Employee bond-A bondage of sorts

Life is, but an interpolation of a plethora of opportunities, which we experience during our upward spiral journey. Often, a thought provoking dilemma comes about as to which is more worthy-Leaving ,the current opportunity for another, or leaving the other one for the current. A similar debacle is faced in corporate world, signified by the Employment Bond, often perceived by many as an insidious constraint to mobility of jobs, synonymous with BONDAGE. Before dissecting the various idiosyncrasies of Employment Bond, I think it would be worthwhile to assimilate the meaning and implications of the term “bond”. According to Butterworth’s Encyclopedia of Forms and Precedents, a bond is a deed, whereby one person binds himself to another for the payment of a specified sum of money either immediately or at a fixed future date or whereby several people bind themselves jointly or jointly and severally to one or more persons to the same effect. A bond may also be for payment of penalty or due to damages borne by the employer on behalf of the employee. In other words, it is a form of contract. The concept of bond finds special mention in the Indian Stamp Act, where it is looked upon as a medium through which an employee obliges himself to compensate another, conditional upon the eventuality of a certain act occurring or not occurring, as the case may be. A bond should be signed and executed in the presence of independent witnesses, who may bear acquaintance with the person executing the bond. An Employment Bond in India necceciates to be rummaged against the backdrop of Indian legal, social and its diverse cultural background. As per the Indian Contract Act, any contract which is just one-sided, favoring one side is annulled null and void. The Indian case at hand, well is mostly one sided. Again, provisions in the Act forbid recognizing any such contract which spells harm to one of the parties, and violates the principles of natural justice. The Supreme Court of India has heralded the view that under no circumstances, can an employer can force an employee to work under it against his wishes, just on the pretext of signing a bond. Such a bond is only enforceable in the court of law, if the company can prove that it has incurred substantial amount for the personal enhancement and increasing the skill sets of the employee, over and above the sessions in a formal training.
Yet, in spite of these legal intricacies, Indian corporates invariably engage their employees into bonds of varying facets, structured to suit their needs and limit their liabilities. This is prevalent in many IT companies, but the PSU‘s are also fast catching up, following suit. In the current scenario, where India is experiencing a purple patch in terms of growth, productivity and employment, offshore lures are fast becoming not-the-obvious choice for many employees. Abundant offers are up for grabs here too, with salaries hitting the roof each passing year. Equivalently, employee mindset is facing a radical shift, from the company loyal approach in the days of yore to the present employee satisfaction approach. In order to rein in the often unchartered movement of employees and retain their talent, companies resort to bind them using such bonds. A bond period of 2-3 years has become a norm, while in some cases; companies bind their people for more than 5 years. Violating such contracts would attract a hefty penalty, running into several lakhs of rupees. The terms and conditions of such bonds sometimes seem ludicrous. The employee has to serve a notice period of a couple of months. Then, he is barred from joining another company in the similar line of business, i.e the functional domain he previously has worked on. This only seems gullible form the point of view that some R & D companies or some major cola company would not afford their past employees to reveal trade secrets upon joining their rivals. This might have serious repercussions on their repertoire of specializing on the product category. But then, how would one negate the claim that a person would be given a specialist position only due to previous experience in that domain. Several reasons could be enumerated against the execution of the Employment Bond, within the interests of an employee. The new company which found that the employee fits in rightly to their needs, might want him/her to take charge immediately. But due to the constraint of serving a notice period, he/she is simply unavailable at the moment, which forces the new employer to consider other applications, and his/her candidature is up for a toss. Even if one decides to quit his current job without serving the notice period, there is no surety that he would secure one sooner than later. Upon breaking the codes, the employee is sure to find his back pinned against the wall. The organization can sue him/her for doing so. All relations with the past employer would be squared off. Reentering the organization would become highly improbable after the violation. And if any amount is due to him/her, well, the world is anyways built on hope! Worst, if the new employer comes to know that he/she is on the run, breaching employment bond, chances are that he/she might be barred from employment in the entire industry after that. Not to mention the harassments inflicted upon the family members of the employee, inquiring relentlessly about his/her whereabouts. As we can surmise from above, the cost to benefit ratio upon breaching a contract is so high, that the employee finds to best to reconcile with status-quo and wait his brains out for the bond period to terminate.
All said and done, employees do risk trying to evade paying up huge compensation or making good the high opportunity cost. They try arbitrating the cause with his/her boss. Often, it boils down to the boss taking the final call, which reflects the culture of the organization. Sometimes, companies try to put forth an example to their other staff by settling to a civil recovery of sorts, letting the employee go with/without a minor amount. If no viable solution makes way, employees fight their case in court of law, fighting with all their worth. And finally, vanquished and utterly frustrated, they simply vanish one day, untraceable for as long as possible. I would opine that the best practice would be to loathe breaching the bond, for, at the end of the day, it was the employee who signed the bond, in conscious mind. A settlement with the present employer best seems feasible, avoiding massive fallouts. It would be a compromised case for both employer and employee. But then, none would feel squandered or consumed more than the other. But one can be sure of the fact that Employment Bond in India is here to stay.

Employment Bonds: From Conspicuity to Obsucrity!

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.

The insurace called "Bond"

Well.. The way i see it.. Bonds are a necessity. The labour market situation in any booming economy is characterized by attrition. And this is by no means limited to entry levels and is nowadays very common at the top of the ladder as well. Nothing new about that!

Obviously when the word "loyalty" is largely non-existent, companies scamper to protect their interests and resort to means that ensure utmost recovery in cases of default! Whether loyalty is a term to be used in these situations or not itself warrants a separate discussion forum, but one we will refrain from. We will stay focussed on bonds. Very evidently, the best way that companies have come up with, to combat this issue is now the subject line of this forum.

Companies have been increasingly realizing the need to find novel ways to discourage employees from making the jump and this desire, understandably, gets invigorated when the company shells out huge sums of money on employees in the name of trainings etc. Being the capitalists that companies are, they would naturally expect to make a profitable situation out of these investments by extracting the maximum returns from the employees.

So, what does this "Bond" do? - I believe that the biggest decisions that people in the corporate world make are motivated by money, though i dont deny here that there are other factors (sometimes these factors outweigh money.. but then, they are rare). There is nothing that discourages employees from making that jump as much as a monetary loss does (especially so, as the main motive in most cases, if not all, is monetary gains) and companies with their vast experience, have been "on dot" in identifying that. The expected impact of these Bonds is one that will act at the roots and discourage employees from even considering a jump.

The Negative Half

Bonds have their own downsides. I will explain this, if i may, with the help of the Call-Center industry. It is one of those industries plagued by very high levels of attrition. Yet, it might come as a surprise that most heavy-weights do not force employees joining at the lower rungs to sign bonds, although some do. The reason, being the nature of the people that apply for the entry-level positions, which is mainly college graduates, and the cut-throat competition. College graduates, more often than not, look at call-center jobs as a stop-gap solution, so they can use it as a filler until they get their more lucrative and status-uplifting IT jobs.

Clearly, when there is a bond that ties you down with an employer for a period of one or two years, it is a huge discouragement and the fresh graduates will be reluctant to apply for any jobs with that employer. Companies in this industry have been quick to realize the underlying intricacies and today, offer jobs without the hassles of a bond, in order to avoid losing the vast majority of its prospective employees.

The negative implications associated, or that has come to be associated, with the term "Bond" are not limited to just the call-center industry; it has its roots deep in just about every industry. The mere presence of the word "Bond" forces a rethink amongst most workers before they take up a job. It is therefore imperative that a company thoroughly thinks it through before choosing to include the bond as part of the employment agreement or otherwise.

Employees too have their way around!

Employee bonds are really a very important factors to consider before joining any organization. I am not going to write about their advantages and disadvantages which has already been discussed extensively by other participants. I will write about some unique ways in which some of my friends actually dealt with this situation. This friend of mine, after about a year of service (less then one year) in an IT organization got through a reputed MBA college in India. Now he had two options, either to pay back the bond amount and leave or "abscond" without taking any leaving certificate. Considering the fact that less then one year of work ex is as good as no work ex, he simple choose to leave the organization without telling anybody. He shifted to another state altogether. Later he got to know that many court notices had come at his previous address. He would also get threatening phone calls but slowly it all started decreasing. Finally after a year or so of his leaving the matter cooled down and nothing happened anymore. The truth is these companies also incur a lot of cost in tracking down these employees aa well as in the followup legal procedures. So at times they let things go.
At times it also depends on the HR manager. Another friend of mine said that his HR manager was quite an understanding fellow. So he could negotiate with him to reduce he contract fee citing higher education as the reason. Though everyone might not be as lucky as him, still its worth trying talking with the HR person.

Bonds....do they really help?

These days most of the companies make you sign an employment bond at the time of joining. With the growth of the IT sector, employment bonds have been a matter of concern both for the employers and employees. Employers cannot do without it due to the rising attrition and employees tend to be disgusted with the company even before they join it. Many companies make it mandatory especially for fresh graduates to sign the bond. I remember during the placement season in our engineering college a company even asked the selected candidates to deposit a sum of Rs. 75000 as a joining amount. Most of my friends who were selected started looking for other options and some of them also joined other companies. Bonds do work in favour of companies in most of the cases but at the same time build a sense of mistrust between employers and employees. Instead of focusing on the bonds companies should try to address the reasons why employees leave the organizations. As in my previous company, most of the software engineers left the organization to pursue higher studies. Companies also value these professionals after their post graduation but employees seldom get enough opportunities within the organizations to pursue their career interests and so they quit. Employers should have tie ups with top rank colleges providing post graduate degrees so that employees can find options of higher studies through the organization. Companies could fund the education and offer higher positions to the employees on completion of the course. This would not only reduce attrition rate but also make companies more employee friendly.

One of my friends had to face a lot of hassles for her release as she was going for higher education before the completion of 1 year bond period in the company. Though she was not allocated to any project, she was still made to pay an amount for breaking the bond. Finally on the last day when she had an exit interview with the HR, on being asked that whether she would join the company again in future, her answer as expected was, “Never”. This shows how such bonds sometimes create unnecessary hassles for employees and can also damage the employment relationship.

Bonding & unBONDING...

Bond... a beautiful word if you take the context of association of people two or more. This type of BONDING of people can be voluntary or involuntary , for a purpose or without a purpose. But in industrial sense the word BOND has taken a whole new meaning in which the employee/trainee has to sign an agreement or pay certain amount as deposit to the employer. The employer demands the amount or makes the employee sign the agreement as a token of proof that the employee would use the training undertaken in the employers company in the same company at least for a certain period of time. BOND can be termed as loyalty contract signed by the employee or the amount paid to assure the employer that the employee stays with the company at least for a certain period of time. So what exactly is the bond and how is it perceived by both the employers and the employees . What are the apprehensions of both relating to it and what are the instances leading to these fears.

The bond for an employer is an assurance on behalf of the employee that he would remain for a stipulated period of time with the employers company and that the training imparted to him would be utilized by the employee for the company rather than any other company. The employer on his part looks for loyalty because he wants the training given to the employee which would enhance the knowledge and working of the employee to be utilized in his own company. The employer on his part not only invests on the employee in terms of money but also in terms of time and other resources so he would like to take the full advantage of this investment. But is making the employee sign a bond the only option left with the employers to test or ascertain the loyalty of its employee. Probably yes. Many cases have been seen in the past in which the employee has dumped the company as soon as he attained training from the company to look for other future alternatives or join the competitors of the first company. Last year a case was filed by a Pune based company which alleged that one of its employee after attaining certain pre-requisite training from it shifted its loyalty to a bigger multinational company. So does that mean that in present days is the employee using the training provided by the companies as an opportunity to add something to his CV or learn something to brighten his individual prospect rather than look for the companies interest simultaneously with individuals own interest. If this is the case then company has all the right to make the employee/trainee sign a bond as this would give the company some sense of security with regards to the employees. It would also keep a check on the attrition rate of the company as well as create more discipline in the organization with regards to the worker leaving the company. But is this the whole reality regarding the truth related to the bond.

Employees are the other party who are involved with the bond agreement and thus their opinion is also extremely critical. Signing a bond with the employers makes it obligatory for the employee to remain with the company for atleast a certain period of time with the company. But signing a bond agreement is believed to be more troublesome for the employee than employers because the employee is bounded with one company only which many say would limit the career opportunities of the individual. Thus many people think twice before signing a contract as they fell like a bonded laborer after signing the contract as there movement within the job is restricted. Also in many a cases the employees have to deposit a certain amount with the company like a deposit whereby it guarantees their loyalty towards the company. But for this many employees have to take loans from the bank and have to pay interest for the principal amount. Now in this case the employee is paying interest for such an amount which he is not using personally but to get training which would be used by the company for its own use as the enhanced skill of the worker would help the company. So this shows that there is a clear advantage to the employers with regards to the bond contract. Many a times it is seen that the advantage enjoyed by the companies in such contracts is mis utilized by companies. Last year an employee filed a case in the Delhi high court against a Chennai based IT company. The company had made the employee sign a bond which said that the employee would undergo a training programme in the USA for 1 year and that upon his return he would not join any other company for a period of 2 years. It also said that if the employee joins any other company within the two year period he would be liable to pay Rs 300000 to the company. The employee alleged that while in his training in the USA he was given training in the night schedules and made to work for 17 to 18 hours which affected his health negatively. The employee said that he wanted to leave the company on health grounds after returning to india but the company demanded 1000000 now as it alleged that the employee wanted to dump the company not because of health reason but that the employee had received a better offer of payment from a competitor ,which the employee denied. The employee said that the reason for him leaving the company was only health reason and nothing else as he did not know at the time of signing the contract that he would have to work for such long hours as it was not mentioned in the contract. So what should he do now? Looking from this angle it looks like the bond contract is unjust for the employees and that they get trapped in the job. This is an extremely delicate issue on the part of both the parties.

In the end it could be said that a bond contract is essential now a days for the companies as they try to arrest the attrition rate in the company. But having said that it should also be mentioned that the companies should treat each case differently according to the situation and should not exploit the employees on the contract. An employee on his part should maintain a certain degree of loyalty towards the company as it would be unjust on his part to just look at the career opportunities only and leaving the companies interest on the backburner. So it has to be said that every party has its self interest first but a middle way should always be devised to address the fears of both the parties. BOND is a reality of modern business and it needs to be accepted by both the parties with keeping the interest of both in mind.

Bond!! can be a value to Employer with no harm to Employee

From an employer perspective, Bond is one effective way to retain employment and to get a return from the employer on which the company spends huge amount in terms of training. Now a days, in order to remain competitive, companies (especially IT) spend a huge amount on training. So, the company expects the employee to be retained so that they can at least get back the cost of training. Thus, I am in favor of bond for the employee. Even Public Sector Companies have the provision of bond and the bond amount is generally larger than the IT companies.

However there are flaws in the system of which either if the party takes the advantage and other becomes the victim. For example, in many IT companies, employees take advantage by leaving the job immediately after completing the training. In this case employer can do nothing except holding back the work experience certificate of the employee which will not matter to the employee as a two-three months experience does not add any value to the CV. Thus employer can only bear the burnt.

A simple solution to this problem is adopted by the Wipro in which case the company takes the deposit of Rs. 75,000 in advance from the employee and return it back after the bond duration is complete. But what a poor person will do in this case. Take the loan and pay the amount? The answer is yes. As already mentioned by the sir, the bank will guarantee the bond amount to the employee and the employee in turn has to pay interest to the bank, means paying interest to the principal amount which he never uses.

Moreover, due to some personal issues or in order to join some university for higher studies if an employee has to leave the job even a day before the completion of bond period, then also the employee has to pay the complete bond. Isn’t it unjust that even after completing 99% of the stipulated time one has to pay back 100% of the bond money?

So, there has to be a way ahead wherein bond serves the real purpose to the employer and the employee on the other hand does not have to bear the burnt. Here, I would like to describe the model of Accenture Services Pvt. Ltd where I worked. There the bond money depends on the technology in which the employee has been trained, like for SAP, Informatica etc the bond amount is Rs. 1,00,000 which for the common technologies the amount is Rs. 50,000. Also the bond period is only for one year. The best feature about this is that the bond amount progressively decreases with time one spends in the office. For example, in case of bond amount of Rs. 50,000, for the first six months, the bond amount will be Rs. 50,000 and after six month this decreases to Rs. 25,000. I the last month the amount remains a little over Rs. 4,000.

The above system is quite beneficial as this motivates the employee to remain in the company who tends to leave the job (without paying the bond) due to the higher bond amount. Also due the lighter Bond norms, Accenture is able to attract the good talent to work for it. Moreover, employee will not have to pay the full money if he/she leaves the job during the last month.

I think the other companies should learn from it…..

Bond or Bond free

Bond, more specifically "Employment Bond" what I think can have only psychological effect on employees. What I feel this phenomenon first started in the western part of the world particularly in USA. As per the law and regulation of USA this kind of arrangement between the employee and employer was acceptable. But some how few smart HR people started implementing this practice in India without understanding the legal, social and cultural issues involved in it.

According to Indian constitution bonded labor system was abolished a long time back and no one including any bond, whether he may be James Bond, can not force anyone to work against his wishes. This also include that the firm where the employee is working can not hold back any kind of personal documents of the employee. And any serious complain against the firm may land the top officials of the firm in jail or can be penalized heavily. But these bonds are applicable if the firm has spend money on the personal training of the employee. The bonds in IT sector that most of us are familiar with are taken on note that these IT companies are spending some amount of money on training of employees. Hence to cover up that amount these employees are required to work for the employer for certain number of years or else repay the amount of money that was incurred by the employer to train the employees. Hence we can say this employment bond is a typical contract made between the employee and the employer in addition to the terms and conditions of employment. So overall we can say this bond is valid if

i) employer is providing training to improve the skill set of the employee and also the during this process employer is spending some amount of time and money

ii) employer is bearing expense to send the employee abroad

Now the question arises why different companies have different bond amount or bond period.There is no specific arithmetic formula that companies use. But generally the companies defend themselves by saying that they keep this amount or bond period such that, the amount that they had spend on training and the utility that the employee would have brought to the firm is more than what they are demanding.

Now talking about my personal case, I too have to pay the some amount of bond fee when I left TCS. I was serving a bond of 2 years. But sometimes what happen if HR people see one employee is leaving to pursue higher studies then sometimes they relax some percentage of the bond amount to be in the good books of the employee. It all depends on the HR guys of the firm where one is working.

But there are few companies that don't have any bond period. Their approach is bit different, one of the firm which I know do this is by paying the employee bit less than the competitor offer during probation period and once you are through this period they increase your salary. But on a whole basic motive of the companies is to get back the training cost and the utility that these employee would have brought to the companies after enhancing their skill sets.

In todays scenario when on an average the attrition rate is around 17%, I think HR people find this as convenient tool to make the employees rethink on their decisions.

Regards,

Soumya Ranjan

Bonds …. Not strengthening employer-employee relationships

During the final placements during my engineering we were given a list of companies, and most of us opted of companies which had a bond to be signed, generally a contract indicating some terms like if the candidate quit within 2 years of joining he/she would have to pay a fine of around 2 lacs to the company. Now with competitive markets and graduates thinking about pursuing post graduation the companies would not be getting the best of the talent and candidates would not be willing to forsake their mobility by signing a bond. The company on the other hand should not be using such instruments but rather have an open employment contract and encourage talent to join in where they would get an opportunity to show the company’s talent pool and how good the company is, and in a way to secure interested candidates. So instead of encouraging and creating an environment for candidates to join the companies are discouraging them by the way of bonds. Interestingly bonded labor is abolished and I think India does not allow bonds as a form of contract. However many companies are following this and discouraging candidates. Looking at this from the company’s point of view they would want the individual to be committed to the organization when he/she joins and at times like when he/she gets an appraisal, at all such cases the company would be investing a lot of money on the individual and the fact that the individual is leaving the company would mean that the amount of money spent on the individuals is a waste. For this reason companies have introduced bonds but this is basically discouraging good people rather than getting commitment from individuals to stay on for a long time. The best thing for a company to do would be to use components in the management/compensation system that would encourage all employees in the long term and the short term than formalizing bonds which employees would be apprehensive to sign.

Breaking the bond

Among the first things that come to the mind of a final year graduate student on getting an offer letter from a company the most important, apart from the pay package, is the employment bond- the bond amount and the duration. Fresh from graduation he considers the company as a stepping stone for future, looking for a work experience before he goes for higher studies or joins another company with better prospects. He decides to pay the bond amount and leave the company if he gets admission offer from his choice of university or a better job within the bond period.

With many companies’ employment bond asking them to pay an amount that goes on reducing as their stay in the company increases the employees even time their exit from the company.

However, the problem arises when it comes to actually leaving the company. The same student becomes reluctant to pay the bond amount which he had initially agreed to. In many cases what happens is the employee is very close of completing the bond period when the academic calendar of the institute he plans to join starts. Now, the employee at this stage tries to convince his employers to relieve him waiving off the bond amount. He may get away with this act if it is a small company or the HR department is lenient in this regard. Sometimes, the bond amount can be negotiated and the employee pays much less than the bond amount. But this doesn’t help in many big companies, especially the IT giants in India who lose thousands of employees every year who opt for MBA degrees. In this case he, either, waits for the bond period to get over (if it is just a few weeks more) and takes a leave without pay for the remaining period of bond after joining the institute, or has to pay the bond and get the relieve letter. In no case, though, the employer waives off the bond amount if the employee plans to quit the job and join another company.

The other option that many employees are now following is simply quitting the job after collecting the month’s salary on first or second day of the month. Some even do not resign fearing legal actions against them. Some let the employers know only through emails. The companies, on the other hand, do not take steps for legal actions against the ex-employees on non-payment of bonds as this would lead to again added cost to the company for carrying on the legal process. These employees are now recorded as “absconding” by the company. This is what encourages the employees not to pay the bond and move out of the company freely. And some companies who communicate with the ex-employee (absconding) ask them for an amount as high as 1-2 lakhs to send them the termination letter. The employees in this case do not get back to the company just for the termination letter.

Without the experience certificate or relieve letter these employees rely on the pay slips as their only evidence of work experience. While start-ups generally don’t look for these documents and hire people based on talent and skills, most big companies do not hire people without proper termination documents with the previous employer. Many of these companies go for a background check and these issues will surely come up then in the future troubling the employees. Also, the pay slips may not be enough in many places leading to more worries. The ones who go for higher studies may opt for a career change and start as a fresher in their new domain where the past does not come to haunt them, but then also they may not be secure. And then, even if they get a job after leaving a company without paying the employment bond, when in future they look for a new job or a promotion and their background is checked there are chances of this act of non-payment of bond amount going against him. If they get away with a proper reasoning behind not paying the bond and leaving a company without the relieve letter and other work-experience documents it will be well and good for them, else this action may go on to haunt them for a long time in the future.

For the employers also this trend of some employees leaving the company without paying the bond amount is alarming. What happens is that they go on to encourage others citing their example of how they escaped from paying the bond amount and many more may follow soon. This not only affects the employer when a large number of employees do so but also the spirit of the employees who respect the bond and pay the amount as they see their friends violating the bond and still enjoying a rewarding career. Thus the employment bond needs to take care of these aspects in future serving the interests of both parties - employers and employees - equally and make the exit of the employees smoother.

GOK (God Only Knows) - Bond or no bond; you are a free bird

Organisations are incurring huge expenses in training, moulding new hires to fit their functional technologies, organisation culture etc. Such developments have compelled organisations to think of "Service bond" or “Employment bond” as an instrument of recovering such costs, in case an employee jumps training or service mid way through. Thus, the bond binds the person executing, to the organisation engaging the training, that he is liable to pay a particular amount towards cost of training, etc., in the event the trainee leaving before the bond period. This is an agreement, where there is an offer and an acceptance for a consideration. For fresher and particularly, GET’s and MET’s, it has become almost compulsory for them to sign a bond in many private companies. This is perfectly enforceable, as the agreement is executed on a stamp paper of appropriate value. The bond can be produced in a court of law as evidence.However, “Employment Bond”, as a matter of fact, remains a product of bygone era, where the employers were exercising the authority over the employment market. Also, skills were available in copiousness and few opportunities were available for the talented. But now, the scenario has been changed; Employment Bond is illegal atleast in INDIA. But this does not mean that an employee who had undergone training at the cost of employer and gained knowledge out of such training shall just leave the company before a reasonable time and without paying it back in the form of resourceful service. If an employee does so, the employer's interest to get back the amount spent by way of training will be justified and protected. Indian Jurisdiction has put down certain legal rules pertaining to employment bond and few of them as mentioned below:

1. The Supreme Court of India has clearly stated that no employee can be forcefully employed against his will, just because he has signed a contract with the employer. The court also has stated that the employer cannot hold back any personal document of the employees as they are earned by the employees and the company has no claim on the same.
2. Also, as stated under Article 19 of Indian Constitution which talks of fundamental rights that under no circumstance does the Fundamental rights under Article 19 be waived by any person nor can any person be forced to do something that is amounting to the violation of the rights mentioned under Article 19.
3. Also, as per Indian Statute, bonded labour system was long abolished and no bond can force any person to work against the employees wishes.
4. Again as per the Indian Contract Act, no contract can be enforced on any person if the contract which is being so enforced causes any harm to the person on whom it is enforced and if performed would violate principles of natural justices.
5. It has also been stated that any complains on the company would land the Directors and Managing Directors of the company in Jail, as the company is not a actual living entity but legal entity and the management are hands and heads of the company.

My personal experience: The Legality of the BOND strictly depends upon the Clauses appended in the Bond. It also varies from Company to Company. Some may take to court, others leave it to the betterment of the Employees. When I got into TVS group through my campus placement, I have to sign a 3 months bond. However, I left the firm serving for 1.5 months as I got the call from ISRO, where employment bond is a term unheard of. I gave notice period of 5 days and broke the bond. Considering my relation and rapport with the managers and the contribution to the TVS company, they did not take any action against me. They were very nice people. In ISRO, at any point of time, employees can leave the organisation giving 1 month notice period -for all legal formalities to be performed. This is actually the best part of Central govt. organisation where there is no tension of signing and consequently, honouring the bond.
In my personal opinion, I think that organisation should look for other ways of attracting and retaining the employees than just by making fledgling sign the bond.

Employment Bonds : A different perspective

I would like to highlight a very different perspective regarding employment bonds. This is about the bond signed in one of the medical education institutes the AFMC. In the institute, the fees for the degree is very minimal and the student taking admission has to sign a bond stating that he would serve in the army for 5 years or otherwise an amount (5-6 lakhs approx)has to be paid to the institute. What happens here is that the students join the institute and after the completion of the course pay the penalty, get a good degree and pursue their careers as they want rather serving in the army. In this way, the employer in this case loses the bright students which it has polished and on the other hand the students get the required degree in medical. Similarly, there are other cases wherein a person joins a particular company (mostly government organisations), signs a bond and uses the company name to switch to a better job and pays the requisite amount for breaking the bond. Thus, the person uses the company and the employment bond as a platform to get a better job and pays the fees of using the platform as the bond amount. It is thus similar to using a brand name to increase one’s credibility and paying the bond amount as a royalty for using the brand name to the company. In this manner we can see that in the first case, there is a huge loss to the employer, even if the bond amount is paid as the time required for polishing new students is large. Considering the second case, companies now have started asking the applicants, question about whether they have broken an employment bond in the past or not, to gauge the applicant’s loyalty. The above two cases don’t happen in bulk and are a very small part of the employment bond issues but, could be thought over.

Bond need not necessarily bond

When we see from the position of parties in the employment relationship , the employee constantly tries to work for less hours , earn more money and try to gain more bargaining power to get a favorable exchange from the employer. The employer in turn defines the task time to time , fixes the wages in accordance to the supply and demand of labor in the market and changing business opportunities. In this respect along with on the context of operating in a economic environment where factors like inflation , deflation , standard of living play a good role in deciding the wages or remuneration for the efforts exchanged from the workers , employment bond offers a limit on the opportunities available to the employees. It is just the limit , as competent employees will find employers who are ready to execute the bond offered by the previous employer. I am tempted to compare the employment bond with the housing/leasing agreement usually done by the house owner and the tenant. It says that the house owner will give the house on lease for at least a minimum period and the tenant has the option to vacate with a fixed months of notice. The house owner has the options to create conditions under which the tenant will be forced to leave on his own when under the situation where house owner feels compelled to vacate the tenant. So cases akin to ” constructive discharge “ can also happen here. Suppose a employee who wants to leave the employer , learns all the skills , performs deliberately poor ,forcing the employer to fire him, thus get relieved of his responsibility to execute the bond to the company. So does the implementation of a bond really serve the purpose of retaining the employees for the investment in their competency building ? It deserves a no . But speaking literally with the examples , it comes close to yes .. but definitely not yes. Is the bond being priced in accordance with the changing times. If we can see from the amount to be executed in the event of breaking the bond , we can see that it has remained constant. Thus it indicates that it is not at stead with the changing times , but a seemingly threat to the employees to hold on to the job and serve the employer. In fact some of my friends who were working along with me in TCS left it without paying any bond , the company kept on sending notices , and after sometime the exchange stopped. But it didn’t lead to any legal problems.

Pakde rehna chodna nahi

Well, the title of the post is the tagline of Fevicol, which has come up with some of the most appreciated creative commercials in recent times. On the other hand, the topic of discussion - employment bonds - is something which is not well appreciated.

I would like to share the experiences of my friend and first cousin.

After completing his graduation in 2006, my cousin had joined a multinational firm based in Bangalore. He had to sign a one year employment bond which stated that he would have to pay 75,000 if he resigned from the company during the first year of employment.

During the first year, after the initial training, he was assigned to a critical project. His performance was well appreciated by the client as well as the project manager. He was a star performer in the organization. Meanwhile, he had also started preparing for entrance examinations for MBA. He had kept his project lead and project manager informed about the same.

The results of the GD/PI were out around May 2007 and he got through IIMC. He immediately put down his papers so that he would be able to serve his notice period before the academic calendar started at the college. However the issue was that he would not be able to serve a complete one year of service since the college was beginning prior to the date of completion of one year of service. This required him to pay the full amount of 75,000 to the organization. All efforts to convince the management to reduce/forego the bond amount went in vain.

One of my friends who had joined a multinational firm in June 2007 had a clause in the employment contract which stated that he had to reimburse the organization for the training expenses. This amount of reimbursement would gradually decrease as the number of days from the training increased. i.e., if he left within the first 3 months since the training, he would have to pay 100% of the training amount. If he left within 3-6 months then 75%, within 6-9 months 50% and 25% within 9-12 months.

I personally believe that company's should give some relaxations to employees who quit jobs for education purposes. I do understand the fact that employer's invest time, money and resources into employees when they recruit them. But certain relaxations like amortizing the training amount can be considered especially in the case of freshers who quit to pursue higher education. Based on my personal experience in the IT industry, I have seen quite a few cases where freshers had to pay hefty sums where they could not complete the stipulated employment duration as mentioned in the bond. This is bound to happen since many of the companies give joining dates to employees which fall in June-end/July while post graduation colleges start their academic calendar in May-end/early-June.

Also, I believe that bonds send negative signals to the prospective employees. If an employee had to choose between 2 firms - one which had a bond and one which hadn't - which offered similar job profiles and compensation, an employee may easily be inclined to choose the company without the bond. In today's times, importance of freedom at the workplace is increasing. Employees no longer want to be bonded.

Employment Bond – Employer’s perspective

The primary reason for companies asking the employees to sign an employment is that they want to recover the cost of training that is incurred in training the employee. Let us take the example of Indian IT industry. Almost all the IT giants in India recruit fresh graduates in huge numbers from Engineering Institutes. These fresh graduates have to sign an employment bond which requires them to serve the company for certain minimum number of years after joining. These young graduates have to undergo rigorous training ranging from 1 month in duration to 6 months before they absorbed in live projects. This training is imparted by industry professionals and after undergoing through this training successfully; even a graduate from non computer science background develops a competency in programming languages. Usually the employment bond signed by the IT companies has a clause which says that the employee has to serve the company for certain minimum number of years or they have to pay a certain amount incase they leave the company before completing the minimum number of years. For example, my last employer has an employment bond which says that the employee has to serve for minimum of 2 years since joining or he/she has to pay a sum of Rs 50000 in case the minimum number of years is not completed. What happens in these kinds of bonds is that the newly trained employees become competent in their domain that they are able to find new jobs in the smaller IT companies with much higher pay package. These newly trained employees breaks the employment bond i.e. neither they complete the minimum number of years nor they pay the required sum and join the small IT organisation. Such employees do not their experience certificate and the relieving letter. Another interesting aspect is that the small IT organisation does not ask for these documents. They just want the resource to work for their firm. In cases like the these, the organisation would give some phone calls to the employees or send some emails to come back and complete the final settlement process but they don’t go beyond that. They don’t indulge into legal proceedings against each and every employee as don’t want to bear the high legal cost and also they are not sure whether the court will give the verdict in their favour. Looking from this angle, the employment bond is highly ineffective as far as the employer is concerned. The employers should find different ways so that they can at least recover their cost of training.

The Bond of ‘Bond’!!!

It’s difficult to find a job. However as we can see it, it is even more difficult to quit it! The initial happiness and elation disappear and what follows it is a continuum of mental stress for the employee. As is evident from the cases presented in the original post, the employers leave no stone unturned to make sure that the employee spends in the organisation atleast 100% return on their investment. As my colleagues rightly point out that most of the employees who are made to sign these agreements are fresh graduates who are more than happy to just receive an offer letter. Not only they are not in the position to bargain, but also, they are not even aware of their power to do so. Consider what Subhrajit Mishra has highlighted in case of Asatyam, making a simple graduate pay a hefty sum of 2 lakhs!! Consider again the case of IMFL which expects the trainees to pay the full bond amount even if they leave one day before the bond expiry. Another example that I will like to give is that of my friend who is about to complete his 2 years bond period in July. He has an offer of admission from a very renowned B-school. The dilemma he faces is that the course starts in June which means he will have to quit before the completion of bond period. This implies that he will have to pay a certain amount, as written in the bond, to obtain his much coveted work- experience certificate. All these conditions make the bond very rigid and hence harder for the employee to leave. Many companies also require the employees to serve a notice period after resigning. In those cases if the new employer is not willing to wait for the employee, then he has no option but to continue with the previous job only!

Hence to agree with most of them in this forum, it is a clear attempt to place restriction on job mobility, and an attempt to create ‘Bonded Labour’. But is it always so?

Analyzing the concept of bonds in this scenario we can see both pros and cons. As Nishit points out that it is indeed a deterrent for job switchers who use each organisation as a progressive step in their career ladder. And in this competitive environment it is a pretty natural instinct on the part of the organisation to protect their interest in order to survive in this business world. Yet again, there is also a silver streak in this cloud for the employees. By virtue of the Indian Contract Act, 1872, “to create a contract there must be common intention of forming legal obligation”. (Source: www.netlawman.co.in) This means that during the period of the bond, the employer cannot show the employee door, unless for reason like indiscipline or loss to the organization.

To analyze it from a slightly different perspective, I would like to quote an article from assureconsulting.com, which says that this move on the part of the employer can be seen as mistrust on the conduct of the employee from the day one and hence could be detrimental to building the culture of ‘trust and loyalty’ in the organisation. Moreover this move can be seen as an attempt to place restriction on the fundamental rights guaranteed by the Indian Constitution for the employee to move anywhere in India, take vocations of one's choice and earn better salary packages and promotions . (Source: www.assureconsulting.com/articles/bonds)

Employers should not forget that quitting job may not always be always for better career prospects. What if the employee wants to pursue further studies or may be has some personal obligations. Asatyam does promises to relax the bond if the employee leaves for reason for pursuing higher education, but do the other employers follow the suit? In another case, may be the employee realises that his interest lay elsewhere and wants to leave on that ground. Would that employee be productive if he is forced to work for the employer irrespective of his disinterest, and his only incentive being completion of the notice period? Hence these bonds are nothing short of a necessary evil! I would like to conclude by suggesting few points. A better option can be to make the bonds less rigid for the employees who have served a considerable amount of time after completing their training with the organisation. Just in the way Dalco asks it employee to make proportionate payment after a period of one year, or like what Sharanya has talked about Accenture in her post! In this way both the interest of the employee and the employer can be protected. And also, consideration should be given to employees who want to leave the organisation for some genuine reasons, of course if the reasons are valid.

Last but not the least, not many employees would want to leave an organisation that provides them a challenging and competitive yet friendly environment. So the focus on the part of the employer should be to create and harbour such an environment in the work place that the bonds get deeper even without the ‘Bond’!!

effectiveness of bonds

Bonds are the instruments used by companies to make sure that their investments in companies is not wasted or employees after getting the requisite skills from a company join another better paying job. The fact of the matter is companies such as Infosys, TCS and Wipro have excellent training facilities and most of the fresh graduates which join them do so just to have the taste of the excellent campus and facilities. So the question arises as to how you stop these same employees once they get trained by the company’s resources. Companies have come up with an excellent answer and that is bonds.
The terms and conditions which a company states may sometimes prove detrimental to an employee’s prospectives. The bond restricts the free mobility of labor and thus the employees are left stranded in a job they don’t really like. Companies sometimes have terms and conditions which are cruel. There is a need for a bond which is reasonable for both the employee and employer. Protection of a legitimate business interest as well as due consideration to the employee is required. Some companies like satyam do have very stringent norms like having to pay interest on the amount not being used. Thus in order to handle such cases, an employee needs to be careful in signing the bond.
But the question arises as to how effective the bonds are in limiting the employees from leaving their job and just paying the compensation that the bond has specified. Thus there is a need to look into the effectiveness of bonds and their role. Are they accomplishing the purpose for which they are designed.

Can a bond create a bond??

Some companies have bonds and some companies don’t. Why so? This is the 1^st point we need to ponder about. Probably, few companies believe that they have in them the attraction, the strong culture to keep the employees glued to them and that is why they don’t see bond as an option. Many organizations which recruit in mass and/or where the likelihood of employees leaving is high, the concept of bond is implemented.

In my previous organization, there was no bond as such. Actually the attrition rate is quite low in the organization. Even though it has a separate training school and it invests good amount of money and time for training, it imposed no bond. But if an employee goes onsite to learn a technology and come back and implement it here to create the competency, he has to serve the company for a minimum of 1 year failing which he has to pay a sum which is evaluated based on the criticality of the project. In fact before leaving the job I was given an onsite opportunity to Canada. Though I was pretty sure of declining the offer as I was to move on for my management studies, I did some homework about the bond associated with onsite opportunities just out of curiosity. The HR had a very sensible and valid explanation that the company as such does not believe in bonds and hence it has no bond in normal situations. However when it is about learning a technology in customer’s premises at onsite and then leaving the company, this not only brings loss to the company in terms of its investments but also affects the customer relationship of the company which is unacceptable. Therefore I believe it is absolutely valid for the company to impose a bond in such scenarios. Basically some organizations create a good culture and working condition and keep the employees attracted. They don’t require a bond to retain the employees.

Bonds, to a great extent, are based on mistrust. Big software giants in India have always experienced high level of attrition and therefore they have well made bonds to handle the situation. These bonds compensate for all the losses that the company incurred because of the departure of an employee. In fact employees leaving these companies is so rampant; the companies in a way have created a side business out of bonds – the “bond business”. The amount is definitely fixed at a level where it is well above the cost of training (time and effort-all included) and thus has a profit component!! The problem arises when this amount is too high. As discussed in the earlier posts also fixing the amount associated with the bond is absolutely under the whims of the company but it should actually make sense to the employees. It should not be too high.

In such organizations bonds actually go against creating a “bond” between the employer and the employees. The organization is not bothered about employees leaving as it never makes a loss (in fact some profit by bond business) and neither the employees as they are thinly attached with the organization. It is a kind of vicious circle and the impression can’t be changed easily for these giants. We see a majority of MBA applications coming from such companies. One of my friends who joined such a big firm as a fresher said, “I will have a nice time in the beautiful training campus in Mysore and when I am done, I will leave by paying some amount. I am going for higher studies. So who cares?” We also see a lot of to and fro motion from one giant to another giant. There is indeed a great deal of freedom of mobility even though there are bonds imposed. So the bottom line is bonds are created not to retain the employees (which was the basic motive) but just to provide a shield for investment losses incurred. No organization can hold its employees based on the bonds. In fact bonds loosen the “bond” as it is taken as a sign of mistrust that the company is showing over its employees. But today as long as both the parties (employer and employees) are not adversely affected if not benefited, bonds are fine.

Treat the disease...not the symptoms

Thinking of employment bond, first thing that comes to the mind is an employee whose freedom has been snatched temporarily just because he was found suitable for a job in an organization and because the organization was going to train him for some period, no matter that the training was being provided for him to work for the organization itself.

Employment bonds surely act as a deterrent for some employees, but if an employee is seriously considering some other options, then these bonds are meaningless. At that time they only serve the purpose of creating nuisance to the employee and I believe in such a case the employee gets even more determined to leave the company and wants to get over with it as quickly as possible.

When I joined Larsen & Toubro in 2004 as a Graduate Engineer Trainee, there was no employment bond to be signed, but a few years later, the new joinees had to sign such a bond. The trend remains the same, employees still leave the organization whether or not they signed the bond. Those who have made their mind to leave will leave.

In such a scenario, any organization should introspect to seek answer to questions like why this organization was a preferred employer at the time of campus placement and why after working for some time, employees want to leave. Is something wrong with the organizational culture, does the organization not provide sufficient growth in career or is there any other reason?

Recovering the training or hiring costs through such bonds is like treating the symptoms of a disease but the root cause remains untreated. Employment bonds may serve a purpose for a short term, but till the time the root cause is addressed, the company is still losing in a longer term.

The Curious Case of the Employment Bond (posted by Nishit Ganatra u109031)

Talking about the current day scenario of the triangular relationships between the employer, the employee and the employment bond, it is quite evident that the employment bond movement has gained in a considerable momentum. I would like to give you an IT company’s perspective of it (though I understand it’s quite shallow on my part to narrow it down to just the IT sector but for this my work-experience is to be blamed).
These bonds are the order of the day in Indian IT Companies. The purpose that these serve is dual: act as a hurdle for the employee who is thinking of switching early in his career and therefore restores security in the minds of the employer about employees. Modern day’s competitive business practices has made these bonds even more popular and enhanced their significance but there is one issue which makes me uncomfortable. Employment bonds have transited from being a defensive tactic to being an attacking one at least as far as the employer is concerned. These bonds are becoming the weapons to restrict the mobility of the employee even if the intention is ethical and consequence would benefit the employees. Meaning that even if an employee has available higher growth opportunities, his/her mobility is restricted by the virtue of him/her having being signed the bond. Talking about the various reasons for which one might want to leave the organization, higher studies also forms one of them. Many organization, it seems, have relaxation in their norms on these grounds. Frankly speaking, some organizations still are indifferent towards such and other genuine reasons and it is their indifference which complicates or bitters the relationship.
From the employers’ perspective, they have spent a considerable big training cost on the employee. So when the employee exits, these become sunk costs and therefore hurt the employer and so must be recovered. But another issue which pops up, at least as far as the IT Industry scenario is, is the fact that in these companies one cannot leave the organization until and unless he has transferred most of his knowledge to the one replacing him. This is christened as KT (Knowledge Transfer) in this jargon-savvy world of ours. So, considerable efforts are being made to detach or retain the human capital back from the outgoing employee. Hence the norms can be relaxed if the reasons are genuine.
On the other hand the vice is also in the minds of some of the employees who use organizations as a bait to progress in their career. Some use it to get On-site opportunities and some use it to just get a brand-name. Hence the presence of such a hurdle acts against their intentions. A parallel can be drawn from the field of sports (Football) where in Clubs spend enormous amount of money to acquire a player and thus make a contract with him which to an extent restrict his mobility till a certain time.
This is a practice followed worldwide and thus if fairly implemented by both the parties involved, might prove to be beneficial else the repercussions can be striking.