable to continue the job. Suddenly, last week, we received a letter at our address asking us to pay a sum of Rs. 2,40,000. Could you please advise on how to handle this problem? Do we need to consult a lawyer? Your suggestions will help us react accordingly.

Waiting for your valuable input.

Thanks in advance.

Thanks,
Pk

Dear PK,

Please do not bother too much about such notices, kindly scan and send them to me. I will assist you with this. Additionally, if you have a copy of the bond, please scan that to me as well.

Regards,
Marine Lawyer