With a surge in the number of employees leaving their jobs in search of better opportunities, this landmark judgment is a warning that changing jobs too quickly could come at a cost.
The Supreme Court ruled that service bonds are not mere formalities but legally binding agreements between employers and employees. Advocate Ashwini Dubey stated that the decision will be especially beneficial for sectors like IT, banking, and technology, where companies invest heavily in training and skill development.
While upholding the legality of service bonds, the Court also advised employers to ensure that bond conditions are fair, just, and reasonable. Any terms that are coercive or exploitative may not stand legal scrutiny. The ruling strikes a balance between protecting companies’ investments and safeguarding employee rights.
The verdict stems from a case involving Prashant Naranaware, an employee of Vijaya Bank, who left his job before completing the mandatory three-year service period. The bank imposed a penalty of ₹2 lakh for breach of the service bond. Naranaware challenged the fine in the Karnataka High Court, which granted a stay. However, upon appeal, the Supreme Court reversed the High Court’s order on May 16, siding with the bank.
The Supreme Court clarified that service bonds do not constitute a “restrictive contract” under Section 27 of the Indian Contract Act, and therefore, cannot be deemed invalid. The court emphasized that companies invest significantly in training, re-skilling, and preparing employees for evolving roles, and it is within their rights to protect that investment.
This ruling is expected to set a new precedent in employment practices. Employees will now need to carefully consider service bond clauses before signing and make more informed decisions when planning to change jobs.
Legal experts believe this decision could stabilize attrition rates in high-investment sectors and encourage greater commitment from employees while also prompting companies to maintain transparency and fairness in employment contracts.