Bank executive pays compensation for quitting too soon: SC says it's fair

Court's judgment in Vijay Bank case could shape how companies make employment contracts, say legal experts

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

 

The court ruling affirms that minimum service agreements, provided they are reasonable and not unconscionable, are not in violation of the Indian Contract Act. It draws a crucial line between valid employee retention clauses and illegal restraints on future employment. 

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.”