Articles

Employment Bond Agreement

By Hailey, Last updated: 2022-06-01 (originally published on 2022-04-19)

Overview of an Employment Bond Agreement

 

What is an Employment Bond Agreement?

An employment bond agreement is a legal contract establishing a fidelity bond between two parties; typically a company and its employee. Essentially, the terms of employment are set out, subsequently creating a form of insurance for the company against the possibility of its employee potentially part-taking in dishonest or fraudulent acts.

Different types of Employment Bond Agreements

Employment Bond Agreements are signed for various purposes. Most commonly, it is used in order to outline restrictions on employees for joining a company. However, it may also be used to set restrictions on what the employee can do after their term of employment with the company ends. Finally, the agreement may also stipulate monetary penalties applicable to the employee should they leave before the term of their contract is complete.

Who needs an Employment Bond Agreement?

This fidelity bond acts as a form of insurance, protecting the company against any type of losses it may suffer as a result of an employee’s dishonest or fraudulent behavior. This may be particularly useful for companies who provide potentially high-risk information or valuable company assets and finances to their employees. To prevent the employee from engaging with direct competition after they leave the company, the agreement may include a non-compete clause 

When enforcing employment bond agreements, it is important to note the three key players that govern this relationship between the company and its employee. Firstly, the principal is an individual who purchases the bond agreement and risks violating its terms. The party being protected from such violations is called the obligee, and the surety is the company issuing the bond. The surety is also the party responsible for paying the initial value of the claim being violated. Ultimately, however, the surety would be able to pursue a claim against the employee for the sum of money to replace training and other relevant expenses.

What to include in an Employee Bond Agreement

The contents of an employee bond agreement can vary greatly between companies depending on its purpose. Most agreements will include the following:

  • The time period for which an employee is bound by the agreement.
  • The date on which remuneration is issued to employees.
  • Allowances for other amenities such as technology and transport, the company’s attendance policy, and so on.

Further, the time period for which an employee has to remain with the employer should be reasonably dictated by the company. The employer cannot stipulate within a contract an unreasonable length of the employment period. This would also differ from one company to another.

Conclusion

Essentially, an employment bond agreement creates a fidelity bond between the employer and employee. It acts as insurance or protection for the employer against potentially fraudulent behavior. during and even after the employee’s contract with the company has concluded.

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