Legal Proceses If Any Employee Breaks The Bond

Hello, I am working as an HR Manager in one of the IT companies in Pune. It's a mid-level IT company with only 30 employees. I want to have details on what actions HR needs to take if an employee breaks a bond. What are the requirements to create the bond? Does it need to be on bond paper, or will a letterhead suffice? Although we have included clauses stating that employees need to pay a certain amount if they break the bond, employees still break it. To date, I haven't handled any cases like this, but I want to prepare myself for such situations in the future. Please help me with this. If someone has specific processes for this, please share them with me; that would be greatly appreciated. I am expecting a kind reply from all of you. You can also reach me at harshada.kulkarni@fideltech.com. Regards, Harshada

Harshada,

Usually, the service agreements are made in line with the amount you want to recover in case of an employee leaving the company before the expected date. In that case, the agreement/amount should be in line with the stamp act in India. Ensure that there are guarantors available and they sign. They should be an earning member of the family or a relative, and proof of their work should be provided.

Some companies have tied up with banks, i.e., the employee gives the bank guarantee and if he leaves, the bank will recover the damages from him, and the company will be paid by the bank.

Hope this helps!

Hi,

Thank you very much. However, I still have some queries. Generally, small companies do not have these kinds of processes. I have only worked in small-scale companies where we did not have any processes, and since I am not aware of them, I am unable to implement them. If possible, could you please provide a brief explanation so that I can understand it better?

Thank you for the information.

Regards,
Harshada

Hi Harshada,

In this case, you need to draft an agreement where the company and the employee agree to a minimum prescribed period of service. If the employee fails to fulfill this obligation, they must compensate the organization. The amount of compensation should vary depending on the year, such as the 1st year, 2nd year, etc., as per the company's discretion. However, it should align with the expenses incurred by the company on the employee during that year.

The agreement should be written on a ₹100 non-judicial stamp paper, which is available at courts. When submitting this agreement to the company, the employee should also provide one surety, who will be included in the agreement to recover the amount on their behalf. Typically, the surety should be a PSU/Central employee or a property owner, for your protection. Additionally, a witness from the company's side, such as someone from HR or the department head, should be present to witness and collect the signatures of the employee and the surety on the agreement on our behalf.

The standard procedure for recovery involves initiating all disciplinary actions against the employee, conducting a thorough legal inquiry to establish their fault, and then submitting these documents to the labor court.

Regards,

Y. Gangadhar

Email: ganga0203@yahoo.co.in

Hi,

Thank you for the information provided. I am truly grateful to you. It has increased my knowledge and provided a way to apply these concepts in practice. However, should a company have its own lawyer for all of this? As an HR person, I have never been to a labor court before, and I lack knowledge of the processes involved. Can you please advise me on this?

Regards,
Harshada

Hi Harshada,

Actually, every company has one legal adviser who takes care of these service agreements. First, you need to prepare articles of agreement in consultation with your legal adviser.

Generally, you need to submit the case to the labor office after completion of all disciplinary steps, i.e., advisory letter, show-cause letter, final show-cause letter, and finally, an inquiry letter. After proving his misconduct, we then need to submit the case to the labor department.

Regards,
Gangadhar

Hi,

Thank you for your valuable reply. It will help me handle things better in the future if a similar situation arises. Until we actually face the case, it's difficult to get an exact idea, but with this information, at least I'll be prepared to face and solve it with confidence. I appreciate your assistance and hope to receive guidance in the future.

Regards,
Harshada

Hi Friends,

It is really a good topic to be discussed. I have a doubt relating to this point, i.e., can you tell me if making a bond with any employee is legally correct, and if so, specify according to which law it can be done.

Members, can you clarify this for me?

Regards,
Amith R.

Hi Amith,

As per the Contract Act, no employer can enforce a candidate to serve the company for a specified period, and it is not enforceable if the agreement is only from one side of the coin.

Regards,
Y. Gangadhar

Hi,

I work for a retail firm, and we do have contracts with a few individuals, but we term it as a retainership agreement. This is, however, not done on any stamp paper but is written in the appointment letter, where a part of their salary is withheld every month, to be given when their contract lapses. This is mostly accepted as it acts as a saving for the employee, and the employer is ensured that there won't be a breach in the contract. It is worded in such a manner.

Regards,
Karuuna

But if someone breaks it, will it be legally accepted to take legal action? Otherwise, there is no meaning in creating this kind of agreement letter. If we include the terms in the letter and have the employee sign it on paper, will it be legally binding?

Regards,
Harshada

I don't think it will be accepted by law, and even their intention is altogether different. They are cutting employees' salary initially and then paying it back after the agreement completes. The employee has no option but to stay at least for that period if the deduction is high.

Hi,

Yes, legal action is taken by the company if one breaks the retainer agreement as it is worded in such a manner. Law is law whether written on company letterhead or on stamped paper - this is the belief carried in our company for nearly 25 years. I hope I have clarified your query.

Regards,
Karuuna

Ms. Harshada Kulkarni,

I am an expert in employment law with 10 years of experience in this field. I am not sure if your issue has been resolved yet, but in my opinion, you were not properly and adequately guided, let alone by a lawyer based in Pune. You can claim damages to the extent of the loss caused to you by your employee. In the case of a breach of the Service bond, you should not approach the Labour Court; instead, you should approach the Civil Court. Currently, I am handling such cases in Pune Court on behalf of a German Company. If you need detailed information regarding this and employment law, you can contact me via email or mobile (9850083760).

E-mail: sameerparanjapeadv@yahoo.co.in

Sameer Paranjape, Advocate
Shri Mangal Society, Next to Jog Hospital, Paud Road, Pune-411038

Hi, thanks Sameer for the info you have given. I am don't know about the process for this. Will you guide me on how an HR person can take legal action if this kind of problem occurs in the organization?

One more query I have, one of the employees has left the organization without notice. He sent me an email stating that he is leaving the organization today, mentioning that he is not feeling well and wants to return to his native place as he has a job opportunity there. I tried to explain to him that completing the notice period is crucial for his career, as failing to do so may result in us providing unfavorable feedback if contacted by any future potential employers. This could pose a significant obstacle in his career path.

However, nowadays many companies are accepting individuals even without relevant experience or reference letters due to urgent requirements. Could you please guide me on the actions I need to take for dealing with such employees?

Thanks,
Harshada

Hi,

The problem you are facing has become very common in IT industries. Earlier, employers used to terminate the services of workers, and the workers used to approach Labour Courts. However, these days it has become difficult to retain qualified employees.

Regarding your first question, I have to say that in case of a breach of the service agreement, initially, a legal notice should be issued to the concerned employee stating the losses the company had to incur due to the breach of the service contract and the details, if any, incurred by the company to train him, etc. If the employee does not reply to the notice or replies to the notice but refuses any liability, then the company can approach the Civil Judge, Senior Division (depending upon the amount claimed) by filing a suit for damages and compensation. Though a company cannot bind a person to serve (bonded labor not permissible), the company can ask the employee to compensate it for the loss he has caused to the company by breaking the contract. Certainly, sufficient documentary evidence has to be produced to the Court to prove the loss.

Regarding your second query, I have to say that merely because he has emailed you that he is leaving the organization does not mean the employer-employee relationship between your company and him has severed. He is legally still in your employment. He has not used the word resignation, and the company hasn't accepted any resignation. You mark him absent on the muster roll, and after some period, you can send him a legal notice claiming damages incurred by the company due to his unauthorized absence (documentary proof necessary). You can also send a legal notice to the company in which he has newly joined, stating that he cannot join that company as he is still in your employment. Certainly, the terms and conditions in his appointment letter/service contract with you will have to be seen. However, if you want to finish off the matter at this juncture, I can say that you may deduct the amount due to the company towards his notice period from his terminal dues if any.

I hope I have made myself clear. If any further clarification is deemed necessary, I shall be glad to be at your assistance.

S.M. Paranjape, Advocate

Hi,

Thank you very much for your quick reply. The information you provided is really helpful. I believe the second option is suitable for a company like ours because it can be challenging to pursue a legal case and follow up on it. Since he still owes us payment for his last fifteen days, would it be the right choice not to pay him?

I look forward to receiving guidance from you in the future as well.

Thanks,
Harshada

Hi Harshada,

I have gone through this posting and meanwhile, I felt astonished to see the term 'Labour Court' in this case. Here one must understand, as a services company, you are not guided by the Factory Act but by the Bombay Shops and Establishment Act. In this case, it has to be a civil matter instead of a matter related to the Labour Court.

You must understand that in such cases, a contract, until properly designed by a lawyer, will not be a foolproof contract and can easily be challenged by a good lawyer.

Sameer, you have made excellent comments. Please continue to be active on the forum to provide your valuable insights. Meanwhile, I would like to invite both of you to our upcoming HR meet in Pune. It is scheduled for 15th March 2008.

Regards,
Tikam
tikamindia@rediffmail.com

Hi!

As you have sought help for creating a bond, but prefer to call it an "employment agreement," this agreement should be executed on a Rs. 100/- stamp paper (non-judicial stamp paper). It could include a clause for the recovery of the amount since the company is providing training for which we may demand payment of the agreed-upon amount.

This is my information.

Regards,
S. Sateesh

Hi,

Thank you very much for your invitation. Where is the HR meeting, and what is it regarding? I would be happy to receive information about this. Thanks to both of you for sharing the info.

Best regards,
Harshada

To Ms. Harshada,

Refusal to pay salary due to an employee is not exactly legal. Instead, you should pay him the salary owed, make all the necessary records regarding the payment, and at the same time ask him to provide a cheque towards the amount owed to the company (maybe equivalent to 15 days' salary if you wish). This way, you will be safe. However, it should be noted that if you let one employee get away with losing just 15 days' salary, it may set a bad precedent in your organization, and other employees may take advantage of it.

To Mr. Tikam,

While deciding which court shall have jurisdiction in such a matter, the question of the applicability of the Factories Act/Shop Act, etc., is not really relevant. It is a suit for damages for breach of contract between two legal persons, the company being one legal person. Anyway, thank you for inviting me to the meeting. Please provide me with further details about the program.

To Mr. Satish,

You are correct. Such a contract should be on a ₹100 stamp paper and not on letterhead. Damages to the extent of expenses incurred by the company can be claimed. The terms of the contract should, inter alia, state and make clear to the employee that the company is going to spend money to train him, and in return, he shall benefit the company after completing the training.

S.M. Paranjape, Advocate

Hi Sameer,

One of our employees is going on a long leave to undergo training. The organization is not bearing the cost of the training but is providing assistance in completing all the formalities for it. The organization is also granting paid leave.

We would like him to sign a bond stating that he will not leave our organization for a duration of 2 years after completing his training, considering the support provided by the organization. Kindly suggest something in this regard.