Is It Fair to Pay a Year's Salary for Resigning Early? Seeking Advice on Contract Clause

Hi friends, please guide me on what to do when your employer has mentioned in your appointment letter as follows: "You are not allowed to resign before 12 months of your employment in our organization. If you do so, you have to pay 12 months' salary as compensation towards training imparted to you." The employee has signed the appointment letter as well without reading it carefully. Please assist.

Thanks.

Dear Pramod, there are a few things to keep in mind in such situations.

Validity of the Contract

1. Any contract that violates your right to seek employment is void.

Validity of the Compensation Amount

2. There cannot be an ad hoc amount like 12 months' salary as compensation. There has to be a link between the cost incurred on training and the compensation. Also, consider factors like whether there was any actual training imparted or if it was on-the-job training, etc.

Effects of Resigning with or without Payment of Compensation

3. In case you resign without paying the compensation, understand that you will not be given your relieving letter. Also, the company could always mess up a reference check.

The question here is, even assuming that the contract is void, do you have the time, energy, and money to take the company on in a court of law?

There are a lot of cases of such incidents being posted on citehr. In view of this, my advice is firstly, do not sign such agreements. When prospective employees refuse to sign such contracts, the occurrence of such will reduce.

I know a lot of members will point out the lack of bargaining power. But understand one thing well; it is better to be refused employment in a firm with such practices than to be stuck there after joining. Understand that in most cases after you join, you have even less bargaining power.

Regards,
Savio

Savio, thank you very much. However, I have already signed the appointment letter and, after 15 days or so, I realized what terms and conditions are mentioned in the document. No actual training has been provided to me; it is just on-the-job training that I am going through. I do not have the resources to take the company to court.

Question: Leaving the Company Before 12 Months

Now, the question is: what should I do if I want to leave the company before completing 12 months? What would be the consequences, and how should I handle the situation? Your advice is requested. Thank you.

Regards

Dear Pramod,

Consequences of Resigning Early

1. You will not get a relieving letter.
- I assume that you have another job offer, and that is why you want to leave. You need to check with your future employer if it is okay with them that you will not get the relieving letter.

2. You may receive a legal notice asking you to pay compensation.
- In case you receive such a notice, get a lawyer to file a good reply pointing out that they have no grounds to demand any kind of compensation.

3. They may ruin any future reference checks.
- There is not much you can do about this except accepting this risk.

I suggest that you read every word before you sign any agreement in the future. Sign only if you are comfortable with all the terms. It's not a good thing to sign the agreement because it's a tempting offer and then start searching for a loophole.

Regards,
Savio

One more thing I wish to discuss is that the clause of NOT RESIGNING FROM THE COMPANY before 12 months is just on the Company Letterhead and not on the STAMP PAPER DULY ATTESTED by a NOTARY. As far as my knowledge goes, it has no grounds to take any legal action against me, and bonded labor is also VOID in India. No employer is allowed to hamper the growth of any employee in any way.

Please suggest if I am right or wrong?

Thanks

I would like to know a few things which will help me give you the best advice:

1. Is this your first job?
2. What have you been hired as?
3. What kind of role was offered to you in your current organization?
4. What kind of role are you looking for?

As far as the agreement being on a letterhead is concerned, it is as valid a paper as a stamp paper.

Regarding the terms of the agreement, I have explained their validity in my first post.

You have two options to choose from:

1. You complete a year here before you leave this company. This way the clause won't apply.
2. You leave this company before you complete a year and pray hard that they don't drag you to court to recover the compensation.

Irrespective of what I say about the validity of the terms of the agreement, only a court ruling will settle any dispute that arises, and that is a long and expensive proposition. As you pointed out, you don't have the financial backup to take the company on in a court of law.

Regards,
Savio

One more thing I wish to mention about my query is that this is just a clause in my Appointment Letter, which is four pages long and contains around 15 clauses. The line I have written below is one of the clauses:

"You have to serve the company for a minimum of 12 months. In case you resign before completing 12 months, you are liable to pay 12 months' salary as compensation towards expenses incurred on your training."

Until now, no formal training has been imparted to me. Nowhere in my offer letter or appointment letter is it mentioned that I have been hired as a trainee.

Please reply with your contact number.

Thanks

Dear Pramod, I'm sorry I will not be able to share my contact details on a public forum.

Appointment Letter as an Agreement

The appointment letter can be construed as an agreement for the following reasons:

- There are two consenting parties.
- Both parties are competent to contract.
- There is a promise by you to work and the other party to pay you for the work.
- Object: Employment
- Consideration: Salary
- The object is legal: Your employment to perform tasks that are legal.

This is a simple explanation. A contract can be explicit (written down) or implicit or implied and not written. In this case, even if you had no appointment letter but you went to work in that company, it would be an implied contract where it is implied that since you have worked, you will get paid, and your employment would be governed by the terms and conditions of employment prevalent in the organization.

Again, I would like to reiterate that irrespective of the fact that the quantum of the compensation may not be proportional to the loss they incur and that the company is setting a restriction on your right to seek employment, you will only be able to get relief in a court of law. This is something I'm repeating again and again.

Without giving out your organization's name, please let me know your level in the organization and what your role is. I will be able to help you better if I know these details.

Regards, Savio

Dear Pramod,

Understanding Your Situation

There are two separate issues here:

1. You are not happy due to your situation.
2. As a result of this unhappiness, you are contemplating quitting and are scared to quit because of the compensation clause.

Is it the case that there is hardly any work, or is it that you feel that the work given to you is not important enough?

From what you have expressed in the last post, you seem to want a more important role and a say in the decision-making in the organization.

Steps to Improve Your Situation

What I suggest is that you should firstly spend time understanding what your company does. Secondly, since you say you have a lot of spare time in front of a computer, hone your skills and increase your knowledge in your line of work. Learn Excel, Access, etc., and read up about the latest trends in your industry and line of work.

Considering Your Next Steps

As far as leaving and what will happen when the time comes, build the bridge when you come up to a river.

At that time, talk to your immediate boss and tell him that you are getting frustrated because you are not being given any work. Tell him that as a result, you are feeling demotivated and you would like to leave. Then try to figure out a settlement where he waives the 12-month condition.

But first, get another job.

Regards,
Savio