I will not get into the judiciary intricacies governing the bonds or whether they are legal or illegal. Letting the reality speak, many of us have been bound by these bonds either in the form of employment bonds, housing bonds or the risk free government bonds. Of course the contexts are different and we are concerned about the employment bonds in particular here.
Employment bond in its most innocuous form binds an employee to a firm for a specified period of time. This is justifiable from a firm’s perspective looking at the hyper competitive market and the value attached to valuable human resources. What however makes these bonds troublesome are the monetary clauses they bring to the table which take on variable proportions with the passage of time, training received or onsite job opportunities taken. For bonds which demand the “to be employee” to pay an initial sum which would only be returned (with or without interest) at the end of the bond tenure, is a major opportunity loss for the employee who could have done well by investing it in various options available to him or simply as a fixed deposit in banks. Availing a loan to pay the bond amount to the firm means paying interest for the money never used by the individual. From a personal experience, I have seen quite a few of my friends struggle hard to pay their bond amount because of their weak family income. Banks might not be the best option to meet the requirements for them because of the interest component. In most cases they take help of friends and relatives where they don’t have to consider time value of money when returning the amount. The joy of getting a job offer most of the times gets washed away by the stress endured for meeting the bond’s monetary requirement.
If a firm wants to bind their employees for a particular number of years, then getting them to do so in a way which is stress free ensures the employees join the firm in high spirit. High spirits of the employees in return ensure their high contribution to the firm’s growth. Many firms instead of mandating the deposit of a fixed sum before the date of joining have injected clauses into the employment contract that in cases of employee’s separation before a particular time period (not considering cases of termination with cause, without cause, resignation and constructive discharge for now for simplicity) he/she has to pay back a part of his salary to the firm. For e.g. IBM warrants its employees to pay back the entire reallocation allowance if they leave in less than a year which it automatically deducts from the employee’s last month’s pay slip. Of course the contract also needs to address cases where the employee is terminated with/without cause or resigns voluntarily and needs to specify the amount of pay back depending on various cases. But even in its most basic form this mechanism certainly has an added advantage over the traditional bonds in terms of employees not having to pay the initial sum. The aim of binding the employee for a time period is well accomplished in this method as well. An employee has the same negative incentive to leave the firm which he/she had when he/she deposited a fixed sum as per the bond requirements. Today, with the market in all industrial sectors opening up there are no dearth of job opportunities for job seekers. With bonds of the types which call for deposits in place, a firm undermines its chances of attracting the best talent. In the worst case if the firm has to choose between the two types of bonds discussed, it must opt for the type 2. Even it is bound to be looked with a frown and raised eyebrows by the job seekers but at least it would ensure that the firm won’t face an outright rejection which will certainly be the case in type 1 bonds. We are now moving into times where employee mobility is going to be highly liberalized, so the onus is on firms to use the best of HR practices to attract fresh talent and more importantly retain their best employees and using employment bonds are certainly not one of them.
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