Are bonds sacrosanct?

In most of the organizations mentioned, the bonds that an employee is required to sign almost always extend well beyond the training period. The main reason behind this, as has been mentioned in various other posts, is the interest of the company in making sure that it’s investment on the employee does not go waste in the event of the employee leaving the organization. The question that I would like to bring up here is the extent to which these bonds are actually adhered to. Are these bonds applicable to all the employees uniformly throughout the organization? Are the bonds actually strictly adhered to word by word? Who takes the responsibility of making sure that the clauses in the bond are followed?

As far as my experience with my previous employer goes, the answer to the first question would definitely be a “No”. Uniformity of a bond cannot be guaranteed across an organization. There have been many instances where relaxation has been provided to employees over a part of the payment and in some cases the entire amount of the bond. These deviations from the rule can be attributed mostly to the good relationships that these employees shared with their immediate reporting managers. These managers take up their cases with the higher management and are more often than not successful in getting the bond amount waived off. In most of the IT industries, there exists a clause in the bond that requires the employees to serve a notice period of around three months between submitting their resignation and quitting. This period is usually used to carry out the knowledge transfer activities. However, the scope of this clause is also not uniform throughout the organization and varies from employee to employee and project to project depending on the complexities of the task at hand.

Thus, it can be safely assumed that the very concept of bonds and their implementation is quite subjective and is to a large extent dependent on various external factors. The signing of a bond does not guarantee its implementation, most of the times there are various other complexities involved in their execution.

The issues related to a employment bond

First of all I am forced to think of the purpose served by the employment bond. Why the bond is in place ? Why is it always pro employer ? What are the reasons behind executing the employment bond ? When we see from the barbash’s employment relationship framework defined , organization is influenced by the cost discipline , and definitely in order to derive leverage on the costs involved , companies try to retain the employees and maximize the value obtained from them in return to the costs seen. As u can see , the organization even claims employees as the assets of the organization ,but in reality they are seen and treated as the “profit generating liability” . As such liabilities are expected to return in the form of profits , the bonds are projected as the psychological barrier for the employees to remain with the same organization .When we see it from the economics perspective ( supply and demand ) , it indirectly restricts the demand when there is a good supply and evidently good demand is there. The demand is always downward sloping with the price paid for the quantity decreases when the quantity increases. In the context of labor supply and employment dynamics , when there is a abundant quantity of labor available , the price exchanged is less for the labor and more bargaining power for the employer. When the availability of labor becomes less , more price is exchanged to get that labor which directly follows from the law of supply and demand. So keeping employment bond will create conditions in turn restricts the movement of labor , can cash on the talent . When we see it from the restrictive covenants perspective , the bonds are really a “virtual” covenant preventing the employee from competing . the” freedom of mobility “as enshrined in our constitution of section 27 of Indian contract act where an employee cannot be restrained to work , So I am really pondering as to whether this spirit of bond will stand in the way of employee trying to seek the best opportunity available. So just pondering to see in the pepsi coco cola case where the pepsi complained abt the poaching , if the pepsi in turn placed a bond on these employees and in turn appealed to the court abt the bond , what would have been the outcome ? will the court again say abt the freedom of mobility as the reason or favour the bond and verdict of thumbs up for pepsi. There are lot of situations where the conditions overlap over one another and may differ from case to case and the applicability of bond shall be a question to reason out.

Binding or Bonding ??

I believe that this whole concept of bond is a beautiful example of “balance of power” as what we have discussed in our first dialectic forum of non-negotiable offer. Now I agree that the different industries like IT, manufacturing, aviation, fashion etc all have their own rules but everything at the end revolves around the appropriate talent acquisition and retention as already pointed out by most of my friends. Ultimately at the end of the day it is the people who form the organization.

There is nothing wrong in talented people searching for new opportunities and simultaneously companies using measures like bond contracts to retain the employees. This is where the” balance of power” lies and how the two parties outweigh each other decides whose side is heavier.

In this ever evolving new economy, it is the knowledge and the ideas that are most valued. So the employees are at an above edge and the coming era has to be of free agents. The free agents work for their excitement and self expression and not for the particular company. The companies actually cannot claim for the intellectual property of the employees which is an integrated outcome of education, experience and external environment. And then binding them with financial liability is not at all justified, those who want to leave will leave. These bonds are a trivial deterrent to stop them and if companies are recovering their recruitment and training cost then I agree with santosh how they actually calculate the cost or it’s simply the wish of HR manager.

The objective of bonds seems to be too small when we visualize the entire scenario from the top. The need of the hour is that companies will have to be that competent that they are not helpless when the employees leave. They will have to develop a methodology wherein the control is not with a single entity but is shared so that when it comes to bargain than the company also can tilt the pan in its favour at least not using the defensive measures like bond.

Bond – Ek (A) Toot Bandhan

Of late, Bonds have become the most potent tool with organizations primarily to discourage the employees to look for other avenues and thereby control attrition. Though it is yet another HR policy that has underlying negative implications, it is being used in all organizations spanning across sectors. However, employment bonds have serious ramifications for organizations too.

Many potential candidates are deterred from joining the organization by these employment bonds and in the process employers lose out on hiring potentially good candidates. During my engineering days one of the companies for recruitment was a multinational chemical consultancy which offered a good profile and substantially good package. However, one of the downsides of joining the organization was a 3 years employment bond. An employee would be liable to pay 2 lakhs in case he/she do not oblige their contract. However, freshers who are looking to put their careers on fast track, consider it as a major roadblock. As such, many opted out of the recruitment process for that company.

However, even after that companies are making employment bonds stricter. With attrition rate going up in companies, particularly in IT sector, companies are making every move possible to prevent employees from leaving the organization. Some companies which earlier used to count the bond period from day 1 have started counting the bond period after completion of fresher’s training, in turn effectively increasing the bond period. Moreover companies which used to allow buyback of bond period by employees, have stopped that practice since their bond mentions that it is on the discretion of the company whether to allow buyback or not.

Not allowing the buyback of bond period is yet another arm twisting mechanism by organizations, wherein they force the employee to oblige long notice periods at any cost. If the employee wishes not to complete the notice period and leave the company in between, organizations blackout the employees name in database maintained companies wherein he won’t be employed by any of those organizations again. However, this is grave issue from two perspectives. Firstly, I believe even such strict policies do not deter employees from leaving the organizations if they are not satisfied with their jobs. The recent exodus of around 4000 employees from Infosys technologies last month only is a case in point.

Hence, to use employee bonds to control attrition might not be in the interests of organizations. Another issue is the length of the bonds. As being mentioned in earlier posts also employers need to determine the length of the employee bonds and their subsequent policies in the interest of both employer and the employee. If the company incurs huge costs and the training is very specialized in nature, employers may go for bonds only to the extent which covers their costs and other legitimate business risks. Though it would always involve subjectivity and some bias on part of the employer reaching to that figure would not be difficult for the companies since the components involved are known to them. However, companies should always bear in mind that such bonds are always a hurdle for an employee. Another important aspect is the notice period that these employment bonds cover. Many companies have as long as 3 months of notice period. Though such long notice period might be justified at top management positions, having long notice period at middle management and entry level positions would indicate the weakness of company to replace a resource at short notice. So notice period should be long enough only for knowledge transfer and resource replacement. However, employees must be given an alternative option to either buyback their bond/notice period.

Thought it involves lots of complex issues and interests of many shareholders like employers, employee, clients etc, but employment bonds definitely create distrust between employee and the employer.

Pros and Cons

Employment Bond is a signed agreement between the employer and the employee stating the terms and conditions during the duration of the job period, it may also be enforceable in the event of a merger of an acquisition and in some cases it may also include certain clauses with are expected to be followed even after the completion of the specified time period. Bonds are viewed by most companies to be a security net in preventing high attrition rates. According to the organizations they are simply protecting their interests. The legality of an Employment Bond in India is however condition to its validity under the Indian Contract Act 1872. If the Bond meets all the requirements of the Act, it is considered to be legally binding.

From the point of view of the organization, one of the most beneficial uses of the employment bond is to protect itself from a high employee turnover rate. With an employment bond, the costs of finding or training new employees are significantly reduced. Employment bonds are used as tools by a company to “lock” an employee within a specified term. Moreover, these bonds play a prime role in enticing new talent to the company by offering them security within the market. On analyzing the other side of the argument, one of the biggest disadvantage of a bond is that it limits the flexibility of the company. Just as the bond compels the employee to serve the organization for a specified duration, it also compels the organization to employ the worker for the same.

Looking at the situation from the employee standpoint, we see that the scenario is not quite as rosy. There exists a decent amount a confusion regarding the enforceability of a bond. With the companies “looking out” for themselves, it comes as no surprise that sometimes the clauses in these signed contracts are at best unfair. For example an employee who wants to resign may have a negligible amount of time left for the legal period to end, say one month. It may be of vital importance for the employee to leave the company at this time. The limitation of the agreement is highlighted by the fact that the organization will not consider the amount of hard work the employee put into the company (sometimes even working nights). The company can choose to withhold the reliving letter and the recommendation letter unless the employee can cough up the charges for breaking the contract. This charge can be and is most probably an exorbitant amount, compelling the employee to continue working in the organization against his/her wishes. How is this situation fair when the Constitution of India clearly states that any man is entitled to exercise any lawful trade as and when he wishes?? Another example that can be cited here is a case of a merger or an acquisition. In most cases the contract signed with the old management is enforceable by new management. This is all well and good if the duties, responsibilities and the opportunities given to an employee remain unchanged under the new rule. What happens when the career advancements promised to the employee at the time of joining are not fulfilled??

So we see that the concept of an employment bond has a lot of gray areas, each with a significant number of implications. While drafting as well as signing a bond, both the employer and the employee should give careful consideration to all the clauses in order to protect their interests. It is also equally important to keep on renegotiating the terms and conditions when the bond expires.

"Bond"....in theory, and in practice.

There are two parties involved in a bond, the employer and the employee. From an employer's perspective a bond is a way to deter employees to leave the company for a specified period of time. There are two points here. The time specified and the amount to be paid. The period of the bond is decided by the company and it is generally the time in which the company can recover the cost it incurred to train the employee. The amount on the other hand is not based on the ROI. I have contrary views to most of the posts made about this issue. I rather agree with Satyajyoti's views that a bond is more a mechanism to prevent employees from leaving the organization. The basic flaw in the ROI argument is that an employee can leave at any time during the bond period, For example if there are two employees working for the same company and have signed a three year bond. One leaves in the 1st year and the other leaves after the second year. The ROI from both the employees is not the same, so how can the amount be same. The amount is just acts as a deterrent for the employees to leave the organization and go over to the competition.

Now lets look from the perspective of the employee. Prabhash has put forward a view that advance payment or bank guarantee for the employment bond is not appropriate. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary?. I went through a lot of posts related to the breaking of employment bonds and the picture I got was that breaking a bond is not a big deal for the employees. Employees quit without giving formal resignation(resignation letter can be a document for legal action). Thinking that the company will at most send you a few mails and call you a few times. Many queries have been asked and the general answer to them was that breaking a bond matters at the senior level but hardly matters the entry level. The downside was that "You will not get full and final settlement as well as relieving letter. So you should abandon the company on 1st or 2nd after getting the salary." and "You will not get the Company's part of the PF".
To the employees who were concerned about the legal implications, the tailor made answer was that the cost of the legal proceedings will be much higher than the amount to be paid and the company does not have time and resources to sue each and every defaulter. Some of the posts even quoted that "Employment bonds are only theoretically possible but practically enforcing it is impossible".

Now that the fact has been established that bond is necessary for the employer.The views bring to our mind certain questions-
Is advance payment or bank guarantee really unacceptable?
How can an Employment bond be practically enforceable?
How is the amount and the period of the bond decided?
How important is the relieving letter for an employee?

If there are so many loopholes to the procedure and people evade it on a regular basis, steps have to be taken to protect the interest of both the parties.

Bond, please save my ROI

It is understandable that companies use bond to discourage employees to leave the company soon after acquiring special skills at company's cost. Companies train the employees with special skills. In many cases the training cost is very high. It is natural that they would expect ROI on training by utilizing the resources after training. It would be against the interest of a company if an employee quits just after acquiring the skills and the worse if he joins a competitor. Thanks to employment bond which provides some protection to companies in this regard.

The given examples speak the same story that, the companies use employment bonds to protect their ROI on the employees. In some cases, bonds intend to protect the ROI on training and in few others they intend to protect ROI on employees when they get onsite opportunity. In the first case the companies invest in technology, in building training infrastructure, hiring expert trainers etc. In the second case the companies invest in training the employees on soft skills required in the work setup at onsite, travel expenses, the opportunity cost incurred by the company when the skills /experience which an employee gains at onsite goes unused and untapped. So, it is obvious that being a business organization they would take steps to protect their ROI; apparently they found bond as the right instrument to serve this purpose.

What I don’t find appropriate is the advance payment or bank guarantee for the employment bond. How can a company charge an employee for something which hasn’t occurred? How can they expect a fresher just out of college to pay the hefty amount before getting his first salary? This policy is adopted by some of the IT companies. They are taking the advantage of the liberty they have got from the regulators and are tweaking the policies to their advantage. Apart from Asatyam, Swipro also has the advance payment for bond policy. In Swipro’s case the interest accrued on the deposit would be given to the employee at the end of the bond period. But advance payment itself is unjustified and is very taxing for the employees. This is high time for the regulators to wake up and stop the IT companies from imposing this type irresponsible, opportunistic and anti employee policies.

The reason why the Indian IT companies have adopted the advance payment could be that, earlier employees used to just walk away without paying for breaking of the bond. They knew that it is very difficult for the companies to enforce it as the company would not be able to track them out and also they wouldn’t bother themselves for couple of lakhs. I have seen ample of such instances in Asatyam, Wisdomsys and Swipro earlier when the concept of advance payment for bond wasn’t there in Indian IT sector. Even then, the company should have tried to address the causes for attrition rather than simply trying to prevent the movement of the employees through monetary impositions. This would affect employee loyalty and motivation and would bring disrepute to the company.

Few questions to deliberate on, if employees are penalized for quitting just after/during training, what protection do they have when the company fires them during that period? One may argue that hiring & firing comes under employment contract (employment at will) and the other one comes under the bond contract. But keep aside the legality part; are these two situations so distinct and separated? Why can’t we have something for employees as well?; like if a company fires an employee without cause during the bond period then the company would pay certain amount to the employee as compensation, so that both the parties get a fair deal.