India: The legality of ‘lock-in’ periods

A ‘lock in’ provision within an employment contract is usually an undertaking by the employee that they shall remain in the employment of their organization for a specified minimum time. In some cases, this is linked to an investment by their employer in their education or training. In the case of Lily Packers Private Limited vs Vaishnavi Vijay Umak, 2024 SCC an individual had agreed, via a ‘lock in’ clause, to remain with the employer for a period of three years, but had left after a period of only one year and two months. Their contract also allowed for disputes to be resolved under the terms of the Arbitration and Conciliation Act, 1996. When the employer challenged the individual’s departure, they were informed that the ‘lock-in’ clause was unconstitutional and in violation of Section 27 of the Indian Contract Act, 1872. They also refused submit to arbitration. The case was submitted to the Delhi High Court which undertook a comprehensive review of case law and concluded that such clauses, if voluntary, phrased in a reasonable way and introduced for the purpose of stability and continuance of the employer organization were perfectly lawful and did not infringe constitutional rights [DEL1855].