Bonds...more nuisance than actual help?

Most of my friends who are working and are planning to quit say that resigning from a job is much more difficult than even finding one. At least one has nothing at stake and nothing to lose when he is finding a job.

Most companies these days get their employees to sign an employment bond at the time of joining. Some also do it at a later stage. The employees have no resort than to sign on the dotted line. The bond wordings can differ, but in all cases they will act as obstacles to free mobility in jobs. Some of the typical clauses in a common employment bond are:

· If you leave job, you will have to give a 1/2/3 months notice.

· You cannot join a company that is into a similar line of business.

· You will have to pay to the company a particular sum if you are leaving the organisation.

If one plans to adhere to the company's policy, he will keep sticking to the company for as many years until the organisation someday throws him out.

Here are the reasons why it is so difficult to leave a job:

· The companies that one interviews at will want him to join office immediately. If he said that he has a notice period of 3 months, they would seldom consider the candidature.

· If someone thinks of quitting by giving a three months notice without a job in hand, is there a guarantee that he will secure one after the notice period expires?

· It is difficult to leave job even if one plans to leave without adhering to the notice policy.

o The organisation one worked for sues him in the court for breaching the employee contract.

o All relations with past employer are broken and soured.

o And the worse thing to happen to any person who's planning to be in employment forever - if any organisation finds that there is a case running against someone for breaching an employment contract the dream that they will give you a job can be forgotten. It's rational on their part: if someone left his last organisation, he may also leave them. So why should they hire that person?

So how does one leave without waiting eternally and without paying the huge compensation amount? Here are some interesting ways:

1. Go beg the boss for letting you go. There are 50-50 chances that you will be freed of the shackles of employment. A side effect can be that your employer knows of your intention to resign. From that day onwards, he will keep an extra vigil on you.

2. Just disappear one fine day. Leave no traces of where you could be found. Do your homework first. Check that you have left no permanent addresses where any court notice could be sent. If you have a phone number, disable it. This is just like when you are escaping the police for murder charges.

3. Fight the case valiantly. In India, a majority of the cases are in the favour of employees. Section 27 says that people have right to choose their profession.

4. Also not all companies pursue breach of employment contract case.

Employment Bond: One way to face competition

To me employment bond is one way to face competition. Most of us have mentioned in this forum that one of the reasons for employment bond is to get back the money that the company spends in training an employee in case he/she leaves the organization by breaking the bond. However, I have also seen people (freshers) who immediately after joining an organization are placed in live projects without any training or negligible training (sometimes training period is less than a week and that too soft skills training). The term that is quite often used to describe such employees is batch-broken trainees.

So in such cases when a company does not spend any amount on training yet forces the employment bond on the employees, then the motive behind the bond is not to recover the costs spend in training rather it’s a way to face competition by stopping the employee from joining its competitors.

Again there are companies like RumDal Steel, Dalco etc that have a bond period of 3 years. Usually companies give the first promotion to its employees after 3 years (on an average) and so after an employee spends the bond period of 3 years it is natural that he would like to continue his service in the same company hoping to get a higher role and pay package. So this example again goes to prove that the primary motive of employment bond is to retain employees and to stop them from leaving the company.

When you don’t bond well…..Bond comes into picture!!

A lot has been said about Bonds and bonding attached with it! Article has mentioned about different kinds of bonds mainly in IT industry and industry which requires different kinds of training. As posted by Tuktuk bonds are mainly for knowledge worker and used to create a mental barrier if not financial barrier (as pointed out by Shailendra) to get return on the investment made on employees.

But Bonds cannot be a tool for inducing loyalty and logic of lowering attrition rate can’t be compare with inducing loyalty. If that is so then I guess most of top management guys must be covered under employment bond! You required bond when you feel that there are high chances that person might leave after adding value to himself using company’s resources and thus bond will serve as a rope to tie those people who are less loyal(as from company’s perspective) or in other word more opportunistic/forward-looking(from employee’s perspective) about their career.

As very rightly pointed out by Akash that why bond works not because of legality of it but because of the consequences employees might have to face. Nobody wants to entangle in legal issues and thus they have to pay a price for their forward-looking approach in the career.

A very good analogy of importance of bonds for a company can be related with the following story (story is hypothetical and has few assumptions): -

A farmer (company) purchases seeds (seeds refers to fresher and employees at lower management level) from a right shop/place (recruitment after screening many employees), put his capital (money used for recruitment and training), fertilizers and minerals (tools used to impart knowledge & skills up gradation) and hard work to sow a seed and then nurture it regularly (continuous assistance of seniors and mentors assigned to employee) and providing it optimum sunlight and air(exposure to outside world in case of on-sight job training) so that it can grow and develop into a fruit bearing plant(trained professional).

Then suddenly plant complained that outsiders(competitors’ of the company) are ready to pay more for my fruits so I won’t feed you despite the efforts and hard work you put into me to nurture me from seed to plant and I will serve them.

So Then farmer (current employer) brings in the concept of employment bond by saying that hey Plant! Your are rooted in my land and thus you are strongly bonded (presence of Employment Bond) with me ,so now either complete your full cycle(duration of employment bond) and then become seed again and go to other farmer(Competitor) or pay me a price by providing your fruits(Financial compensation) and then leave.

The story highlights the effort put by an organization to recruit and train employees and make them worthy to professional world and thus if companies are using bonds then they are not doing anything wrong.

This also reminds me that bonds are not necessarily to be attached with financial clauses, there can be other kinds of bonds like, bond present with medical students in a medical college who has to complete a minimum stint in rural and underdeveloped areas before entering into medical business line or in well developed urban areas where sources of revenue are high.

So this is also an example of bond where government introduced a bond so that society can get benefit out of money invested by government on these medical professional (subsidized fees).

Bond for knowledge workers: From the examples, it can be observed that bonds are not implemented for all kind of roles in the company. The most general application of an employment bond is for knowledge workers. This serves the dual purpose of controlling the attrition rate as well as preservation of skills which might be rare and are precious for employer. Basically, bond is being used as a barrier or negative force to retain employees.

The more precious the skills of the employees are and the more strategic the role of the employees is, the more likely it is to have a higher bond amount or a higher bond period. For ex, in case of IMFL Group, for Management Trainees and Graduate Trainees, the bond requires payment of Rs 100,000 if the employee leaves within 2 years including the training period of 1 year. However, for the power plant trainees who are basically electrical engineers and are very strategic to the company, the bond requires them to a pay a sum of Rs 1.5 lakh for the same 2 years. For Diploma Trainees, the amount is Rs 50000.

It has already been discussed in the forum that implementing employment bonds is not the solution to the attrition problem and various reasons has already been provided for the same. As Subhra says, “Many freshers quit every year and they do not even pay back the amount they are needed to pay TCS if they are breaking the bond.” However, at the same time there are many who actually paid the bond money to TCS before leaving the organization without serving the stipulated bond duration of 2 years. The company makes it very clear that your full and final settlement of the account won’t be initiated of you leave without paying the bond money and you won’t be issued an experience letter. Therefore, though there are many who leave the organization without paying, there are also employees who leave only after paying. This may help the organization in recovering at least “some of the money” it invested in the training of those employees. This “some of the money” can be huge sum of money in case of organizations like TCS, Wipro, Infosys etc. where in they train a large number of freshers every year and the attrition rate is also very high.

Also, if an employee leaves the organization in the middle of the project, that may cause significant losses to the project and in turn to the organization. Therefore, the companies resort to implementing employment bonds and notice period. However, it is basically like implementation of negative forces to prevent undesirable behavior. Say for example, we always see “No smoking zone”, “Do not sit here”, and many other similar notices of the like. However, had it been implementation of positive forces like “Sit here”, “smoke here”, it might have been more effective in getting the desirable behavior. Similarly, incentives can prove more effective in controlling attrition rate as compared to employment bonds.

Bond – ‘Quantum of Solace’? Far from it...

Bond is a word that can evoke two kinds of responses in an individual – the bond that means to be enslaved and tied, and the bond that implies a union or a kind of closeness like bond of friendship or love. In our present scenario, the word probably has different meanings for different individuals depending on how they are linked to the bond. An employment bond might be explained by the employer as an agreement of loyalty. To the employee it may come across as a restraining chain much like ‘bonded’ labour.

What are the reasons for an employment bond? As Nehal has pointed out – it is basically to reduce attrition rate. We find that companies (especially IT companies) take freshers from college and incur huge costs in training them. These individuals may take the training and then quit the company. This is one of the main reasons why companies insist on making employees sign an employment bond. In this manner the company tries to make sure that it covers the training expenses. By making an employee sign an employment bond they also try to ensure that the person will not quit the company, and even if he does, he will have to pay a compensation price. The most common employment bond is like the one stated in the story about Chutney Computers.

Will an employment bond ensure lower attrition rate? If an individual wants to quit his job for greener (from his point of view) pastures, can a bond deter his decision? I do not think so. He will probably be willing to even pay the amount if need be to get out of the situation. As Ninad has mentioned, a bond is simply a piece of paper for people who want to quit. Another point raised by Roopinder is that the bond is only a financial liability. It does not work to keep any individuals back, the employees just think twice because of the money to be paid. Moreover, companies in most cases cannot take any legal action if the bond is not paid. The employee can fight for his rights and ask the company to justify the amount in a court of law. As Sumit has mentioned most companies do not even try to retrieve the bond amount. According to the Indian Statute (stated by Mitali), no one can be made to work against his wishes.

Often we find that the training provided in companies is not even worth all the hue and cry. The bond amount is quite a random number. Santosh has raised a pertinent question – how is the amount and duration fixed? Is it based on break even analysis? Cost benefit analysis? Or is it just a random figure depending on the whims of the company’s HR managers? Can Wisdom justify its bond for Rs. 100000 for 1 year? Can RumDal prove that their Rs. 200000 figure for 3 years is fair? These numbers often discourage bright students to sit for the interviews of companies (as pointed out by Subhra). According to me, the company should be willing to answer any questions that are raised on the employment bond particulars. Why should I sign anything without understanding the intricacies? I should feel I am part of a fair deal. Only then can the company expect integrity and loyalty from me. Even if I think the amount is too large for me to pay and there is no way out, I shall just wait for the stipulated period to get over and then quit. This way the company does not gain anything in terms of loyalty. The employees have to be retained beyond their bond period. If every person just fulfils the bond duration like a punishment and then desserts the company, the company holds to lose more than gain anything!

Soumyo has spoken about loyalty from the employee. I do not think ‘bond’ing the employee can lead to any loyalty. As I have mentioned, at the most it will keep the employee from quitting within the bond period. As soon as the period is over, he will hand in his papers. Will that help the company in the long run? Loyalty, respect, integrity are virtues which have to come from within and cannot be enforced upon anybody! If anybody on earth starts thinking he is in a cage, then everything outside that cage will entice him and will provide the impetus for him to break free! “The moment the slave resolves that he will no longer be a slave, his fetters fall. Freedom and slavery are mental states.” – Mahatma Gandhi

A bond never provides any comfort to the employee. Let us consider a case where the individual undergoes training and performs miserably at work. Will the company think twice before showing him the door? Does the bond hold the company back from firing an incompetent employee? Similarly the bond is not strong enough to hold on to an ambitious employee who wants to set out. Companies have to realise that they should make their policies, offers and work environment congenial and fair. That way, the employees will want to be a part of the company and it will bring about a feeling of loyalty naturally. If a person is made to feel at home, he will reciprocate and deliver the services expected out of him and will want to serve that company for a long time. If one is made to feel like a prisoner, his natural tendency will be to get out of it and free himself.

Bonds: Certificates of trust.

A bond is an understanding between the employer and the employee for honouring the commitment made by one towards the other. It is for the mutual benefit of both parties and can be justified on more than one ground. There are certain areas of operation in a company, which are core to its existence and they contain competencies which are exclusive to the company. Thus an employee being trained in these competencies holds a strategic position in the company & almost assumes an indispensable role in the organization.

This kind of understanding is similar to a marriage wherein dowry is paid at the time of the marriage and compensation is demanded in the event of a divorce. It is the trust that is broken and the main concern for a compensation to be demanded. Similarly when an organization asks for an amount as a bond it is more of a value of the trust reposed in the candidate and the converse is true for a divorce as in the case of an employee leaving the organization.

Moreover, like in the case of RumDal Steel, there is also a loyalty bonus of 100,000 INR and certain perks for serving the company for more than or equal to 3 years. It is a unique way of defining a bond by giving incentives to employees rather than arm-twisting them to stay. Such incentives apart from the recovering of the training expenses can be a motivating factor for the employees to be loyal to the organization rather than just having clauses of them paying compensation. The only change I think that should be brought about, if possible would be to have different bond values for Graduate trainees & people having experience with the company of more than a couple of years as a person having worked in an organization could know more about the organization as well as would be obviously of more value to the organization rather than a fresher.

Why Bond Works!!!!

As per the Article 19 of Indian Constitution the right work is a fundamental right, and under no circumstance any person be forced to do something that amounts to the violation of the fundamental right. The Supreme Court has clearly stated that no employee can be forcefully employed, just because he has signed a contract with the employer.
So if challenged, the so called bonds may not stand the scrutiny of labour laws. But they are being practised in the industry and are working to the extent of 85%. Either the employee pays up or serves the required period. Only in some genuine cases, the employee is allowed to go easily.
Therefore the question arises is why and how these bonds work. Few reasons which I could think of are summarised below:

Most of the employees in IT/ITES industry come from middle class and upper middle class backgrounds, which are used to live safe /secured, clean image life. So, when a legal notice goes to the employee's family, it creates a mental trauma and they force their ward to settle the matter amicably.

Second reason could be that when an employee leaves without meeting the bond conditions, he does not receives an experience certificate & relieving letter , which is asked by many reputed companies in the labour market and helps individuals in better bargaining.

Third reason is that employees’ final settlement of accounts is not done. And the employee goes with the feeling that he is not known for honouring commitments made to employers.

Also during the reference check, there will not be a positive response from the previous employer.
So it can be concluded from above statements that bonds are used to create a psychological & social fear in the mind of employees.
Hence for those who are mentally strong and proficient in their skills , there are no bonds !!