Is Employment Bond really for Bonding?

Employment bond is a contract between employee and the employer whereby the employee has to pay monetary compensation if he decides to leave the company before the bond period.

Rational behind a bond by employer:

a) Amount spend on training should be recovered.

b) Extra cost incurred on the recruitment, and training the new employee

c) Bonds in general are for the freshers who join the company just after their graduation. Company feels that since they are in early phase of career, they will switch companies more frequently and hence have this contract to reduce it.

d) Indirect cost in making the employee efficient.

e) To prevent the employee from joining the competitors.

There are two important aspects of bonds: i) the amount of compensation, ii) duration of the bond. Based on the above two we have different kinds of bonds:

a) Some bonds require that the compensation amount to be paid during joining.

b) Some bonds require the amount to be paid during the time of leave.

c) Some bonds starts after the training period.

d) Some bonds require bank guarantee from the employee. And the employee has to pay interest to the bank for it.

and many more ..

Now the question arises how we justify this amount and duration of bond? Why it varies from company to company within the same industries? Some companies are of the opinion that the training they provide and hence the difference in amount. Some also give reasons that the benefits take a much longer time than the other companies and hence the difference in duration.

Is the bond justified and does it really serves the purpose?

a) Whatever may be the amount, the employee must have earned that much during the bond period. So bond will not be helpful in stopping them from leaving the company. Instead of that the company should try to know the reason why the employee is leaving like growth, challenging work environment, high salary etc. And then try to improve it.

In my last company, Texas Instrument Pvt. Ltd., there is no concept of employment bond. They feel if the work environment is such that the employees are not leaving to join competitors, then there is no bond required. Most of the employees leave the company for higher studies which TI supports a lot.

b) There are some standard training which each and every company provides like time management, email etiquettes etc. These training are also available outside the corporate world. The company can charge money for those trainings from the employees rather than including them in bond.

c) Bonds can be in the case when the company is training the employee on some proprietary things of the company. For example, if there is some tools which is internally developed in the company, then the amount spend on training the employees about it is justified as the training cost for the company. But these issues are taken care by non disclosure agreement and should not form part of employment bond.

d) Most of the company doesn’t enforce the employment bond even if the employee leaves early. They want to maintain the good image in the market.

e) Employment bond acts as a deterrent for people who are searching for job.

So having a bond is not serving any purpose. Even still the employer wants to keep the bond, the bond should be in such a way that it should not make the employee financially worse off. Here are some of the suggestions:

a) A fixed amount should be deducted from the salary rather than huge amount at the time of leaving. Example Reliance Infocomm follows this practice.

b) The company should charge the training cost from the employee’s salary during training itself.

c) If they are deducting the money from the employee salary or taking the whole amount during joining, they should pay them back after the bond period with some interest (at least at risk free rate).

d) Bonds can be calculated on the prorate basis i.e. higher compensation for leaving early and less compensation for leaving just near the end of bond period.

So the employment bond should be imposed only on a case to case basis and only when it serves the purpose for which it was implemented. Bonds are typically pro-employer. But while creating bonds interest of both parties should be kept in mind.