The Great Retention War: Legalities of Employment Bonds, FnF, and Exit Traps

In this 'Leading Questions' section, Saurabh Seth dissects the difference between corporate scare tactics and enforceable law, offering practical strategies for employees navigating bonds, notice periods, and exit disputes.

Question: Let’s start with the most aggressive tool: the Employment Bond. We see freshers signing agreements mandating a two-year tenure or a payment of ₹2-5 lakhs. Is this legally enforceable in India, or is it merely a scare tactic?

Answer: It is largely a scare tactic. The most practical thing for an employee to know is this: A bond amount is a "cap," not a price tag.

Just because the contract says "Pay ₹5 Lakhs if you leave," it doesn't mean the company is entitled to that amount. Under Indian law, an employer can only recover the actual money they spent on your training.

My advice? Don't be intimidated by the big number. If they demand payment, ask them to produce the invoices. Did they pay for an external certification? Did they fly you abroad? If the training was just "on-the-job" learning or guidance from a senior, the recoverable amount is legally zero. If they can't prove the expense with receipts, the bond is usually unenforceable.

Question: Moving to the exit phase. A common grievance is the withholding of Full and Final (FnF) settlements and relieving letters. Companies often say, "Clear the disputed bond amount, or no experience letter." Is this legal leverage?

Answer: It is illegal leverage, but companies do it because they know civil litigation takes years.

Here is the strategic way to handle it. Ignore the salary dispute and look at your Provident Fund (PF).

Withholding salary is a civil dispute, but if an employer has deducted PF from your salary and failed to deposit it (or withheld it), that constitutes "Criminal Breach of Trust" under the law. Even the police take this seriously. A legal notice that specifically mentions the criminal liability for withholding PF often pressures the company to settle the entire FnF and issue the relieving letter immediately.

Question: What about Notice Periods? Contracts often state "90 days notice or salary in lieu thereof." However, when an employee offers to pay, companies sometimes refuse, citing "business criticality." Can they force specific performance?

Answer: No. They cannot force you to sit in that chair.

The law is clear. Specific performance of a service contract is barred. You cannot compel an employee to work against their will; that would be forced labour.

If you leave without serving notice, you are essentially breaking a contract. The penalty for that is financial. You may owe them the salary for the unserved days, but that is the maximum liability. Business criticality is an operational risk, not a legal obligation to remain at your desk.

Question: Let’s touch upon "Moonlighting." Post-pandemic, many were fired for dual employment. Does moonlighting justify the forfeiture of statutory dues like Gratuity?

Answer: This is the one area where employees need to be extremely careful. The legal landscape has shifted significantly. Previously, an employer needed a criminal court conviction to forfeit your Gratuity on the grounds of "moral turpitude." However, recent Supreme Court rulings (such as Western Coalfields) have changed this. Now, an employer can forfeit your Gratuity based solely on an internal disciplinary enquiry.

If they hold an internal enquiry and conclude that your moonlighting involved "dishonesty" or "fraud" (like falsifying timesheets or working for a competitor), they can label it "moral turpitude" and block your Gratuity. The bar for losing your retirement money is now much lower.

Question: Finally, non-compete clauses. Can a company stop an employee from joining a competitor for one year post-exit?

Answer: The short answer is No.

Post-termination non-compete clauses are void in India. It doesn't matter what you signed; once you leave the company, you are free to join a competitor. The courts have settled this in the landmark Percept D'Mark case.

However, be careful with data. While they can't stop you from taking a new job, they can sue you if you take their client lists, code, or proprietary data. Leave the laptop and the data behind, and you are free to go.

Saurabh Seth is an independent counsel and arbitrator based out of New Delhi. He regularly practices in the Delhi High Court and heads the Chambers of Saurabh Seth.