Stuck in a Contract: How Can I Leave My Job Without Paying a Penalty?

Hi, I am a fresher and I signed a contract for 2 years. However, I am now finding it challenging to work because I want a permanent government job. But I can't say that for my resignation; they will say I need to think before signing the contract and ask me for 6 months' salary for the period I worked. As suggested by my family, I told them I am going for higher studies, but they want me to show the admission letter and all. The notice period is 2 months. So, please suggest how to leave the company without paying the money.

If you are sure that you will get a government job and that you will never return to private work, then just ignore the demands of the employer. Submit your resignation, work for a maximum of one month, and then hand over your duties and leave the company. These employers make contracts to work for two years, etc., because they know that people fear background verification. Naturally, if you leave before the contract period, they will not give any positive feedback when a background verification is conducted by any future employers. However, this background verification will be irrelevant if you have decided to join government service or PSUs. Moreover, compelling an employee to work with an employer is bad in law, and creating a bond for that is equivalent to bonded labor, which is illegal.

Dear Madhu T K sir,

I need your guidance on the following cases:

For Fresher:

Is the applicability of a bond for a fresher necessary? Since the company provides training for fresher employees, would the bond be applicable?

For Experienced Candidates:

Is a bond applicable in the scenario where an employee leaves within, for instance, one year and is required to pay X amount? This is especially relevant when no special training has been provided to the employee or when the employee has undergone some special training incurring costs. Would the bond be applicable in such cases?

Thank you in advance.

Serving the notice period as per the terms of your employment contract is indeed the most straightforward and ethical course of action. It's essential to honor your legal obligations and fulfill the terms of the agreement you've entered into with your employer.

Always remember

Before signing any document, especially one related to employment or a contract, it should never be done hastily. It's crucial to thoroughly review and understand the implications of what you're agreeing to.

Bond agreements and employee rights

Bond agreements are illegal, and no one should be compelled to work with any employer or organization. This applies to both freshers and experienced individuals. In the case of a fresher appointed as a trainee, all labor laws are applicable, except for apprentices appointed under the Apprentice Act 1961 or interns participating in an academic program as part of their curriculum. Nowadays, the term "intern" is commonly used instead of "trainee." If an intern is hired after completing the course, not at the request of the institution's Principal, they will not fall under the exempted category of intern but will be considered a trainee, similar to an employee in all aspects.

Apprenticeship contracts and termination

An apprentice is typically engaged for a specific period, and the Contract of Apprenticeship outlines the termination process. However, any compensation is usually limited to an amount equal to three months' stipend.

Training costs and bond enforcement

If an employer provides training to an employee, whether a fresher or experienced, the employer may recover the actual cost of training if the employee does not continue for a specified period. To enforce this, there must be a quantifiable record of costs spent exclusively on the employee. Without providing training or incurring costs for the trainee, enforcing any bond is not feasible. While employers may issue notices, few have taken further legal action or succeeded in such cases.

Hi Dipti Srivastava,

True, we have to respect the contract and the terms of the contract, but if the terms of the contract are not consistent with the laws of the land, we should challenge it. We know that the notice period is a common condition of service nowadays. Under Indian law, an employer is liable to pay one month's notice if they want to terminate an employee. In the case of factories, mines, etc., where there are 100 or more workers employed, it shall extend to three months. However, under no law is it mentioned that an employee should also give that notice to the employer if they want to leave.

Scenario in IT Companies

But what is the scenario? In most companies, especially IT companies which are not factories and do not employ 100 or more employees falling under the scope of Chapter VB of the Industrial Disputes Act, the stipulated notice period is three months! It is true that IT companies are industries covered by the ID Act, but employees cannot be asked to serve a 90-day notice. Employees, upon joining, are often unaware of the organization's culture, the prevailing career scope, etc. When they realize that it's not the right fit for them, they should be able to leave.

Employee's Decision on Notice Period

While it's true that the employee agreed to the terms and conditions of employment before joining, they may have been promised many things by the recruitment team, many of which may not have materialized. Therefore, it ultimately becomes the employee's decision to determine what the law requires and if they are truly liable to pay a notice period or serve such a long notice period.

Legality of Employee Bond Agreements in India

Under Indian law, employee bond agreements are legally enforceable if they are reasonable and do not violate the principles of freedom of employment. The Indian Contract Act, 1872, governs the legality of these agreements, and courts have upheld the validity of employee bond agreements in certain circumstances.

Supreme Court Ruling on Employee Bond Agreements

The Supreme Court of India ruled in favor of the employer, upholding the validity of the employee bond agreement. The court held that the bond period and the compensation amount were reasonable, and the employee was obligated to honor the agreement.

Ultimately, it's a matter of fairness and balance. While contracts are important, they should not unfairly burden employees or contradict legal requirements. It's essential for both employers and employees to understand their rights and responsibilities under the law and work towards a mutually beneficial resolution.

I don't find any justification for a bond to work for the employer. True, there are instances where an employer can recover the costs of training given to an employee, and as such, a bond to recover training costs in real terms only is enforceable. I request our valued member, Dipti, to post a citation of the Supreme Court that held that a bond is maintainable for our academic interest.

Again, I will not say that the employee should run away from employment without knowing the situation in which the employer would be put once he just leaves the organization without notice. But I will say that a notice period of 90 days is highly unfair, and if the employer insists that the employee who falls under the scope of the ID Act should serve it, then I would say that an employee is not bound to give even a single day's notice to leave. Many employers take it for granted that they can impose three months' notice on all employees. That should not be allowed.

It is unfortunate that seniors are advocating for the person to just leave without respecting the bond he signed. This reflects on his character and traits. I am not suggesting that he should simply pay and leave the current organization. First, he should explain the situation and try to convince the employer to waive the bond amount or at least calculate the liquidated damages on a proportionate basis and pay for the unserved bond period. This approach has been upheld by various courts. If the employer has provided specific training that involves costs needing recovery, those should be recovered. In the Wipro case, the Bangalore court agreed to recover training costs proportionately from the relieving employee's terminal benefits for the unserved bond period.

This is my personal view, and I do not intend to blame anyone.

The legality of employment bonds and notice periods

@Ravichandiran-B, the seniors have not supported the act of abandoning the job by ignoring the agreement signed but are defending the bond signed or compelled to be signed. I have only said that the bond is illegal, and I have also mentioned that if the employee was given training, the cost of training could be recovered in actuals. All the courts have echoed the same sentiment, and no court has ever ruled that an employer can insist on a bond and compel an employee to work for a certain period. If this were permitted, we would risk entering into a bonded labor system.

Impact of negative employer practices on employees

Even in the current scenario, many employees, especially in new generation industries like IT, are pressured to work due to negative remarks employers make in background checks. This practice has significantly harmed the careers of many young individuals. We do not support employees who leave without notice, but there should be genuineness in the length of the notice period, right?

Understanding Employment Contracts Under the Indian Contract Act, 1872

A contract is a binding agreement between an employee and employer under the Indian Contract Act, 1872, effective from the day both parties enter into the contract. No employee can contravene the contract unless the employer agrees to reasons deemed fit and requested by the employee. The reasons mentioned in your post do not seem to be substantial enough to justify the employer's acceptance. The employer has invested financial resources in the employee, and if the return on investment (ROI) has not yielded results within the contract bond period, the amount incurred towards employee development must be returned to the employer.

Requesting a Waiver of the Bond Period

My sincere suggestion is to kindly request the employer to waive off your bond period. In future recruitments, the employer may add more stringent rules to the employment terms, considering the experience based on your employment, which could affect upcoming job seekers.

Legal Aspects of Employment Bonds

@Madhu T K - Sharing for your reference, bonded labor is definitely illegal, but employment bonds are not. The Honorable Supreme Court in Niranjan Shankar Golikari vs. The Century Spinning And Mfg. Co held that "there is nothing to prevent a court from granting a limited injunction to the extent that is necessary to protect employers' interests where the negative stipulation is not void." The Court also mentioned that "an agreement to serve a person exclusively for a definite term can be termed as a lawful agreement." Therefore, the restrictive covenants provided in a contract shall be valid for the duration of employment and will not be a violation of Section 27 of the Indian Contract Act, 1872. There are many more judgments in favor of the employer. The employment bond gives a right to the employer to claim reasonable liquidated damages in the court of law in case of breach of contract by the employee. An employment bond is an important document that protects employers' interests, with the caveat that the conditions mentioned in the bond should be reasonable.

Dear Sir/Madam,

An employee is required to work for a minimum period, as mentioned in the contract or appointment letter. This condition is typically specified when training is a prerequisite for the job. Before being assigned to a regular job position, the company provides training either on-site or at an external location. If an employee resigns before completing the minimum period outlined in the contract or appointment letter, the company reserves the right to recover the training costs incurred.

Thank you.