Employment Bonds- a mere formality??

While a lot of perspectives on employment bonds have already been shared, I would just like to append that such bonds are not restricted to work alone. Such bonds are ubiquitous and are found in various fields such as education and medicine even.

In medicine, students have to sign a bond, by which they have to mandatorily serve a period of one year in rural places. They have to serve one year as interns in some village. Infact in Army Medical Colleges this tenure is greater. Students have to pay as much as 5-7 lacks as fine incase they fail to serve this period.

Companies like Infosys, where I have worked , do not enforce these contracts very seriously. They make new hires sign a one year contract, but many of my friends left the company before the period. Also, they did not pay a compensation to the company. On some occasions a letter was sent to their homes, but the company did not follow up. Thus, I believe such bonds serve no useful purpose if they are not taken seriously but considered just another formality. Companies believe that an employee should stick in their company for a stipulated period of time just so that they can recover the money spent on the training of the employee. But it might so happen thatan employee could stay in the company for the stipulated time and still add no value to the company. Infact that the employee could cause more harm than good if he says back in the company. Also, there is a possibility that an employee is so efficient that he has given back more than his share of dues to the company even before the tenure mentioned in the contract has expired. In such cases, I believe having a pre-decided time frame for a bond does not serve its purpose and works against the employees.

Why a bond at all.....

Each company has its own criteria to form a bond as per its requirements. It basically revolves around:

Ø the training expenses borne by the company,

Ø the cost involved in recruiting the employee,

Ø the threat of competition.

In present circumstances, when unemployment is soaring high every moment, there is hardly anything that an ordinary person can do about it. If at all an employee refuses bind by such an agreement, it is he who is losing and not the employer. There are certainly a myriad number of potential candidates for the job who will not hesitate accept such kind of bonds where there are restricted departure from the firm before a prescribed time period.

These bonds are essentially drafted to protect the employment interest of the employer as the employees, once they are trained, seek for better incentives, improved work culture and higher pay. As experienced people are preferred for many of the jobs, it becomes very essential for a firm to keep a check on more and more employees leaving the organisation after gaining experience and utilising it for their own good.

Any such bond is justified if it gives both employer and employee an equitable chance to benefit from each other. It is favourable to both the parties if it does not curb the growth opportunities of the employee. Even if it is too restrictive, it will not do much good to the company because if an employee is not satisfied with the job, it is likely that the performance will deteriorate. This can cost the company even higher than employee attrition.

These bonds have become quite indispensable due to increasing competitiveness. The cases of solicitation of employees are increasing daily and it is no more a secret that what it can cost to an organisation if it is not proactive in curbing it. In order to cover up the cost of recruitment and training of the employee, and to gain as much as possible for the effort made so as to acquire the employee, it is rarely possible for an organisation to do away with an employment bond.

The real value of the Bond.

While there is no doubt that employment bond are used by organisations as a means to deter their employees from leaving, the opinions differ when it comes to actually implementing it. Some have argued that companies are not that strict on it and give partial relief depending on the situation while some of the experiences of my friends suggest otherwise. Though it is beyond my reach one of the interesting statistics to get would be the ratio between the “income” the company had from these bonds (determined by the attrition rate and assuming a recovery rate say 90 percent) and the total amount the company spent in training these employees. I fear that this ratio may well be over 1. One of the reasons is that many companies give on the job training where the trainee is expected to work on some of the real projects under a guide and so the value delivered by the trainee justifies the cost of the training. In fact it is same as a regular job except it’s a little less rigorous and accountability is low. Also in many cases the trainer is an employee of the organisation and doesn’t charge as much as an external trainer should. So the employee who left within 2-3 months of joining gets a raw deal. One of the ways in which this situation can be alleviated is that the bond should be priced at a pro rata basis. Suppose the bond is worth Rs 100 and for 2 years. So if an employee leaves in 6 months he should pay Rs 25 (one- fourth of the value). This will prevent hardship for the employees who go for higher studies or discover that the job does not suit them and they have to look at other avenues. Ending on a personal note I would say I was lucky to work for an organisation who didn’t believe in employment bonds though the training given to all new joiners was very enriching and one of its kind to say the least.

Bond is only on pen & paper!

With the opening up of Indian Economy there has been a myriad entry of foreign players thereby increasing the job opportunities in all sectors i.e. manufacturing , services etc. The demand for qualified and experienced persons is on the rise with hefty pay packages and lucrative offers. But it is disheartening to see the practices of the companies to hire (solicit) experienced employees as well as the practices to curb the movement of their own employees to other companies. Serious efforts are being made by the employers to devise methods to restrict an employee from leaving the current employer and to somehow prevent him from seeking employment elsewhere and almost all the companies take extra care to draw up elaborate and complicated employment contracts so that a fear psychosis is put on the minds of the employees from the thought of leaving the employer. Also in the plea of providing "training", the demand for bank guarantees of heavy sums is an impediment for the employees to look for career growth. The innumerable bonds that the companies sign with their employees are just a way to deter them from leaving the organization.

In this race of restricting employee mobility the companies have vehemently flouted the fundamental right embodied in Article 19(1)(g) of the Constitution of India that allows the citizens the right to practice any profession or carry on any occupation, trade or business subject to reasonable restrictions in public interest. Any amount of arm twisting tactics & fine tuning of employment contract cannot deter the citizens of this country from exercising their right.The most important legal provision which safeguards the rights of the employees is contained in Section 27 of the Indian Contract Act, 1872 which reads as under : -

“27. Agreement in restraint of trade void - Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent

void.

Exception-1 : Saving of agreement is not to carry on business

of which good is sold

Though the reasonableness is decided on a case by case basis but mostly any "negative covenant" in the employment contract cannot curb the freedom of the employee in seeking employment elsewhere after the termination of the contract.

Sounds like a necessary evil !!

I think nothing in this universe lives without a bond. Bonds like atomic bonds (electrochemical, covalent etc) are the building blocks of everything we see around us. Bond like what our planet has with the Sun enables it to get its nutrition and provide necessary conditions for life. Bonds with one’s own family, relatives, society and country have always been well known, written and advertised. Even bonds like government bonds are an essential cog in the wheel for an economy. Now, in this myriad of bonding around us, can anybody let me know how could an important relation like that of an employer with its employee remain unsecured?

Actually, it is very unwise of those people who say that there should be no bond and employees should have free mobility. I would like to ask them how they would feel if their girlfriend (or a friend) leaves them tomorrow saying that he/she has found a better one on whom they have done a considerable investment in terms of time, money, emotional content and what not. Here I’m not saying that the employment relationship is as personal like someone’s love life or friendship, but definitely some respect has to be provided to such kind of a relation. When an employer spends lakhs of rupees to train its employees to achieve market qualifications, then it definitely keeps a plan behind to make use of that investment. In this selfish world, nobody would care to provide water to even a person who is dying by the roadside. So where does the question of charity arise? Companies do have the concept of ROI in their minds while providing training to an employee, an ROI which is determined by the competition in the industry and the market as a whole.

Now with all this in mind, it can be conjectured that bonds are necessary for a company’s survival in the competitive environment. But how does it sound when somebody says that bonds are a kind of necessary evil. Well not a bad thought I guess. Nobody likes to be tied down to a relation for long. It is in the human nature and comes in package with the behaviour too. Actually this feeling has been bolstered by the concept of democracy and freedom which is becoming the standard for societies across the globe now. Same is true with the employees who get fed up with their organizations due to a plethora of reasons starting with pay structure and perhaps ending with unclean toilets and start saying “This Company sucks”. So the simplest way out is to leave the firm and join another. Again, clarifying the view here, bonds are necessary taking in consideration the firms’ benefits and investments; evil because they tie down people to serve somebody who they don’t feel worthy and put restriction on their freedom.

Therefore, in this game of opposing forces, laws need to be laid down to properly understand and legalize employment relations in this field. Conflicting laws across lands and the ensuing decisions only make the matter complex and do not serve the purpose for either of the sides. This needs to be sorted out to make the situation better and comprehensible. But the debate would continue for ages to come. Some will accept while some will refute.

Employment Bond: A Covalent Bond between the Employer and the Employee

Ruskin Bond once said, “To be able to laugh and to be merciful are the only things that make man better than the beast”. Perhaps he took into the consideration the rate at which the world is progressing today. These days people belong to nobody and nobody belong to them. The competition has been growing exponentially and the whole world is in a sorry state of affair. Every one is seeking one’s own profit and forgetting the greater goal of serving the society.

Now why I brought this up here is simple. Consider this situation:

Had the world been a perfect picturesque, probably every person would have acknowledged the other person’s favor and would have returned it in due course of time. Incase of an employment, when an employee and employer decide to get into a professional relationship, the employer would have gone to the maximum extent to train his employee and support him in troubled times. And in return the employee would have worked relentlessly without expecting much from his employer. In such situations probably there would have been no attrition at all.

But let us admit it, such is not the case. People are greedy- greedy for money, power, position and respect. And it is due to this greed that an employee decides to abandon his employer in the midst of their relationship and join another firm which indeed promises him a better position and pay. Needless to say, that an employer in such situation feels cheated not because he lost a talent but he lost on the investment he made on that particular employee. Talking in terms of Return on Investment, the employer return on his big investment is zero. The investment includes the cost of training the employee, the cost of retaining him and all other tits and bits cost that the employer has incurred. In such situation expecting merci out of the employer is pointless. The employer has every right to demand back the money that he loses when the employee decide to put an end to their so called established relationship.

So what should the employer do in such situation or in other words how should the employer ensure that that he gets back what he has invested if not positive returns. The only way is to get it back from the employee. And how to ensure that the employee pays is simple- make him sign a bond, that guarantees that the employee has to serve the employer for a minimum of certain period or else has to pay back the entire amount as specified. Fair enough as far as the employer is concerned though the employee might feel that he is the one who is at loss.

Now let us look from the employees’ perspective. Modernity has dawned upon man and in this era of super computers, no one can afford to be slow. Every now and then the rules of the game change and it is required that the player adopt himself to such changing rules as fast as he can, lest he has to face the fury of this fast moving world. Gone are the days when frequent changing of jobs were looked down upon and the employee considered as fickle and inconsistent, today if one sticks to his job for a relatively longer period of time then his competency is questioned and his caliber is doubted. In such situations the employee is in a serious dilemma of whether to stick to his current employer and be loyal to him or to change jobs so as to prove his competence. Now that he is forced to sign a bond, he has no other option but to wait for the period until the bond expires and then only decide to change job or else pay the fine and switch to a better job offering better profile.

Here I would like to cite my personal experience as evidence that how such bonds change people’s decision and how it changed my life. In my engineering days, I was recruited by a software giant XYZ company (name hidden for confidentiality reasons). I was happy that I got through the company. I had planned out everything for my future. What I had decided is I would work for a year, get some industry exposure and then try my hand at management. But all my plans were shattered the day when I received my offer letter. It had a 2 years of bond or else I would be liable to pay the entire fine which was in lieu of the training cost. Following is an excerpt from my offer letter:

Service Agreement:

“As XYZ will be incurring considerable expenditure on your training, you will be required to execute an agreement, to serve XYZ for a minimum period of 2 years after joining, failing which, you (and your surety) will be liable to pay XYZ Rs.**,***/- towards the training expenditure.”

Overseas Deputation / International Assignment Agreement:

If you are on international assignment, you will be covered by the XYZ International Assignment policy from the date of deputation.

Accordingly, you will be required to sign the applicable Overseas Deputation / International Assignment Agreement/s. In case of every international assignment that exceeds 30 days, you will be required to serve XYZ as per the Notice Period mentioned below.

This is to ensure that the knowledge and information gained by you during your assignment is shared and available to XYZ and its associates. This transfer of knowledge and information is essential for XYZ to continue to serve its clients and customers better.

If you are deputed internationally for training, you will be required to sign an agreement to serve XYZ for a minimum period of 6 months on completion of training.

Notice Period:

If you are covered under Deputation Agreement / International Assignment

Agreement, either you or XYZ can terminate the traineeship / appointment by giving

90 calendar days written notice as set out in the Separation Policy of XYZ.

XYZ reserves the right if it is in the interest of the business and current assignment,

to ask you to complete your notice period.

Seeing this agreement, I decided not to go ahead with the decision of joining this firm instead I preponed my decision of joining a B-School and here I landed up doing my MBA. So needless to say bond does put a significant impact on people’s lives.

So ideally what should an employer do to avoid such situation in the first place. What the employer need to understand is the employee’s need. Every employee seeks to have a challenging role where he can prove his mettle. And for that the employer need to search in various avenues to help the employee find his dream profile and does not get bored with his routine life and job description. On the other hand the employee needs to be patient enough and wait for his employer to give him numerous opportunities.

I know this is a bit difficult to achieve, but if achieved nothing like it. Till then I believe this fight will exist. And it is up to the employer and the employee how they can bargain a fair share of deal. I would say this employment contract acts as a covalent bond between the two parties keeping them together. Every person involved makes a sincere effort to please the other party involved even though he might not enjoy doing so. This is today’s world and today’s corporate structure or as James Bond quotes “you may call it professional courtesy”.

Tied with an employment bond

The primary reason a company requires an employee to sign an employment bond as a huge sum of money is spent on the employees training and development programs. Thus an employer would expect the employee to stay with the organization atleast long enough to justify the expenses incurred. Also, equally important is the fact that some skills are acquired over a period of time and if the employee is trained for a specific duration of time and then wishes to quit , it would be difficult for the employer to find a replacement. No company would like to let go of an employee after training him/her with the best of their resources , equip them with highly sought after on the job skills and then see them quit to move on to greener pastures. Thus, bonds are signed at the time of accepting the employment or sometimes even later,which require compensation to be paid incase an employee wishes to quit before a stipulated duration of time. However, if a company asks an employee to sign a bond as to not to terminate the employment relationship and accept alternate employment before a specific duration it could amount to an agreement in restraint of trade.

It can also be seen as a gain for both the parties- Employer pays for the training and in turn uses the employee’s services for atleast a minimum time period. If such a bond were considered illegal a company would solely have to rely on good faith and the employee’s loyalty to the company. As the carrot and stick approach goes, a combination of rewards and punishments is required to induce a desired behavior. Thus, if there is no deterrent in the form of a legal obligation, it will not be suprising to find employees maximizing their benefits and moving on. But on the other hand bonds might also act as a deterrent for prospective employees from taking up the job offer. In some companies employment bonds are a common practice as a need to stop early attrition. However, at companies like Deloitte where I worked for a few months, employment bonds are signed only when an employee is sent for an onsite assignment. As the company incurs all the expenses with respect to the travel and training such a bond is justified. No one can be forced to sign an employment bond. It is upto the employee to evaluate its merits , consider if the value addition/training is worth being bonded and then make an informed decision.