Companies battle high churn with commitment clauses for junior staff

Indian companies worried about junior employees quitting within a year of joining are devising ways to secure their commitment for longer, ensuring their efforts to train freshers do not go to waste.

To stem the attrition of entry-level staff, several companies are weaving in bonds by another name in the employment contracts. These agreements specify that if exits occur in less than a year of joining, employees will have to pay for the training and career development costs borne by the company, lawyers and headhunters said.

Realizing that the word ‘bond’, or asking an employee not to join another firm during the specified period, may not be legally tenable, and to make the job offers more palatable to the candidates, employers are using terms like ‘commitment period’, and detailing out the costs incurred even for a remote workforce in their contracts.

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"As one of the strategies to retain talent, they (firms) impose training bonds, which are more like service commitment on the part of the employee at the time of joining. The contracts impose conditions on the employee that if he were to resign within the commitment period after receiving training, a certain amount consisting primarily of the training costs will be deducted by the employer from the employee's final payments," said Vikram Shroff, partner at law firm AZB & Partners. Shroff specializes in employment and labour benefits laws.

High churn rate

Realizing that the churn rate is high among the junior workforce, and that it's not easy to force them to stay longer, companies are lowering the so-called commitment period to just a year, from two years earlier.

Lawyers working with IT, pharmaceutical, financial services, aviation and telecom sector clients observed that the employee training costs can vary between ₹1 lakh and ₹5 lakh. Also, the nature of training that gets offered is also getting more specific in the employment contracts to avoid confusion and disputes.

"The number of industries have increased and training has become remote. There is a more strategic approach with respect to specialized training. The duration has become shorter and penalty is prorated to the duration. Alongside the training, companies also offer career development opportunities," said Pooja Ramchandani, partner, employment, labour and benefits for Shardul Amarchand Mangaldas.

The primary aim of service bonds is to retain talent, particularly at the junior level, where attrition rates remain high despite a sluggish job market.

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For instance, in the IT sector, attrition rates are 16-22% at the junior level, compared to 14-20% at the mid-level and 12-18% at the senior level, indicating a slightly higher turnover among junior employees, according to data from staffing firm Careernet.

Similarly, in the financial services sector, corporate-side (those who sit in offices, doing desk jobs) attrition rate for senior and mid-level employees stands at 11-15%, which is marginally lower than their lower-level counterparts by 1-2%, largely due to smaller wage differences and less "sticky" job roles, said Anshuman Das, co-founder and CEO of Careernet.

In the pharma and telecom sectors, attrition rates at the middle and senior levels are typically 10-15%, with the junior-level churn rate being about 1-2% higher.

Two employees in a Delhi-based edtech firm pointed out that their company rolled out employment contracts with bonds to fresh graduates of leading institutions. "The offer period spans three years, and if breached midway, employees must repay the training costs of ₹1-1.5 lakh incurred by the company along with the equivalent of their salary for the duration of their employment".

Bond period added

A placement team member at one of the top four older Indian Institutes of Technology said that for the batch of 2025, several companies had a bond period. "The firms had different slabs of amount that will have to be returned to the company, if the employee leaves in first, second or third year," said one of the placement team members.

But are these bonds enforceable?

Section 27 of the Indian Contract Act, 1872, forbids any agreement that restrains anyone from practising a lawful profession or trade and such clauses in employment contracts are not legally enforceable. And while companies do not want to head to the courts against freshers, these bonds are meant to act as a moral deterrent.

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“Recovery of amounts may still be possible if claims are based on quantified training expenses or actual business losses caused by the employee’s exit," said Anshul Prakash, partner at law firm Khaitan & Co.

These service bonds may entail the imposition of substantial penalties, such as amounts equal to 6 months to one year’s salary and benefit costs, or recovery of any quantified training costs. "Tenure is usually 2-3 years, but actual enforcement of such service bonds against employees in terms of restricting early exit would be questionable as these would be considered restraint of trade under Indian law," Prakash noted.