Team SoOLEGAL 23 Jun 2023



 In today's highly competitive business landscape, companies are increasingly investing resources in training and developing their employees to enhance the quality of their products and services. However, the rising attrition rate poses a significant challenge as employees often leave after gaining valuable skills and knowledge. To address this issue, companies are resorting to the use of employee bonds, which are contractual agreements between employers and employees outlining the terms and conditions of employment. This article provides a comprehensive examination of the legality and implications of employee bonds in India.

Prerequisites for a Valid Employee Bond:

For an employee bond to be considered legally valid in India, certain prerequisites must be met. Firstly, both parties must sign the agreement voluntarily and with their informed consent. Secondly, the terms and conditions stipulated in the bond must be reasonable and fair. Finally, the conditions imposed on the employee should be proven necessary to protect the employer's legitimate interests.

Employee Bond Legality:

The legality of employee bonds hinges on their adherence to Indian contract law. The Indian Contract Act, 1872 stipulates that for a contract to be enforceable by law, it must be entered into voluntarily without coercion, undue influence, deception, or mistake. Therefore, an employee bond that meets these requirements can be considered lawful and legally enforceable.

However, certain legal provisions restrict the validity of employee bonds in India, such as Section 27 of the Indian Contract Act prohibits agreements that interfere with fair trade or lawful professions. Accordingly, any bond that restricts an individual from engaging in fair trade or a lawful profession, directly or indirectly, is deemed null and void. Moreover, Article 19(1)(g) of the Indian Constitution grants individuals the freedom to practice a lawful profession, trade, or business. To be considered lawful in India, an employee bond must not contravene these provisions, ensuring the preservation of free trade and fair practices in legally permitted professions.

Remedies Available for Employees and Employers:

 In the event of a breach of an employee bond, the employer may be entitled to compensation. However, the compensation awarded should be reasonable and commensurate with the actual loss suffered by the employer. The court determines the fair amount of compensation, taking into account the specific circumstances of the case. It is important to note that even if the bond includes a penalty amount for violations, the employer is not automatically entitled to the full amount, as the court assesses the appropriate compensation.

Course of Action Following a Breach:

When an employee breaches an employee bond, companies typically initiate a legal process. This involves sending a legal notice demanding compliance or payment as stipulated in the bond. If the employee fails to comply, the company can file a lawsuit in a court of proper jurisdiction to recover the due amount, based on the terms and conditions of employment.


Employee bonds can be a valuable tool for companies in retaining trained and skilled employees. However, their legality in India depends on various factors, including voluntary consent, reasonableness of terms and conditions, and compliance with legal provisions. It is essential for both employers and employees to seek legal counsel before entering into such agreements to ensure their rights and obligations are effectively safeguarded. By adhering to the legal requirements and considering the implications, employers can strike a balance between protecting their interests and respecting the rights of their employees in the context of employee bonds.

We have tried to address the possible queries related to legality of Employee Bond in India, still if there are any further questions, please contact us at +9810929455 or via email at

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