• Previous company not completing exit

Hello, 
I received a job offer from a SW vendor. There was no mention of bond or other limitations in the initial offer. I did not sign any contract till 2 weeks after joining since the HR was on vacation. Then i was asked to sign a separate sheet with list of many additional conditions. I refused and stopped going to their office. Now they refuse to complete exit formalities and block my employment in the parent organisation. Please advise on course of action to be taken
Asked 4 years ago in Labour

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13 Answers

Hello,

1) Write this the company seeking relieving by stating your reason not to continue on the organisation. If they are still compelling or causing you trouble send them a legal notice debating the same.

2) The cannot block your employment with any other organisation as it amounts to curtailment of your right to livelihood.

3) If the company is unwilling to amicably relieve you you need to exercise your legal rights as indicated above.

S J Mathew
Advocate, Mumbai
3386 Answers
175 Consultations

5.0 on 5.0

1. Well, if initially the terms and conditions were set and alter it was changed unilaterally by the company then you have the right to refuse sign the changed agreement.

2. Now you did mistake by stopping to attend the company without informing them about the changes made by the company which led you to stop attending the company.

3. Now inform the company through e-mail and ask for your release letter.

Devajyoti Barman
Advocate, Kolkata
22515 Answers
402 Consultations

5.0 on 5.0

Since, you haven't entered into any agreement with the company, you won't have to serve any notice period, but formal intimation that you are leaving the company is required and should be done by you asking the company to relieve you.

If they fail to do so, you can serve a legal notice to them asking them to provide your relieving documents as they cannot make you stay in the job against your will as per section 27 of the Indian Contract Act.

Siddharth Jain
Advocate, New Delhi
5930 Answers
101 Consultations

5.0 on 5.0

Dear Sir,

They cannot force you like that. Get issue a legal notice then they will come to terms. The law on notice period is as follows.

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The Indian courts have been reluctant to restrain the employee from joining a competitor/other employer

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Non compete clause, it is prohibited under the Law of Contracts.

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Section 27 of the Indian Contract Act-1872 provides that ”Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void”.

Exception : One who sells goodwill of a business with a buyer to refrain from carrying on a similar business within specified local limits so long as the buyer, or any person derivingtitle to the goodwill from him, carries on a like business therein provided that such limits appear to the court reasonable, regard being had to the nature of business.

Indian law is therefore very clear and strict on this point, any such non compete agreement shall not be binding on the parties and the same shall be null and void. By using the term void ab initio, for such type of agreements it has shown that it has kept such non compete clause in the agreements beyond consideration. Indian courts have also consistently refused to enforce post termination non compete clauses in employment contracts as “restraint of trade” is impermissible under section 27 of the Indian Contract Act-1872, and have held them as void and against the public policy because of their potential to deprive an individual of his or her fundamental right to earn a living.

However considering the developed social, legal, and corporate circumstances, and the required confidentiality and the integrity of the employments, the judiciary has inclined its view towards giving some regard to the non compete agreements. In the case of ‘Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.’ , the Hon’ble Supreme Court observed that-“restraints or negative covenants in the appointment or contracts may be valid if they are reasonable”. Further in one case - V.F.S. global services Pvt. Ltd Vs Mr. Suprit Roy, 2008(2) Bom CR 446, the Bombay High court established the principle that a restraint on the use of trade secrets during or after the cessation of employment does not tantamount to a “restraint on trade” under section 27 of the Act and therefore can be enforceable under certain circumstances. In the case of Mr. Diljeet Titus, Adv Vs Mr. Alfred A Adebare & Ors 2006(32)PTC 609 (Del), Delhi High court held that “The real test was the degree of employment control to determine whether it was a contract of service…” .

Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.

Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.

Enforceability Of Employment Bond

http://www.mondaq.com/india/x/237806/employee+rights+labour+relations/Enforceability+of+Employment+Bond

1 Central Inland Water Transport Corporation v Brojonath Ganguly, (1986)IILLJ171SC

2 Niranjan Shankar Golikari v The Century Spinning and Manufacturing Company Ltd, AIR 1967 SC 1098

3 IBS Software Services Group v Leo Thomas, 2009 (4)KLT 797

4 Section 73 of the Contract Act, 1872

5 Section 74 of the Contract Act, 1872

6 Nandganj Sihori Sugar Company Ltd v Badrinath Dixit, & Ors, AIR1991 SC 1525

7 Gujarat Bottling Co Ltd v Coca Cola Company, AIR 1995 SC 2372

8 MANU/DE/6554/2011

9 MANU/AP/0416/2011

Introduction

The present era is experiencing phenomenal changes in the economy and industrial processes, which has resulted in greater business competition. To cope up with competition, the employers incur huge expenditure in imparting training to their employees for improving the quality of goods and services of the company. However, sometimes the employees leave their employment after honing the skills & improving the knowledge of the industry for better salary and incentives. The increasing rate of attrition subjects the employers not only to financial losses but also delays in completing the ongoing projects thereby directly impacting their goodwill & reputation in the market. Therefore, in order to safeguard their interest, employers have of late started to obtain an employment bond from their employees who are found suitable for training or skill development. Such employment bonds are agreements between the employer and employee wherein among other terms & conditions of the employment, an additional clause is incorporated which requires the employee to serve the employer compulsorily for a specific time period else refund the amount specified as bond value.

The question that arises here is whether such a method to retain employees is effective, acceptable and enforceable under the law. This article discusses the enforceability of employment bond and the rights available to the employers and employees under the agreement in light of various court decisions.

1. Employment bond: need and enforceability?

Generally before selecting employees for providing training or skill enhancement program, employers take necessary safeguard of conducting interviews, take assurances that employee will stick to complete the projects for which he is being trained and shall also train the other co-employees so that an effective and efficient work environment is created. However, employees still tend to leave for greener pastures and, therefore, it is increasingly becoming necessary for the employers to enter into an employment bond to safeguard their interests. If employee leaves the employment without serving the company for agreed time period, the employer is expected to suffer due to the undue delay in completing the work undertaken, which can ultimately affect its reputation/creditability in the market. To prevent such situations, the employer can compensate the loss incurred if a valid employment bond has been executed. Such bonds also deter the employees from committing any breach of the agreed terms and conditions.

Now, the most pertinent question that arises here is whether the employment agreement with negative covenant is enforceable under Indian laws? The simple answer is yes. Such employment agreements with the negative covenant is valid and legally enforceable if the parties agree with their free consent i.e. without force, coercion, undue influence, misrepresentation and mistake. The courts in India have held in its various judgments that in the event of breach of contract by the employee, the employer shall be entitled to recover damages only if a considerable amount of money was spent on providing training or incurred other expenses for the employee. Further, the courts have been reluctant to restrain the employee from joining a competitor/other employer. The employment bond will not be enforceable if it is either one sided, unconscionable or unreasonable. Therefore, it is pertinent to be cautious while drafting the employment bond because it is mandatory that the conditions mentioned in the employment bond, including the compulsory employment period and amount of penalty are reasonable in order to be valid under the Indian law. The term "reasonable" is not defined under the legislation and, therefore, the meaning has to be determined on a case by case basis depending upon the issues involved and circumstances of the case. In general, the conditions stipulated in the contract should justify that it is necessary to safeguard the interest of the employer and to compensate the loss in the event of breach of contract. Further, the penalty or compulsory employment period stipulated in the contract should not be exorbitant to be considered as valid and to be regarded as reasonable.

2. Challenging the enforceability of employment bond

The validity/enforceability of the employment bond can be challenged on the ground that it restrains the lawful exercise of trade profession or trade or business. As per section 27 of the Contract Act, 1872, any agreement in restraint of trade or profession is void. Therefore, any terms and conditions of the agreement which directly or indirectly either compels the employee to serve the employer or restrict them from joining competitor or other employer is not valid under the law. The employee, by signing a contract of employment, does not sign a bond of slavery and, therefore, the employee always has the right to resign the employment even if he has agreed to serve the employer for specific time period.1 However, the restraints or negative covenants in the agreement or contract may be valid if they are reasonable. For a restraint clause in an agreement to be valid under law, it has to be proved that it is necessary for the purpose of freedom of trade. For instance, if the employer is able to prove that the employee is joining the competitor to divulge its trade secrets then the court may issue an injunction order restricting the employment of the employee to protect the interests of the employer. Whenever an agreement is challenged on the ground of it being in restraint of trade, the onus is upon the party supporting the contract to show that the restraint is reasonably necessary to protect his interests.2

In order to execute a valid employment bond, the parties have to ensure that the following requisites have been complied: (i) the agreement has to be signed by the parties with free consent; (ii) the conditions stipulated must be reasonable; and (iii) the conditions imposed on the employee must be proved to be necessary to safeguard the interests of the employer. Further, the employment bond stipulating conditions such as to serve the employer compulsorily for a specific time period or penalty for incurring the expenses is in the nature of the indemnity bond and, therefore, such kind of employment bond has to be executed on a stamp paper of appropriate value in order to be valid and enforceable.3

3. Remedies available to employer and employee

In the event of breach of employment bond, the employer might incur a loss and, therefore, may be entitled for compensation.4 However, the compensation awarded should be reasonable to compensate the loss incurred and should not exceed the penalty, if any, stipulated in the contract.5 Usually, the court determines the reasonable compensation amount by computing the actual loss incurred by the employer having regard to all circumstances of the case. Even if the bond stipulates payment of any penalty amount in the event of breach, it does not mean that the employer shall be entitled to receive the stipulated amount in full as compensation on the occurrence of such default; rather the employer shall be entitled only for reasonable compensation as determined by the court. While exploring alternate remedies available to the employer in the event of default by the employee, it would be interesting and worthwhile to discuss whether the employers are entitled to seek for reinstatement of their employee or obtain restraining order against the employee from joining any competitor/alternate employer because many such similar reliefs have been sought by the employers in various suits. The apex court, while dealing with similar query, has held that the specific performance action cannot be sought for breach of contract of personal service or bond6 and, therefore, the employer shall not be entitled to seek for reinstatement of their employees as relief in the event of breach of bond. In another matter, the apex court has held that it is not bound to grant an injunction in every case and an injunction to enforce a negative covenant would be refused if it would indirectly compel the employee to idleness or to serve the employer7 and, therefore, the courts are also reluctant to grant injunction against the employees restricting their employment with other employer unless it is necessary for the protection proprietary interests or trade secrets of the employer.

As mentioned, the conditions stipulated in the employment bond should be reasonable in order to be valid and, therefore, even if unreasonable condition/clauses are stipulated in the contract such as imposing exorbitant duration of compulsory employment period or huge penalty upon the employee, the court shall award compensation only if it determines that the employer has incurred loss by such breach of contract. The court normally considers the actual expenses incurred by the employer, the period of service by the employee, conditions stipulated in the contract to determine the loss incurred by the employer to arrive at the reasonable compensation amount. For instance, in the case of Sicpa India Limited v Shri Manas Pratim Deb,8 the plaintiff had incurred expenses of INR 67,595 towards imparting training to the defendant for which an employment bond was executed under which the defendant had agreed to serve the plaintiff company for a period of three years or to make a payment of INR 200,000. The employee left the employment within a period of two years. To enforce the agreement the employer went to the court, which awarded a sum of INR 22,532 as compensation for breach of contract by the employee. It is crucial to note that though the bond stipulates a payment of INR 200,000 as compensation for breach of contract, the judge had considered the total expenses incurred by the employer and the employee's period of service while deciding the compensation amount. Since the defendant had already completed two years of service out of the agreed three year period, the judge divided the total expenses of INR 67,595 incurred by the plaintiff into three equal parts for three years period and awarded a sum of INR 22,532 as reasonable compensation for leaving the employment a year before the agreed time period. Similarly, the High Court of Andhra Pradesh in the case of Satyam Computers v Leela Ravichander,9had also reduced the compensation amount considering the period of service of the employee.

Conclusion

In view of the aforesaid discussions and various court decisions, the employment bond is considered to be reasonable as it is necessary to protect the interests of the employer. However, the restrains stipulated upon the employee in the said contract should be "reasonable" and "necessary" to safeguard the interests of the employer or else the validity of the bond may be questioned. The employees are always free to decide their employment and they cannot be compelled to work for any employer by enforcing the employment bond. The court can; however, issue order restricting the employment of the employee only if the said action is deemed necessary to safeguard the trade secrets/proprietary interest of the employer. In the event of breach of contract by the employee, the only remedy available to the employer is to obtain a reasonable compensation amount. The compensation amount awarded shall be based upon the actual loss incurred by the employer by such breach.

Kishan Dutt Kalaskar
Advocate, Bangalore
6050 Answers
381 Consultations

4.8 on 5.0

1) you have not signed any contract

2) you are not bound to accept the conditions mention in appointment letter and separate sheet enclosed

3) you don’t need to fulfill any exit formaiities

Ajay Sethi
Advocate, Mumbai
87947 Answers
6207 Consultations

5.0 on 5.0

Since there is no agreement, are there any condition of notice period in offer letter??

If not then you can simple issue a notice stating that you are leaving job due to difficulty and further cannot continue due to there harsh terms and condition disclosed after joining the employment. Further ask them to complete the reliving formalities or you can take a legal action, if they fail you can file a civil suit against company.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

You need to send them legal notice seeking for relieving letter or complete exit formality and in your notice mention that in case they do not relieve you you will claim for damages that you may sustain financially for the non chaplaincy attitude of the company and also that you will raise industrial dispute in labour court.

Swarnarka Chowdhury
Advocate, Mysore
1878 Answers
5 Consultations

5.0 on 5.0

Firstly, you please give them a mail disclosing all the details as you

Have mentioned above.

Secondly, then if they do not react to that then give them a legal notice for compliance if the existing conditions.

Thirdly, if they still do not do then take them to the labour court.

I am suggesting you all these above as they have done wrong with you on the face of it.

Good Luck...!

Sanjay Baniwal
Advocate, South Delhi
5464 Answers
13 Consultations

5.0 on 5.0

Dear Sir, if you are not signed offer letter (appointment of agreement) you don't worry, company cannot do anything. As per your query you are working with sub ordinate company under the parent company?, If yes, you should explain through email and your HR and request them to release and to complete exit formalities. I hope they will do it. All the best.

C. V. Jadhav
Advocate, Bangalore
545 Answers
18 Consultations

4.7 on 5.0

1) You can cross questions with them and why you people had blocked employment in parent company. When you had not signed on any bond.

2) If management is not listening than you can make a complaint with labor registrar against management.

Ganesh Kadam
Advocate, Pune
12338 Answers
191 Consultations

4.9 on 5.0

1. They are blackmailing you clearly

2. Issue a strong legal notice through a good lawyer to complete the exit formalities

3. If they have withhold your documents then lodge police complaint

Yusuf Rampurawala
Advocate, Mumbai
6882 Answers
79 Consultations

5.0 on 5.0

Since you are not a confirmed employee of the company and moreover since you have not signed employment offer, they cannot enforce any law against you in this regard.

You issue a proper legal notice demanding your dues and instructions to not to trouble you in any manner.

You can discuss with a local advocate on all such further issues.

T Kalaiselvan
Advocate, Vellore
78104 Answers
1543 Consultations

5.0 on 5.0

1. You are bound serve notice period according to the offer of parent company.

2. You may issue legal notice parent company to complete your exit formalities and settle the dues.

Niranjan
Advocate, Bangalore
844 Answers
9 Consultations

4.9 on 5.0

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