Is It Legal for Companies to Require a Security Deposit from New Employees?

I have recently shifted to a new job. In this organization, we have a procedure to take a Security Deposit for 1 month CTC from all new joiners. It will be returned if he/she completes 2 years of tenure with the organization. If the employee leaves before 2 years, the amount will be forfeited. We take the employee's signature on a simple format which states that he/she has agreed to the Security Deposit. It is on simple paper.

Question on Legal Validity

My question is, is this a valid practice in the law? Please guide.

Dear Devang Pandya,

I think it is purely outside the law and cannot fall under any employment laws. It is an exploitation of the law and of employees as well.

Regards,
Tushar Swar

Normally, those who are joining in the position of Cashier or any financial handling roles were required to keep some security deposit with the company in earlier days. However, nowadays, it has become easier to trace a person's whereabouts, and the Security Deposit system no longer exists. Asking all employees to pay a security deposit goes against ethics. Let our other members give their views and opinions on the legality of this issue.

Regards.

Legal Considerations for Security Deposits in Employment

There is no provision in the law that specifically bans or prevents an employer from taking a security deposit. If the employee agrees to such a condition and is willing to give the deposit, then there is no legal issue as such. However, it is necessary for this condition to be specifically mentioned in the offer letter, and a clear declaration of the same should be obtained when issuing the offer letter.

Dear Saswata ji,

Discussion on Security Deposit Practices

I do agree with this.

My view is different here. Taking a security deposit means you are binding the person to work with you, which restrains the fundamental right given by the Constitution of India. Also, it violates the law of employment. You cannot compel any person to work with you only. A person has the right to quit the employment with reasonable notice.

Regards,

Understanding Security Deposits in Employment

The fundamental right of employment given by the constitution is not restricted or violated by the security deposit. It is just that you cannot then leave without notice or without following the terms of your employment.

The fundamental rights are subject to reasonable restrictions (e.g., the right to free speech is restricted by the law that prevents inciting violence). So, just asking the employee to give a security deposit does not violate their fundamental rights. The employee is free to look for and take employment elsewhere where the employer is not asking for a security deposit. The employee is not being forced to join a particular employer. They are free to choose who they will work for. But once they join a particular company, they do so by agreeing to the terms of their employment. Because that would mean you can't stop the employee from leaving without notice, as that would be a violation of their fundamental right to employment.

I think you understand my argument. However, under contract law (Indian Contract Act), this may be considered an invalid contract on the grounds of undue influence. However, I will leave that for the lawyers to argue and the courts to decide.

I believe the government needs to make laws to regulate the security deposit and find ways to ensure that companies pay it back without delay when the employee leaves. But at the moment, there is no such law.

Understanding the Right to Employment

The Constitution provides a fundamental right to employment. This does not mean you have a guaranteed right to be employed; rather, it means no one can stop you from seeking work and working for any person and any type of work. All fundamental rights are subject to duties and the reasonable control of the law. Therefore, the right to employment as a fundamental right is subject to it not being illegal.

Security Deposit and Employment Rights

How does taking a security deposit fit into this? By asking for and taking a security deposit, the employer is not restricting the right of the employee to work. The employee has the full right to seek employment elsewhere. He is also not, by this demand for a security deposit, being prevented from doing any work with anyone else. He is free to refuse this work and work for anyone else.

However, if he does agree to work, he is agreeing to the terms of employment, one of which is a security deposit and probably a reasonable notice period. It will be illegal for the employer to refuse to return the deposit if the employee fulfills the terms of employment and resigns with a full notice period. But the act of asking for and taking a deposit is not a violation of fundamental rights.

Legal Considerations

In terms of illegality, it would probably violate the Indian Contract Act (if you consider a job as a contract of service) on account of the doctrine of undue influence. But whether that defense works or not depends on how the lawyer presents it. In the current example, the defense of undue influence is of little practical use.

Personal Stance on Security Deposits

One last clarification: I am against the concept of a security deposit and things like keeping original certificates. But the question was about the legality of a security deposit, not whether I support it.

(Kargaonkar, if this is still not clear, drop me a mail; I will delete both the posts ;) )