Are 2-year employment contracts (service bonds) common?

#1 Apr 15th, 2013, 23:07
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  • monks is offline
#1
Hi IM'ers,

My husband and I are in India. He was recently offered a middle-management job at a company in Delhi that requires him to sign a contract for 2 years. If he decides to leave the company during the first two years for any reason other than a legitimate medical problem, he must pay them 30% of his post-tax annual salary.

This includes if the company is a horrible place to work, and all kinds of reasons why a person may choose to leave a job. Their reasoning is that they lose money from having trained employees, so they want to recoup their costs.

Are these kinds of contracts common? Has anyone had experience with this? Does anyone have advice about it? Should he run away screaming?
#2 Apr 15th, 2013, 23:46
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Originally Posted by monks View Post
Are these kinds of contracts common?
Contract laws are typically NDAs (Non-Disclosure Agreements). Unless they violate some aspects of Company Act. If he's middle management, and is making more than USD $100,000/year, he should just scratch that clause and initial it, and send it back signed.

If he's newbie, and/or in a new industry where many corporate and strategy related confidential information would be shared with him - then - YMMV
#3 Apr 16th, 2013, 00:05
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Hm.... Well, after doing some internet searches, my husband HAD discovered that this type of agreement is actually illegal. Yet, somehow, the company he is negotiating with has been able to enforce it in a court of law, and demand payment from previous employees who broke the contract. (According to them, anyway.) He has also heard from some friends that other companies have similar agreements. Then we've also heard that any company worth anything would not have contracts like this, because they wouldn't have a hard time retaining employees.

They won't let him cross it off and initial it. He is absolutely required to accept it as a condition of employment, and that is the sticking point. They are demanding an undated signed check with the amount written in before he could commence work.

It's a large company, and all of the current employees have apparently agreed to such terms.
#4 Apr 16th, 2013, 00:14
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Originally Posted by monks View Post Hm.... Well, after doing some internet searches, my husband HAD discovered that this type of agreement is actually illegal. Yet, somehow, the company he is negotiating with has been able to enforce it in a court of law, and demand payment from previous employees who broke the contract.


It's a large company, and all of the current employees have apparently agreed to such terms.
Well, then in that case, Look at lawyersclubindia.com forums and search there for an answer. I gather one has to join (it is for-pay site) to ask questions.
#5 Apr 16th, 2013, 02:34
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#5
this kind of contract is quite common for jobs with fresh graduates. i wouldn't know about middle management level though. but still, personally, I would not accept such restrictive practices if I had other viable options. Companies should be able to retain talent based on the work culture and environment, not by holding a sword over employees' heads.
#6 Apr 16th, 2013, 15:35
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#6
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Originally Posted by monks View Post Their reasoning is that they lose money from having trained employees, so they want to recoup their costs.
Why are they training middle management?

This kind of clause is common for freshers - straight out of college - as the company spends a lot of money training them in specific technologies.
#7 Apr 16th, 2013, 18:21
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#7
true, this kind of thing is common in case of freshers where the company might incur costs in training and the average churn at that level is high for the company to think that the clause is important.

Either this is included because your hubby is moving laterally into a new industry that needs fresh training or they may be paying relocation costs that may be significant for the position or pay level.
#8 Apr 17th, 2013, 12:44
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Thanks for all the responses.

Hubby is not going to need any training. They just say that they require this of all employees, even the upper level management, like the CIO, VP level, etc. They require this of middle/senior management to discourage them from leaving before they are able to make an impact on the company. They think it would reflect poorly on the company, and would be demoralizing to underlings. Also, they want to recoup some lost opportunity costs.

Otherwise, everything else about the offer is fine. The comp is good, the bonus is good, there is money for health care, shares, etc. There are other perks, like location, and ability to travel to the US, etc.

AnkitArora, that is exactly what we were thinking.

I would love to hear what the guys who wrote Freakonomics would say about this. Reminds me of the example of the daycare that started charging a penalty fee to parents who picked up their kids late in the hopes it would encourage parents to be more timely. But what ended up happening is that parents were late even more often, because they felt like the fee made up for it. They felt guilty before, but the fee removed their guilt. So then the daycare had an even bigger problem.

This company tactic seems like it would be pretty de-motivating. Not exactly what you would want in your new hires, especially the experienced ones.
Last edited by monks; Apr 17th, 2013 at 12:52.. Reason: additions
#9 Apr 17th, 2013, 15:11
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Places where I worked in India often had multi-month notice provisions (like 90 days for a senior person) to discourage poaching, but the remedy if someone wanted to hire the person away was to pay the person's salary at the former employer for the notice period. Not so likely with a two-year period, though as noted it's common enough with relocation expense.

I'm with an earlier poster - if they have to do that to retain people it's Not A Good Sign.

It's almost as if a US mobile phone company tried to lock you into a two-year contract to ensure you stick around. Oh wait...
“She was not quite what you would call refined. She was not quite what you would call unrefined. She was the kind of person that keeps a parrot.” – Mark Twain
Last edited by curtdfw; Apr 17th, 2013 at 17:44.. Reason: edits
#10 Apr 17th, 2013, 15:19
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#10
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Originally Posted by curtdfw View Post It's almost as if a US mobile phone company tried to lock you into a two-year contract to ensure you stick around. Oh wait...
T-mobile deal is all smoke n mirror. Over the long haul, it comes higher. Being an original omnipoint customer, T-mobile hates my contract
#11 Apr 17th, 2013, 15:51
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As many have already pointed out quite a few major IT companies used to ask for the employment bond for freshers (I used to work for one in the early nineties and signed it). While it served as an effective threat to retain people, back in the 2Ks, many just left without informing their companies. The few who did so actually were let go without the bond being enforced. We realized only later that such employment bonds are illegal and non-enforceable. Hire a good lawyer, and get a second opinion to be sure.

There are a few IT companies which still expect their employees to sign a surety when they travel abroad for projects. The companies expect them to pay back their airfares if the person leaves within 6 months of returning back.

Most companies will expect a 60 day or 90 day notice period. Depending on availability of a person to take up that job, the notice period is negotiable and adjusted against pending leave or not (with the pending leave paid out at end).

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