1 year ago
I am working in Private an IT organization and looking for a new job, I got another job and I resigned from the current organization and serving 2 months Notice period. In meantime, i got another better job in another organization.
But there is a condition in the first offer letter that I have to pay the penalty that is equivalent to 3 months salary if I not join that organization after accepting the offer.
Is that a legally valid clause and Am I really liable to pay the o pay the amount?
I have digitally signed that document (Docusign)
As by signing you’ve accepted with their terms and conditions thus you’re supposed to pay the penalty mentioned.
Remedies available to employer and employee on breach of service bond
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.
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.