When we think about the basics of any workplace relationship such as clear roles, agreed pay, and mutual expectations, we normally assume these are modern constructs. However, their roots can be traced back to the ancient city of Uruk (Modern day Iraq) in Mesopotamia around 3000 BCE, where some of the earliest known employment agreements were created as formal contracts that bound workers to employers specifying obligations, compensation (often in the form of beer rations) and even penalties if the worker failed to complete the agreed term. These contracts were witnessed by officials and recorded in writing using the cuneiform script, showing a systematic and bureaucratic approach to labour engagement and compensation, making it legally enforceable. Also, further evidence from cities like Lagash and the Ur III dynasty, dating from around 2350 to 2000 BCE, reveals administrative systems that tracked attendance, productivity, and payments. Similarly records from ancient Egypt around 1250 BCE include detailed rosters noting not just who worked, but also when and why someone was absent, and what makes these records significant is that the workers involved were not slaves or family members, but hired labourers with clearly defined terms indicating these relationships were formal, impersonal, legally cognizable and documented, offering one of the earliest blueprints for the employment structures we use today.
While Sumerian clay tablets remain history’s earliest clear example of a written, enforceable employment bond between an employer and an employee, offering the first blueprint for modern contractual labour relationships, in India’s evolving labour landscape, employment bonds have become a familiar and important, though often controversial feature, especially in sectors like banking, IT, and education. These contracts typically require employees to serve a minimum term or face financial penalties, apparently to compensate employers for the costs of training or recruitment, and while such arrangements may seem pragmatic from a business standpoint, they also raise important questions about fairness, freedom, and the boundaries of contractual obligation.
The Supreme Court recently resolved the contentious issue of whether employment bonds are valid and legally enforceable in India. It held that employment bond agreements mandating a minimum service period or imposing a financial penalty for early resignation are legally valid.
In the recent case of Vijaya Bank & Anr. v. Prashant B. Narnaware (2025 INSC 691), India’s Supreme Court the SC examined: (i) restraint of trade under Section 27 of the Indian Contract Act, 1872 (the “ICA”); (ii) public policy; and (iii) interpretation of standard form of employment contracts.
Prashant Narnaware was a long-serving employee of Vijaya Bank. After joining the bank in 1999 and receiving various promotions, he applied for a higher officer post in 2006. When selected, he was asked to sign a contract clause that required him to serve the bank for at least three years. If he resigned earlier, he had to pay a 2 lakh penalty as compensation for the bank’s loss.
Narnaware accepted these terms, leaving his current post to join the higher position. However, before completing three years, he resigned again to join another bank and paid the penalty under protest. He challenged the clause in court, arguing it was unfair, violated his constitutional rights, and was an unlawful restraint on his freedom to choose employment.
In Vijaya Bank & Anr. v. Prashant Narnaware (2025 INSC 691), the Supreme Court overturned the High Court’s earlier ruling that had invalidated the clause, upholding the validity of the minimum service bond and penalty. The Court found the clause legally sound, fair, necessary under the circumstances.
This judgment underscores a balanced approach, recognizing that while employees must be free to choose their work, employers also have identifiable legitimate right to protect their investment in recruitment and training, and such contractual terms are permissible when they are reasonable, proportionate, and part of a mutually accepted internal promotion process.
But is this applicable to all kind of employees especially corporate employees?
Various academic literature, judicial observations, and statutory recognition and confirm that new hires typically face pronounced unequal bargaining power in employment contract negotiations, wherein they must accept standardized, “take it or leave it” bond terms, often due to financial necessity, urgent job seeking, or lack of bargaining leverage. This imbalance is quantitatively observable in employment surveys, which consistently show new entrants reporting little to no effective negotiation over contract terms.
Employees seeking interdepartmental promotions or transfers are already within the organization and possess social capital, organizational familiarity, and potential alternatives (i.e., retaining their existing roles) and the opportunity cost for rejecting new terms is different from those faced by outright new joiners, as they have more knowledge, some institutional bargaining history, and are less vulnerable to “take it or leave it” employer mandates.
The Supreme Court, in Vijaya Bank v. Prashant B. Narnaware, addressed the enforceability of a minimum service bond imposed when an existing employee voluntarily resigned from a lower post to accept a promotional appointment within the same organization. The judgment emphasized the context that the respondent had willingly left his prior post and was not compelled into the new contract as a desperate job-seeker
The Court noted the importance of assessing the facts in each case and cautioned against universalizing its ruling (“the validity of employment bonds should be decided on a case-to case basis depending on the specific facts…”). This demonstrates judicial awareness that the power dynamics and fairness of bond enforcement hinge on the employment context.
And that’s why the Judgement cannot be universally applied to new hires, as for those in new appointments, the absence of existing employment relationships means candidates often have zero practical negotiation power, and their consent to bonds is typically not meaningfully voluntary.
Quantitative legal research and employment market data demonstrate that over 90% of formal sector hires in India are on standard form contracts and disparities in legal knowledge, resource access, and job alternatives further erode any semblance of free bargaining for new entrants, in contrast, for internal moves, the power imbalance, while present is less stark, and the employee typically retains at least the status quo option of remaining in their current role.
For new employment contracts offered to non-employees, the risk and reality of unequal bargaining are magnified. Here, Central Inland Water Transport and Superintendence Company demand continued, robust scrutiny of the fairness and voluntariness of employment bonds and standard terms and hence universal application of Vijaya Bank to all cases would dilute essential employee protections and would conflict with established jurisprudence on public policy and unconscionable contracts and is only prescriptively valid where the factual and bargaining context is similar to that case, i.e., promotion/ interdepartmental moves where the employee has realistic alternatives and institutional familiarity.
Further public policy is an evolving concept; what is reasonable and necessary today may not be tomorrow. Both earlier Supreme Court authorities instruct that employer-employee contracts, particularly those with a clear disparity in negotiating power, must carefully scrutinised and for this reason, it would be legally incorrect and ethically unjust to extend the logic of the Vijaya Bank ruling to new hires or inexperienced jobseekers while the case provides a fact-specific benchmark relevant primarily for cases of internal promotions or transfers, where minimum service bonds are executed by employees with some history and standing in the organization, accordingly this structural inequality of bargaining power rigorous judicial scrutiny based on the principles of inequality of bargaining power and public policy, articulated in Central Inland Water Transport and Superintendence Co. remains essential and controlling for such cases.
Employers do have a legitimate right to protect their investments against high employee turnover that can disrupt business operations and erode the value of training, however, this need must be balanced against an individual’s right to occupational mobility and the principle of free, fair contracting, and employment bonds may serve a valid business purpose, but only when entered into under conditions of genuine consent, equality, and clarity and contracts that punish employees for leaving an organization, especially when those employees had little or no voice in shaping the terms are not safeguards but shackles with its legal in slavery.
The recorded history of employer employee relationships spans millennia beginning with master-slave systems in ancient civilizations, shifted to feudal hierarchies and medieval guilds, and eventually evolved into modern employment governed by legal frameworks and yet despite these advances, history also shows that when regulation weakens or legal clarity fades, it is always the working class that pays the price, whether in ancient Uruk or in India’s booming tech corridors, while the question remains the same, who holds the power to define the terms of work, and who is left to simply accept them?
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