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Economic Times
26-05-2025
- Business
- Economic Times
Quitting your job too soon could come at a price: This is what Supreme Court just ruled about resignation penalties
Recently, the Supreme Court ruled that employers can impose penalties on employees who break minimum service tenure agreements or resign before the time period specified in their employment contract. While there's no set time frame, contracts must be reasonable and not against public policy. Read on to know how this decision impacts your employment flexibility and career opportunities post you resign from that company. Tired of too many ads? Remove Ads The case, as it happened Tired of too many ads? Remove Ads What is the maximum time frame an employment bond can enforce on employees in such cases? The restriction should be operative only during the term of employment and should not restrict the employee from pursuing employment of his interest post-termination of his employment. The restriction should be reasonable and not against public policy. Each case is different and should be decided considering the factual matrix How does this impact the employee and employer? Do such penalties also affect an employee's career post their tenure with a company? Tired of too many ads? Remove Ads Does this decision mean that employees will be restricted from pursuing employment opportunities with other companies post his/her resignation from the previous company? If you're looking to quit your current job early, without completing the mandatory minimum term that is mentioned in your contract, it's time to think again! Ruling in the case of Vijaya Bank vs. Prashant B. Narnaware, the Supreme Court held that an employer can rightfully impose penalties on an employee who has not fulfilled the minimum service tenure requirement as mentioned in his/her employment means that, for instance, if your employment contract with your company has a minimum tenure of 2 years that you are mandated to complete, and if you decide to quit before this time, your employer could legally penalise you for it.'The restrictive covenant prescribing a minimum term cannot be said to be unconscionable, unfair, or unreasonable and thereby in contravention of public policy,' said the SC judgment, calling it essential for reducing attrition and improving is the maximum time frame an employment bond can enforce in such cases? Are employment contracts absolute in nature, disregarding anything therein could mean hefty penalties for the employee? Read on to know 1999, Prashant B. Narnaware joined Vijaya Bank as a probationary assistant manager. In 2006, the bank advertised for a job that required a 3-year bond or minimum service tenure, failing which would mean a penalty of Rs 2 signed this bond and was appointed as senior manager (cost accountant) in September 2007. However, in July 2009, Narnaware resigned from his job to join IDBI Bank. While he paid the Rs 2 lakh penalty, he challenged the clause thereafter. In 2014, the high court ruled in his favour, asking Vijaya Bank to refund this amount. However, in May 2025, the apex court overturned the verdict, upholding the minimum service tenure and penalty mentioned in the employment emphasises that while there is no standard minimum time frame for this purpose, the employment contract should be reasonable. While employment bonds are not absolute, the legality of every employment bond is generally tested considering the following, according to experts:The impact of lock-in clauses can be significant for both employees and employers. From an employer perspective, a minimum service clause can work as effective employee retention and reduce attrition, improve efficiency, and recover costs associated with recruiting and training an from an employee standpoint, such minimum service requirements reduce the flexibility of opting out of a job and could be a major deterrent to joining an organization where such mandated tenures are could potentially also mean more employees opting for minimum service tenure in service contracts. 'Overall, for future employments, this ruling means that employers can lawfully adopt minimum service requirements and reasonable liquidated damages clauses in employment contracts so long as it is not unconscionable, unfair, or opposed to public policy, and the burden would be on the employer to justify their necessity and proportionality,' says Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas & says Rachit Bahl, senior partner at AZB & Partners. 'Clauses in the employment contract, which require the employee to serve a minimum duration and the breach of which requires the employee to pay liquidated damages – are generally considered valid and enforceable, since they only apply to the employee during their term of the same must be very clearly communicated to the employee beforehand.'Financial consequences for breach should be reasonable & justifiable, and the restriction should also be for a reasonable tenure. The legal position on post-employment restrictions remains unchanged and unaffected by this decision from the Supreme Court,' he This, in no way, hampers the freedom of the employee to pursue other career opportunities post they leave a company. As in this case, the SC noted that the Rs 2 lakh charged was not a penalty but rather liquidated damages for Vijaya Bank, which had invested in training Narwarane, a mid-management employee by then. This did not prevent the employee from future employment and, thereby, restrain their trade prospects. Moreover, as Suma R. V., partner at Kochhar & Co., explains, such conditions are not absolute.'The recent decision of the Supreme Court clarified that the restrictive covenants operating during the subsistence of employment contracts do not put a clog on the freedom of the employees to trade or employment. As per the court, the employers can require the employees to serve a minimum term and to indemnify the employer in case of premature resignations. However, such conditions are not absolute,' she the Supreme Court decision did not specifically deal with the restriction not to work with the competitors for a period post-termination in this case, it is important to remember that any bond restricting employees from working with the competitors for a period post-termination (non-compete clauses) is generally not valid and legal. 'They are generally seen as a restraint of trade under Section 27 of the Indian Contract Act, and hence, are not enforceable,' adds Suma.
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Business Standard
23-05-2025
- Business
- Business Standard
Bank executive pays compensation for quitting too soon: SC says it's fair
What's the cost of walking away from a job too soon? It was Rs 2 lakh for one officer of Vijaya Bank and the Supreme Court has ruled that's a fair cost to pay. Early exit The court, in a recent decision that could have bearing on how organisations frame employment contracts, upheld the legality of a bond signed by Prashant B Narnaware, who quit Vijaya Bank prematurely. Narnaware had agreed to serve the bank for five years or pay damages. When he resigned after just 18 months, the bank sought compensation, triggering a legal battle that went all the way to the top court. Not a restraint, but retention Employers get a boost Debjani Aich, partner at legal firm IndusLaw, said the judgment reinforces a nuanced legal principle: 'Restrictive covenants during employment are not restraints of trade. They're a means to protect the employer's operational interests, especially where hiring and onboarding involve significant investment.' While the case involved a public-sector bank, the precedent will echo in private sector boardrooms. 'Employers may now design bonds not just around training costs, but broader damages reflecting the disruption from early exits, especially at mid and senior levels,' Aich said. Lock-in clauses in the modern workplace Pooja Ramchandani, partner at Shardul Amarchand Mangaldas & Co., said the verdict comes in the backdrop of a changing employment landscape. 'In today's fast-evolving job market, with its high demand for specialised skills, retention tools like lock-in clauses are becoming increasingly important,' she noted. Ramchandani, however, cautioned that such clauses can be a double-edged sword. 'While they can reduce attrition and recover costs, they also limit employee mobility. The key is proportionality, the employer must justify that the clause is fair and serves a legitimate business interest.'
Time of India
22-05-2025
- Business
- Time of India
Quitting your job too soon could come at a price: This is what Supreme Court just ruled about resignation penalties
The case, as it happened Live Events What is the maximum time frame an employment bond can enforce on employees in such cases? The restriction should be operative only during the term of employment and should not restrict the employee from pursuing employment of his interest post-termination of his employment. The restriction should be reasonable and not against public policy. Each case is different and should be decided considering the factual matrix How does this impact the employee and employer? Do such penalties also affect an employee's career post their tenure with a company? Does this decision mean that employees will be restricted from pursuing employment opportunities with other companies post his/her resignation from the previous company? If you're looking to quit your current job early, without completing the mandatory minimum term that is mentioned in your contract, it's time to think again! Ruling in the case of Vijaya Bank vs. Prashant B. Narnaware, the Supreme Court held that an employer can rightfully impose penalties on an employee who has not fulfilled the minimum service tenure requirement as mentioned in his/her employment means that, for instance, if your employment contract with your company has a minimum tenure of 2 years that you are mandated to complete, and if you decide to quit before this time, your employer could legally penalise you for it.'The restrictive covenant prescribing a minimum term cannot be said to be unconscionable, unfair, or unreasonable and thereby in contravention of public policy,' said the SC judgment, calling it essential for reducing attrition and improving is the maximum time frame an employment bond can enforce in such cases? Are employment contracts absolute in nature, disregarding anything therein could mean hefty penalties for the employee? Read on to know 1999, Prashant B. Narnaware joined Vijaya Bank as a probationary assistant manager. In 2006, the bank advertised for a job that required a 3-year bond or minimum service tenure, failing which would mean a penalty of Rs 2 signed this bond and was appointed as senior manager (cost accountant) in September 2007. However, in July 2009, Narnaware resigned from his job to join IDBI Bank. While he paid the Rs 2 lakh penalty, he challenged the clause thereafter. In 2014, the high court ruled in his favour, asking Vijaya Bank to refund this amount. However, in May 2025, the apex court overturned the verdict, upholding the minimum service tenure and penalty mentioned in the employment emphasises that while there is no standard minimum time frame for this purpose, the employment contract should be reasonable. While employment bonds are not absolute, the legality of every employment bond is generally tested considering the following, according to experts:The impact of lock-in clauses can be significant for both employees and employers. From an employer perspective, a minimum service clause can work as effective employee retention and reduce attrition, improve efficiency, and recover costs associated with recruiting and training an from an employee standpoint, such minimum service requirements reduce the flexibility of opting out of a job and could be a major deterrent to joining an organization where such mandated tenures are could potentially also mean more employees opting for minimum service tenure in service contracts. 'Overall, for future employments, this ruling means that employers can lawfully adopt minimum service requirements and reasonable liquidated damages clauses in employment contracts so long as it is not unconscionable, unfair, or opposed to public policy, and the burden would be on the employer to justify their necessity and proportionality,' says Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas & says Rachit Bahl, senior partner at AZB & Partners. 'Clauses in the employment contract, which require the employee to serve a minimum duration and the breach of which requires the employee to pay liquidated damages – are generally considered valid and enforceable, since they only apply to the employee during their term of the same must be very clearly communicated to the employee beforehand.'Financial consequences for breach should be reasonable & justifiable, and the restriction should also be for a reasonable tenure. The legal position on post-employment restrictions remains unchanged and unaffected by this decision from the Supreme Court,' he This, in no way, hampers the freedom of the employee to pursue other career opportunities post they leave a company. As in this case, the SC noted that the Rs 2 lakh charged was not a penalty but rather liquidated damages for Vijaya Bank, which had invested in training Narwarane, a mid-management employee by then. This did not prevent the employee from future employment and, thereby, restrain their trade prospects. Moreover, as Suma R. V., partner at Kochhar & Co., explains, such conditions are not absolute.'The recent decision of the Supreme Court clarified that the restrictive covenants operating during the subsistence of employment contracts do not put a clog on the freedom of the employees to trade or employment. As per the court, the employers can require the employees to serve a minimum term and to indemnify the employer in case of premature resignations. However, such conditions are not absolute,' she the Supreme Court decision did not specifically deal with the restriction not to work with the competitors for a period post-termination in this case, it is important to remember that any bond restricting employees from working with the competitors for a period post-termination (non-compete clauses) is generally not valid and legal. 'They are generally seen as a restraint of trade under Section 27 of the Indian Contract Act, and hence, are not enforceable,' adds Suma.
Mint
20-05-2025
- Business
- Mint
Jumping jobs? A Supreme Court judgement just made it tough, especially for freshers
In a development that has the potential to lower attrition rates across industries, a Supreme Court judgement late last week allowed employers to enforce a service bond. The court order clarified that companies can mandate a minimum tenure and recover training costs from employees who leave prematurely without worrying that it will violate the country's contract law. The judgment stemmed from a dispute where an employee–Prashant B. Narnaware of Vijaya Bank–was required to pay ₹2 lakh as 'liquidated damages' for quitting his job before completing a mandatory three-year service. While the Karnataka High Court ruled in favour of Narnaware, the apex court reversed the judgement in its order on 16 May. 'From the prism of employer-employee relationship, technological advancements impacting nature and character of work, re-skilling and preservation of scarce specialized workforce in a free market are emerging heads in the public policy domain which need to be factored when terms of an employment contract is tested on the anvil of public policy," the court said in its order that has been seen by Mint. Also read: Beyond the layoffs: Startup hiring cools as AI, money worries sweep businesses The order further stated that the service bond in Vijaya Bank's appointment letter did not constitute a 'restraint of trade"–a legal principle enshrined in Section 27 of the Contract Act that typically prohibits agreements restricting someone's right to practice a lawful profession–and was also not opposed to public policy. Experts said the ruling would pave the way for both public and private sector firms to incorporate and enforce such clauses to protect their training costs and curb early attrition, as long as they keep the terms reasonable and accurately estimate the costs involved. For instance, 'training bonds'–meant for freshers and junior roles–are already popular in the IT and ITeS sector. Typically ranging from six months to a year with amounts between ₹50,000 and ₹1 lakh, these bonds cover the costs of training new employees and are also used when employees are sent abroad for projects, recognizing the exposure and experience gained. The latest order will see widespread adoption of such practices beyond the IT and ITeS sector, experts said. Also read: Code junkies make way for AI pros as skills landscape shifts 'The employer can implement such a term of employment and enforce it in case of breach by the employee, by recovering the costs incurred including for training," said Vikram Shroff, partner for employment law at AZB & Partners, while adding that companies need to ensure that 'conditions imposed are reasonable in nature and are not treated as restraint of trade". At the same time, lawyers point out that it cannot be a penalty. 'The amount payable under bond is not a penalty, as penalty is non-enforceable. It would be in the nature of liquidated damages, which assumes general pre-estimate of damages," noted Arka Majumdar, employment law partner at Argus Partners. The judgement comes at a time when hiring is going through a sluggish period but companies remain vulnerable to losing their top talent. During the pandemic and for a year after that, attrition was at record highs with employees moonlighting, juggling counter offers and leaving within months. The latest order will impact quick exits in many firms, if applied. 'Pursuant to the latest judgement, employers across sectors may now feel more confident about including such provisions in their contracts, but it remains critical that these are carefully drafted," said Anshul Prakash, partner for employment labour and benefits at law firm Khaitan & Co. Also read: Mark My : You are now reporting to your colleague or your junior! Prakash pointed out that a bond period of one-three years and compensation reflecting actual training costs or a reasonable estimate is 'likely to be enforceable". The amount should not be disproportionate to the employee's salary or arbitrary. Both private and public sector firms are likely to follow suit. 'While the order pertains to PSUs, it is not limited to PSUs only and it could lead to private players reworking their employment contracts," said Adil Ladha, partner at Saraf and Partners. 'What constitutes training costs and how much should be recoverable in case of an early exit will be decided by companies on their own and, therefore, employees must pay attention to such clauses." However, Majumdar of Argus Partners expects public and private sector service bonds to be assessed differently, with courts applying more scrutiny to private sector bonds.
