Seeking Examples of Employee Bond Contracts with 3-Year Commitment and Penalty Clause

Hi,

I need to draft an employee bond/contract comprising of the following points:

1. The employee needs to serve 3 years and can't leave the organization unless in unavoidable situations.
2. Also, it should mention an amount, say 5 lakh rupees, to be paid by the employee on breach of contract.

Kindly share if any such contract has been generated previously. I will make my own changes to it.

Thanks & Best Regards,

Feedback on Employment Contract Conditions

Serve three years, and if you fail to do that, pay half a million! My personal opinion is that the conditions of employment are too harsh. In that case, why not go further and say serve five years or pay a million?

More than drafting the employment letter with this sledgehammer condition, what you need is feedback on the condition itself. The underlying rationale is well discernible. You want people to work long in your company. This kind of contract condition is nothing but a forced stay in the company. Therefore, you need to investigate why people are not sticking to your company. A lock-in period for employment is fine, but what about employees' motivation? Do you think they will stay well-motivated despite this condition?

Lastly, when you reveal this kind of condition to prospective job candidates, will they accept employment, or will it scare them away? In the case of the latter, how will your organization's purpose be served?

I have given my critical comments since I conduct training programs on Contract Management. During my training, I handle disputes arising out of faulty contracts. I foresee your contract to be faulty. Hence the above comments.

Thanks,

Dinesh Divekar

Dear Dinesh,

I understand that such contracts are not general; the reason we want to imply such conditions is particularly for a few positions in our company. The said positions involve the exchange of core business secrets and information that we want to secure. This is the first time we are implementing such a contract/bond system in the company. So, that is the reason I wanted clarity on it. I do appreciate your reply and suggestions. Thank you.

Regards,

Hi Rati,

I believe that an agreement would better suit your requirements compared to that bond. I am attaching the same for your reference. Please review it at your convenience.

Thanks,
Meera Sagan

Your second post contradicts the first one. From your first post, one gets the impression that your major concern is the retention of employees. In contrast, in the second post, you have written that "The said positions involve the exchange of core business secrets and information which we want to secure."

You wanted to impose an employment bond with a penalty clause to protect "core business secrets." However, business secrets can be leaked even while in employment. Suppose an employee wanted to leave before three years by paying three lakhs and had leaked business secrets. Will three lakhs work as sufficient collateral for the damage caused by the leakage?

If data security or information security is your primary concern, then you need to make an exclusive contract with the employee on information security. Employment bonds will not serve the purpose. For these kinds of contracts, it is better to hire a lawyer who handles cases under the Indian Contract Act, 1872. Drafts provided by members of the HR forum will not suffice for your purpose.

Thanks,

Dinesh Divekar

Understanding Employment Bonds in India

Employment bonds are agreements between two parties governed by the Indian Contract Act. Such bonds are applicable only if the company has invested in the personal grooming and enhancement of employees through educational and field studies. Training for better performance alone won't suffice.

It is emphasized that the Indian Contract Act specifies that contracts entered between parties must not be one-sided; otherwise, they would be considered null and void. Most employment bonds are one-sided and do not hold up in a court of law.

Also, as per the Indian Contract Act, no contract can be enforced on any person, compelling them to work against their will or against natural justice. In court, such conflicting or one-sided conditions do not hold up as they would harm one of the parties to the contract.

In India, bonds are illegal in relation to employment since, as per the Indian statute, the bonded labor system was abolished long ago, and no bond can force any person to work against their wishes. A bond used merely as an employee retention tool is bad in law.

Further, under no circumstances can the fundamental rights under Article 19 of the Indian Constitution be waived by any person, nor can any person be forced to do something that amounts to a violation of the rights mentioned under Article 19. This is a punishable crime.

Moreover, as per Section 368 of the Indian Penal Code, if any person or institution holds back any document, uses any legal document, or threatens legal suits or actions to force a person to perform any act against their wishes or which is illegal or wrong as per the statute of law of the land, it is punishable.

Any complaint against the company could land the directors and managing directors in jail or face the risk of exemplary damages, as the company is not an actual living entity but only a legal entity, and the management are the hands and heads of the company.

Thus, please advise your management to refrain from indulging in illegal practices that may lead to the closure of the business.

Regards & Wishes,

Hi, is this fact true? Thank you, Mr. Soumitra Sengupta, for shedding light on the contract act. But management generally forces HR to come up with contracts because of the time and money a company spends not only on training each employee but also on salaries, expecting that they will do their job properly. Bearing with all the mistakes they make will go to waste if employees leave the company at a crucial moment.

If not through a contract, what is another way to control attrition?