Thinking of quitting your job without completing tenure? Supreme Court says it could cost you

Planning to leave your job before completing the minimum tenure laid out in your employment contract? Think again. In a recent landmark ruling, the Supreme Court upheld an employer’s right to impose financial consequences on employees who exit early, provided such penalties are part of a valid employment agreement.

The Case in Focus: Vijaya Bank vs. Prashant B. Narnaware

The case dates back to 2007 when Prashant B. Narnaware joined Vijaya Bank as a senior manager under a contract that required him to serve at least three years. The agreement stated that a premature exit would incur a penalty of Rs 2 lakh. Just two years into the role, Narnaware resigned and paid the penalty, only to later challenge its validity in court.

While the High Court initially ruled in his favor, ordering Vijaya Bank to refund the amount, the Supreme Court in May 2025 overturned this decision. It ruled that the penalty clause was enforceable, as the employment contract was clear and the condition not against public interest.

What Did the Supreme Court Say?

The court held that a clause mandating a minimum period of service, backed by reasonable penalties, is not inherently unjust or against public policy. Instead, it can serve legitimate business interests like curbing attrition and ensuring returns on training investments.

How Long Can Such Bonds Be Enforced?

According to legal experts, while there's no fixed upper limit for how long a bond can mandate an employee to stay, the terms must be reasonable. Courts typically evaluate:

1.    Whether the bond conditions apply only during the employment period.

2.    If the restrictions are fair and not against the broader public interest.

3.    The specific context of the employment and the rationale for imposing such terms.

Bottom Line

The Supreme Court has clarified that employers can enforce minimum service requirements and impose reasonable financial consequences for early resignation, so long as the terms are transparent, proportionate, and not contrary to public interest. However, the freedom of an employee to pursue future opportunities remains intact, and post-employment restrictions continue to be legally dubious.