Employment Bonds: Do they really work?

Employment Bond contracts

The war against attrition is a seemingly unending struggle for employers and HR managers alike. A survey by Mercer concluded that 54% of workers in India are on the lookout for better opportunities. Furthermore, employees under the age of 24 are much more likely to quit, with that number being around 66%. Employers are constantly searching for methods to solve this issue and one of the answers that they’ve come up with is “Bond Contracts”.

What is an Employment Bond Contract?

A bond contract is a recorded promise made by an employee to the employer pledging that he/she will pay a certain amount to the employer if he leaves the organization before the agreed period.  This agreement is usually made when an employee joins a new organization.

Is it a good idea to implement Employment Bond Contracts?

Asking employees to sign bond contracts has become a notorious method of decreasing attrition in organisations.  The problem, though, is that the law does not permit the legal enforcement of such contracts.  This is also common knowledge among employees. Which brings us to the crucial question – “Do employment bonds really work?”

The truth is that companies can withhold important collateral that employees on the excuse of an unfulfilled contract. These include:

–  Relieving letter
– Full and final settlement

Employees are aware of the importance of a relieving letter which may force them to fulfill the bond period.  A handful will negotiate with their new employer, but would still prefer to avoid it if they can.

Where does the law have to stay?

Bonded labour, in essence, is outlawed as per the Bonded Labour System (abolition) Act, 1976. This means there can be no valid contract that compels employees to stick for a particular tenure in the company.

There is however, some respite for the employer:

–  As an employer, you have the right to claim what you’ve spend in terms of training, enhancing and grooming the employee.
– You can also claim legal remedy if you can prove that the employee is joining a competitor to divulge trade secrets. In this case, the law protects the interests of the employer.

Here are a few important things to keep in mind when you frame an employment bond:

–  The period of the bond should not be too high
– The payable bond amount shouldn’t be beyond what you’ve spent on training and grooming the employee.
– Make sure that you have enough evidence of training and grooming expenses in case you need to take the legal route.
– Do add a confidentiality clause that will legally protect the company’s trade secrets in case the employee leaves.
– Some companies sign agreements with their employees which entitles them to a lump sum if the employee quits.  It’s important to note that these agreements aren’t legally enforceable and are usually ignored by employees.

What are the best alternatives to an employment bond?

The problem of employee attrition is still one that tops the list of most employers.  The modern employee is hungry for growth and is super impatient about it.  So what is the best policy? How do you keep employees put while ensuring a steady growth? Here are some of the best practices we recommend:

Growth Path:Linkedin Survey pointed out that the #1 reason why people move to another company is better growth opportunity. The modern workforce is growing increasingly impatient and it’s important that employers help them see their growth more clearly.  Set up a visible and realistic growth path for all employees to reduce your attrition rates.

Compensation:  The survey also suggests that the compensation is a critical factor contributing to attrition rates. Pay your employees on par with industry standards or above as soon as you can afford to do so.  In terms of costs, the increased salary will prove much cheaper than what you spend on recruiting and training a new employee.

Leadership: There is an old saying, “People leave managers and not jobs”.  This is further validated by a survey conducted by TinyPulse. The survey suggests that people prefer roles where they had enough freedom to do their job and were consistently more satisfied. This means that micromanagement is a costly affair and should be avoided as far as possible.

Work life balance: Getting maximum hours out of employees is an old school of thought. The Linkedin Survey also suggested that employees may choose to work for another organization if they have a better work life balance.  Hence, it’s advisable to create policies that enable employees to not only be productive at work but also fulfill their personal commitments.

Structure the salary: Deduct an amount from the employee’s salary payable at the completion of a year. If this amount is considerably higher, it may compel the employee to complete the tenure

How should an employee approach a bond contract?

If you don’t agree, don’t sign it: If you don’t intend on fulfilling the terms of the bond or feel that the terms are unreasonable, then don’t sign it.You will save yourself some hassle in the future by doing so

Don’t burn bridges: If you have to break a bond contract, check with your employer about what your alternatives are. It may be possible, that they will be willing to help smooth transition if you complete some pending work or serve out your notice.  Having a healthy rapport with your past employers is always a good thing. Hence, as far as possible, avoid burning the bridge if you can.

Negotiate with your new employer:  If the steps mentioned above fails, then you’re most probably not going to receive a relieving letter.  If you’re new employer needs this document, then explain your situation to them.  In most cases, they will be willing to compromise to bring you onboard.

There are many alternatives to reducing attrition that the arbitrary bond contract. Organisations are evolving to include methods that “engage” employees rather than scare them. So if you still use bond contracts in your company, it might make sense to consider a better alternative.