Is employee bond legal and binding on the company

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Employment bonds are employment agreements with negative covenant. Under the Indian Law, the employment agreements with negative covenants is valid and legally enforceable if the parties agree with their free consent i.e. without fraud, coercion, undue influence, mistake and misrepresentation. The Indian courts have held that in the event of a breach of contract by the employee, the employer shall be entitled to recover damages only if a considerable amount of expenditure was borne by the employer. Indian law mandates the employment bonds to be “reasonable” in order to be valid. The term reasonable remains undefined anywhere in the Indian law and therefore the courts have given meaning to “reasonable” depending upon the facts and circumstances of the cases. The proposition which has emerged till now is that conditions stipulated in the contract should be necessary to protect the interest of the employer and compensate the loss caused by breach of contract. Additionally, the penalty or compulsory employment period stipulated should not exorbitant.
The validity of Employment bonds can be challenged on the basis of Section27 of the Indian Contract Act. Section 27 of the Indian Contract Act, 1872 prohibits any agreement in restraint of trade and profession. Any agreement in trade and profession according to Section 27 is void.
As per the mandate of Section 27, any terms and conditions of an agreement which directly or indirectly compels the employee to serve the employer or puts a restriction on them joining the competitor or other employer is not valid under the Indian law, The employee has right to resign from the employment even if he has agreed in the employment bond to serve the employer for a specific period of time.[1]
For an employment bond to be valid under Indian law, it has to be proved that it is necessary for the freedom of trade. In the case where the employer is able to prove that the employee is joining the competitor to disclose the trade secret then the court may issue an injunction order restricting the employee from joining the competitor. If an agreement is challenged on the grounds of violating the provision relating to restraint of trade, the onus is on the party supporting the contract to show that restraint is reasonably necessary to protect his interests.[2]
Following are the requirements of a valid employment bond agreement.
1.    The agreement must be signed by the parties with free consent.
2.    The conditions stipulated must be reasonable and:
•    The conditions imposed on the employee must be proved to be necessary to safeguard the interest of the employer.
1.    The employment bond is to be executed on a stamp paper of appropriate value in order to be valid and enforceable.

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