Employment contract has arbitrary clause. Can they enforce it legally?

In Labour & Service Law

Are one sided employment contracts valid and enforceable legally? I've joined a large size proprietorship company in senior management, and  before joining I was given the LOI stating my designation & date of joining. Upon joining a formal offer letter was issued (printed on company letterhead) mentioning full details & various clauses.

One of the clauses which is very shocking is that the company can terminate me anytime without assigning any reason with a notice / salary of 1 month whereas if I leave the company, I'll have to pay last 6 months salary.

Reason they gave me for this clause isn't justified. My question is if I leave the company, can the company press for last 6 months salary legally?

Answers (1)

77 votes

The clause which is imposed by the company's management violates the equity doctrine and also hits Section 23 of the Contract Act. There are several court judgments which say that such contracts are oppressive in nature and void. But there are also judgments which say that the employee with his eyes wide open agreed to such a clause and hence he is bound by such provision. 

If you have any other offer with same remuneration without such oppressive clauses, then go for that offer.  If you do not have any such offer on hand, then take a risk that in the event of your resignation, they demand for 6 months' salary and you have to contest that provision in court of law.

It may also be mentioned here that the Indian Courts have given freedom to private parties when it comes to drafting of private agreements. So as per law the termination clause is valid, however the same can be challenged in the Court of law (when & if the time comes - in the event of your resignation) for being partial and unfair considering the company is only required to give a notice/salary of 1 month while you are required to pay the last 6 months salary.

We feel that you should express your concerns to the HR department of your company and seek their response to decide your next course of action.

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