Is My Employment Bond Legal? Seeking Advice on Notice Period Penalty and Next Steps

I have signed an Employment Bond with the company according to which I have to serve the company for at least 18 months as they have spent money on my training. I left the job last month after serving 2.5 months (which included 2 months of training). Now, I got a notice (not a legal one but a hard copy and mail) from them asking me for the penalty for breaking the bond and a penalty for not serving the notice period of 3 months.

Is the Employment Bond Legal?

Do I have to pay my 3 months' salary for the notice period?

Points About the Bond

1. It was not on stamp paper but under the company's letterhead.
2. None of the victims have signed it.
3. For the notice period, it is mentioned as:
"If you wish to resign from the services of the Company, you shall provide the Company notice of 90 (ninety) days or such other period stated in the Company’s policy prevailing at the time of such resignation. You are expected to serve the full notice period in order to complete the transition of your duties to an employee identified by the Company. Failure to provide such notice or to serve the entire notice period shall make you liable to pay the Company liquidated damages equivalent to the basic salary for the shortfall in such notice period."

This states that I have to pay 3 months' salary if I need an experience letter from them, which I don't need.

Details of the Bond

Whereas I, _________________________________ <Name>, son/daughter/wife of _____________________________________ having permanent residence at __________________________________________________ ____________________________, have been appointed as ________________________ <Designation> by XYZ Software Solutions Ltd., a company incorporated under the Companies Act, 1956 having its registered office at XXXX (hereinafter referred to as “the Company”);

Whereas the Company will invest a considerable amount of time and money to provide extensive specialized technical, professional, and other training and experience in certain software applications and methodologies and may disclose trade secrets and the Company’s proprietary information to me in order to make me a productive employee of the Company;

Capitalized terms not otherwise defined herein have the meaning given to them in the Employment Letter dated <date of Employment Letter>.

Now therefore, in consideration of the Company investing time and money to provide the aforesaid training and experience to me:

1. I acknowledge and agree that the Company and/or its subsidiaries will invest a considerable amount of time and money to provide specialized training to me in order to provide better services to the Company’s clients.
2. I acknowledge and agree that the said specialized training would substantially enhance my professional skills and ability and that my non-availability in providing services to the Company pursuant to such specialized training would adversely affect the Company’s operations and result in a loss of its investment.
3. I further acknowledge and agree that the Company has to recover and earn a return on its investment in such specialized training and that such recovery and earnings are directly dependent on me fulfilling my obligations under this Undertaking.
4. I hereby agree to receive and complete such specialized training and further undertake to remain in the employment of the Company for a period of not less than 18 months (excluding the notice period) from the date of joining (hereinafter referred to as “Stipulated Period”).
5. I understand and agree that in the event I breach Clause 4, i.e., I voluntarily leave the employment of the Company or the Company terminates my employment with Cause before the expiry of the Stipulated Period, it will cause the Company to suffer damages (“Liquidated Damages”), which is mentioned in Clause 6 below.
6. Myself and the Company have mutually discussed and I agree that the estimated amount of Liquidated Damages will be INR 100,000/- (Rupees One Lakh Only).
7. I understand and agree to pay the Company the amount of Liquidated Damages stated in Clause 6 above in the event I breach the terms of this Undertaking. I shall pay such Liquidated Damages to the Company before the last day of my employment with the Company. I agree that the Company is entitled to recover all or part of Liquidated Damages from any amounts payable by the Company to me.
8. I further undertake not to dispute the amount, and I shall pay the amount within the time mentioned in Clause 7 above, and at the same time, the Company has full right to initiate appropriate legal proceedings against me.
9. The validity, construction, and interpretation of this Agreement and the rights and duties of the parties shall be governed by and construed in accordance with the laws of the Republic of India, excluding its conflicts of laws provisions, and the courts of Mumbai shall have exclusive jurisdiction in matters related hereto.
10. In the event of any dispute or difference arising between the parties hereto over the interpretation or construction of any of the terms or provisions hereof and/or the implementation or enforcement thereof or of any right hereunder or any remedy relating thereto, the same shall be referred for arbitration to the sole independent arbitrator to be nominated by the Company whose award shall be final and binding on the parties hereto. Every such reference shall be deemed to be a submission to arbitration under the Arbitration and Conciliation Act, 1996, or any modification or re-enactment thereof. The venue of such arbitration shall be Mumbai. Subject hereto, the courts in Mumbai alone shall have exclusive jurisdiction to the exclusion of other courts.
11. Should any provision of this Undertaking be or become ineffective, or be held to be invalid, this shall not affect the validity of the remaining provisions hereof. Any invalid provision or any gap or uncertainty of any provision in the Undertaking that becomes apparent when performing the Undertaking shall be replaced, interpreted, or supplemented as the case may be in such a manner that the intended economic purpose of the Undertaking will be achieved.
12. And it is further agreed that all communications between the parties hereto shall be deemed to have been effectively served if addressed to the party at the registered office address of the Company and my address as set above (unless another address has been specified in writing by the party to which the notice is given) in writing by hand delivery or by postal delivery.
13. I have independently consulted my legal counsel before executing this Undertaking.

Please help me, what should I do?

1. Pay the amount
2. Wait for a legal notice
3. Go to court

Regards,

Understanding Employment Bonds and Legal Obligations

The bond will be maintainable to the extent of the training given to you. If you have been given specific training in the project, the cost of training can be recovered from you by the company, especially when you are posted in an Executive position. At the same time, if no training has been given to you, you can forget about the bond or legal notice which may follow.

Now, this bond seems to be genuine because the stipulated period is not unreasonable; it is just 18 months. The bond is enforceable even if it is on plain paper, and the employer can very well put the signature of witnesses even now, and you cannot prove it otherwise.

Since you have already had a discussion with your lawyer before you signed the bond, I would advise you to take his counsel and move forward.

Regards,
Madhu.T.K

Madhu's contention is correct.

Over the years, the consensus reached is that the amount actually paid for training determines the validity of the bond and the amount payable. Your post is not clear whether there was formal paid training or if it was in-house training by managers, etc. If it was only the latter, the bond is not enforceable.

Thanks, Madhu Sir and Saswata Sir, for the response and suggestion. The training was provided by some experts in a classroom, and I didn't work on any project. Regarding the notice period, they are asking for a salary of 3 months (not basic, it's 1 lakh for 3 months). Should I have to pay the full amount of 2 lakhs, or is there any chance of negotiation? I do have a copy of the Agreement, which doesn't have any signature of a witness.

Thanks

Validity of Witness Signature in Employment Bond

The signature of the witness is immaterial to the validity of the bond. It comes into question only if you or they dispute the signature or if some clause was modified later.

Training and Bond Validity

If there was classroom training by an external faculty, the bond will be valid to the extent of the training cost.

Payment Obligations Under the Bond

If your bond states you have to pay basics, then their asking for payment of the full salary is invalid.

And also, you need not negotiate on this. If you are sure that you did not receive any training, the amount of damages claimed by the employer can be disputed. In such a scenario, it is always advisable to resolve it before a mediator. Therefore, let the employer proceed further.

Regards,
Madhu.T.K

Thanks a lot, Madhu sir and Saswata Banerjee, for the advice. One last question: the agreement has the following term regarding the bond -

"If you wish to resign from the services of the Company, you shall provide the Company notice of 90 (ninety) days or such other period stated in the Company’s policy prevailing at the time of such resignation. You are expected to serve the full notice period in order to complete the transition of your duties to an employee identified by the Company. Failure to provide such notice or to serve the entire notice period shall make you liable to pay the Company liquidated damages equivalent to the basic salary for the shortfall in such notice period."

Does it mean that I have to pay the notice period amount if I need any releasing letter or experience letter from my previous employer? In that case, I don't need any such letter from them. And is the best option to wait for a legal notice or to negotiate?

Thanks

Generally, such notices are just scare tactics. They know how expensive it is for them to pursue the case. However, they may do this to demonstrate to everyone else what happens if someone violates the bond and notice period. In any case, they can afford the cost of litigation while you may not be able to.

The matter of interest, etc., is more scare tactics. However, in the end, it's a question of how skillful your lawyer is. If the court believes you were unfair and deliberately caused loss, yes, they can order interest and also ask you to pay the cost of the case. Mostly they don't, but they can.

I am afraid this is the best answer I can give (or anyone, including your lawyer, can honestly give). You need to weigh the pros and cons of the case and the surrounding facts and decide whether you should negotiate or show them the middle finger. Lawyers always claim they will win the case for you, but if you ask them to prove it by fighting for free until the case is over, they will refuse.