Are bonds justified?

Most of the companies ask knowledge workers to sign a bond before joining the organization. Since the bonds are created by the employer, bonds are pro employer. Employees can’t amend the bond as employees lack the bargaining power in most of the cases. Bonds majorly are introduced to protect company’s interest and recover the incurred the training costs. Although there has been many permutations and combinations of conditions imposed in the bonds, what remains an intriguing question is are bonds justifiable?

Companies have a fixed format of bond for all the employees in the organization irrespective of the work, tenure and the criticality of project. Bond should be evaluated after considering following points:
1) Why the bond is introduced? What is the purpose of the bond?
2) Is the bond amount and duration justifiable?
3) Effect of the bond on employees
4) Is bond rigid or flexible?

Bonds in general should be such that can protect the interest of employer as well as they should not be harsh on the employees. It should be reasonable in terms of duration and amount. What all factors are considered to compute bond amount is also a lookout area. In case of knowledge workers it should contain only the “justifiable” training costs. It wouldn’t be correct to charge the complete bond amount even just before the bond termination date. Also the duration of bonds should be justified by the function of income generated by the employee or potential income that could have been generated by on-bench employee. Few companies smartly mention bond period without emphasizing on the fact that bond period excludes training period and so employee is locked in the company for more than perceived duration.

Laws of land should be considered before formulating the bond. In India, bonds are not legal and so cannot be enforced. In such a circumstance, employers reduce to not issuing the experience certificate which can detrimental to the future prospects of employee.

In few cases (especially in IT), it can be easily observed that an employee is given menial work as he/she is bonded. Such practice could be detrimental for the employer in long run. Interestingly, it is worthwhile noting what happens in case of constructive discharge. In such a case in L&T Infotech, bond was not implemented.

Surprisingly implementation of bonds can vary within an organization itself. Like in case of L&T Infotech, employee from profit making SBU was not asked to pay for bond amount while an employee from sick SBU was asked to pay the complete bond amount.

When company (Like Asatyam) asks to pay money upfront before joining is not considering the time value of money. Since there is considerable gap between amount paid and received, real value of money gets deteriorated resulting in loss to employee.

In general, Bonds concerning onsite opportunity have longer bond duration and higher bond amount. In some cases this is justifiable as company incurs extra cost for pre-onsite training. In few cases, clients give domain training and so expect the employee to stay associated with the project. But this is not the case always. So when business interest of employer is not in danger, bond should not be used. In case of fiduciary relations (like Pity Group Financial Services), It is alright to have a bond to safeguard interest.

Thus usage of bonds should not be seen with skepticism but has to be critically evaluated. Such an evaluation is obviously debatable. Also application of bond should be on case to case basis. Bonds should be created to protect the interest of the employer and should not be harsh on the employee.