Pretty sure that's illegal.

I sincerely doubt it, since the companies I've heard of that do it are large multinationals. As I point out below, it's much the same as a signing bonus or moving expenses.

this sounds like indentured servitude, and i suspect there are laws against this.

They could just pay you less and say that you will get so much in bonus after working there for z years.

I assume it's in the same category as having to pay back an actual signing bonus, or moving expenses, if you don't stay with the company for z years.