Can We Enforce a Bond if an Employee Resigns After Being Given an Ultimatum?

I am a Director with a startup IT company overseeing the HR function. We have a 2-year bond policy for all the freshers joining the company. One of our employees in the probation period (less than 6 months), during an increment discussion, raised salary hike concerns. During the course of the discussion, we offered a performance-based hike for which he clearly stated that for the current salary, he will work time-bound and will not put in any additional effort.

He clearly started demanding terms that were not acceptable, and in the heat of the moment during the discussion, we gave him an option to either accept the increment or resign. He chose to resign, with a formal email stating that the company has given this option. Under this scenario, will it be possible for us to enforce the bond policy? Do we give him a resignation letter? How do we handle the situation?

Understanding the Legality of Employment Bonds in India

Firstly, please understand that bonds are illegal. Bonded labor has been abolished long ago in India, and bonds are not enforceable in the given scenario.

When are bonds enforceable?

Bonds are enforceable only when the organization has invested heavily in training the employee, which warrants a time frame to transfer the skill or complete a project. For example, if your company has sent a person for training abroad, which is not easily available in India, then the employee is duty-bound to stay in the organization and transfer the training to others. The time frame has to be reasonable enough and cannot be arbitrarily decided as two years. The compensation has to be equivalent to the cost incurred for such training plus a reasonable penalty and not an arbitrary amount common to all.

Case Studies of Bond Enforcement

Most PSUs invest heavily in initial training. When engineers from HMT left and joined Titan without relieving orders, the Supreme Court declared the bonds of HMT as illegal since their training did not warrant a bond.

Similarly, when NTTF tried to enforce the bond of their engineers, the employee was able to prove that the work he put in during the training period was encashed commercially by NTTF. The Supreme Court declared it illegal. In fact, they termed NTTF's attempt to encash the bond as extortion.

The Reality in IT Companies

Many IT companies make their employees sign bonds despite the Supreme Court judgments. Employees have not approached the court and pay up, not knowing that the bond is illegal. IT companies know it's illegal and still sign bonds to keep it as a psychological barrier because the thought of going to court in India is fearsome. But those who have gone to court have always won, or the company makes an out-of-court settlement.

Ethical Considerations for Organizations

It depends on the ethics of your organization as to whether you want to enforce the bond. If you want to enforce the bond and the employee goes to court, you will be embarrassed in front of the current employees when the judgment comes. Those who consider it a psychological barrier and were staying back on account of it will be emboldened to leave. If I were you, I would let go of the bond to ensure the existing employees stay back without knowing that the bond is illegal and not enforceable.

If you have asked him to resign, it is better not to ask for any recovery related to the bond. If the employee refuses to pay back and agrees to rejoin, he may create problems related to industrial relations in your organization. It is better to let him go without asking for the bond amount to be paid back.

Employment bond is an instrument of a primitive age. Please do away with the bond. You were aware that your company has a bond policy, so how come you offered such an option? Now you cannot make any recovery except for the usual notice period.

Employee has an attitudinal problem. We should relieve such an employee immediately as it can create unnecessary negativity within the system.

Referring to the details, it seems he has a feeling of indispensability. He is just trying to create importance by opting to resign. He should be given informal feedback that Management is ready to accept the resignation and relieve him immediately. There are chances he may withdraw the resignation as things are not moving as per his plan.

Understanding the Legality of Employment Bonds in India

Firstly, please understand that bonds are illegal. Bonded labor has been abolished long ago in India, and bonds are not enforceable in the given scenario.

When Are Bonds Enforceable?

Bonds are enforceable only when the organization has invested heavily in training the employee, which warrants a time frame to transfer the skill or complete a project. For example, if your company has sent a person for training abroad, which is not easily available in India, then the employee is duty-bound to stay in the organization and transfer the training to others. The time frame has to be reasonable enough and cannot be arbitrarily decided as two years. The compensation has to be equivalent to the cost incurred for such training plus a reasonable penalty and not an arbitrary amount common to all.

Case Studies on Bond Enforcement

Most PSUs invest heavily in initial training. When engineers from HMT left and joined Titan without relieving orders, the Supreme Court declared the bonds of HMT as illegal since their training did not warrant a bond.

Similarly, when NTTF tried to enforce the bond of their engineers, the employee was able to prove that the work put in during the training period was encashed commercially by NTTF. The Supreme Court declared it illegal. In fact, they termed NTTF's attempt to encash the bond as extortion.

Current Practices in IT Companies

Many IT companies make their employees sign bonds despite the Supreme Court judgments. Employees have not approached the court and pay up, not knowing that the bond is illegal. IT companies know it's illegal and despite that sign bonds to keep it as a psychological barrier because the thought of going to court in India is fearsome. But those who have gone to court have always won, or the company makes an out-of-court settlement.

Ethical Considerations

It depends on the ethics of your organization as to whether you want to enforce the bond. If you want to enforce the bond and the employee goes to court, you will be embarrassed in front of the current employees when the judgment comes. Those who consider it a psychological barrier and were staying back on account of it will be emboldened to leave. If I were you, I would let go of the bond to ensure the existing employees stay back without knowing that the bond is illegal and not enforceable.