How Can We Validate Employment Agreement?

Hi, I am an HR professional at an IT company. For employee retention, we have a service agreement under which they must work for us for 3 years, and if they quit, they need to provide a compensation amount. My questions are:

1) Can we make the trainees sign this service agreement during the training phase?

2) If yes, can trainees and employees sign the same SLA, breaking it into 2 phases - training and employment?

3) Can we ask a trainee for compensation if he breaks the agreement or does not join the company after training?

4) How many months of salary can we maximum ask an employee to compensate if he/she leaves within the service level agreement period? Is it possible to legally contest and claim the money?

5) Can you suggest any other legally proven ways through which we can ensure the retention of both trainees and employees?

I would be grateful to receive your guidance.

Thanks,
Maniratna

Understanding Trainee Contracts Under The Indian Contract Act

The question needs to be addressed by keeping many labor laws in mind. However, in my opinion, your answer can be found only in The Indian Contract Act.

1) Trainee Contracts

If the trainee is not an apprentice under the Apprentice Act, then you are free to create any contract you want. The Contract Act is different from other laws. All other laws provide for what is to be done; they create rights like the right to minimum wages. These rights are to be upheld irrespective of the parties you are dealing with. For example, if Mohan is a worker, you have to pay him minimum wages irrespective of whether he is appointed by X Ltd or Y Ltd. This is called Jus in Rem (Right against the world). However, a contract creates Jus in Personam (Right against a person). Here, there are no predefined rights; parties define them. The act provides boundaries, like a contract cannot be against the law or morality. Within those boundaries, you can create any rights and duties. So, if your trainee is not covered by the Indian Apprentice Act, any condition can be imposed. For more information, see this for books on the issue Law Books and Reviews.

2) Reasonableness of Conditions

Conditions cannot be unreasonable. Though the court will not inquire into the balance between consideration, it can strike down conditions that are unreasonable. What is unreasonable differs in each case.

3) Enforcement of Compensation

Irrespective of the amount of compensation you write in the contract, the court will award reasonable compensation. This, again, is a question of fact.

Regards

With bonds and agreements, you will not be able to retain employees in a true sense. They can only be used as "pressure tactics." Bonded labor or agreements/bonds that force someone to work for a specific company or prohibit them from joining another company are illegal. Through these bonds, one can only recover the amount spent on training a particular employee.

Service Bonds in Employment

In the realm of employment, service bonds act as a deterrent to early and frequent attrition. However, as pointed out by our learned friends above, their justifiability depends on the reasonableness of the conditions stipulated therein.

For example, if the employer invests a considerable amount of time and money in exclusively training the prospective employee, they can make a provision for the recovery of the entire cost of training from the trainee if they fail to report for duty after completion of the training or to serve a minimum period. Similarly, the notice obligations on unilateral termination of the contract of employment within the bond period should also be the same for both the employer and the employee concerned.

Bonding employees with contracts is illegal as it amounts to treating them as bonded labor. If such an employee wants to be released and you don't release him or her, and they approach authorities, it will cause difficulties for the organization.

The best way is to create a culture, avenues, and processes that will retain maximum talent.

Shrikant Prabhudesai