Resignation penalties: Quit your job early? Be ready to pay, court rules

Landmark ruling: Supreme Court backs penalties for early job resignation

Last updated:
Lekshmy Pavithran, Assistant Online Editor
2 MIN READ
Supreme Court upholds penalties for early job resignation in landmark ruling
Supreme Court upholds penalties for early job resignation in landmark ruling
Shutterstock (For illustrative purposes only.)

What happens if you leave a job before completing the minimum service period stated in your contract? According to a recent India's Supreme Court ruling, employers are within their rights to impose financial penalties on employees who quit early—provided the terms are reasonable, clearly defined, and outlined in a valid employment bond.

Landmark verdict

As reported by media outlets, the landmark verdict stems from the case of Vijaya Bank vs. Prashant B. Narnaware. In 1999, Narnaware joined Vijaya Bank as a probationary assistant manager. In 2006, the bank advertised a position requiring a three-year bond, with a penalty of Rs 2 lakh for early resignation.

Narnaware signed the bond and was appointed senior manager (cost accountant) in 2007. However, he resigned in July 2009—just 18 months later—to join another bank. He paid the Rs200,000 penalty but later challenged the clause in court.

While the Karnataka High Court ruled in his favour in 2014, directing the bank to refund the amount, the Supreme Court overturned this decision in May 2025, upholding the validity of the employment bond and penalty clause.

Not a restriction, but a retention tool

In its judgment, the Supreme Court observed: “The restrictive covenant prescribing a minimum term cannot be said to be unconscionable, unfair, or unreasonable and thereby in contravention of public policy.”

The court recognised such clauses as legitimate retention tools designed to protect employers’ investments in recruitment and training, and not as unlawful restraints on employees' freedom to change jobs.

Legal experts: Enforceable if reasonable

According to legal experts quoted by The Economic Times, minimum service agreements are enforceable if they are time-bound, specific, and not excessive. These bonds are not considered restraints on trade as long as they don’t prevent employees from seeking other jobs after resignation.

Key takeaway for jobseekers

The judgment underscores that clearly worded service bonds with fair and proportionate penalties are legally valid.

Employees should be mindful of such clauses before signing contracts—quitting a job prematurely may result in significant financial consequences, even if for better opportunities.

Lekshmy Pavithran
Lekshmy PavithranAssistant Online Editor
Lekshmy is a rockstar in the digital newsroom! With nearly two decades of experience, she revels in breaking news, riding viral trends, and spotting those hidden stories everyone else misses. As the Assistant Online Editor, she steers the homepage, blending editorial brilliance with a no-nonsense approach. Whether it’s UAE headlines, global affairs, business stories, or the latest buzz in entertainment and sports, Lekshmy is always on top of the game, delivering real-time coverage with precision. Her work ethic? Clarity, impact, and a dash of flair. All that is evident in her in-depth stories, special reports and explainers. Add in her social media savvy, and it’s no wonder she consistently cranks out content that gets eyeballs and keeps them coming back for more.

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