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Legal Tools for Talent Retention - The Fidelity Clause

02 November 2017 / Iulian Patrascanu / Print article

In the war for talent and fierce attrition, ensuring continuity of certain positions goes from “nice to have” to “must have”. In this light, Fine Law opens a series of articles designed to help the companies operating in outsourcing to hire and retain in a smartest manner than the existing paradigm model. 

 

In today’s article we shall answer to an everlasting question: how an employer ensures that a newly hired talent will not leave the company within a certain period of time? 

In answering to the above, we share with you one of the available legal tools, which is briefly provided by the legislation, but not well understood and may not be very used by the HR departments.  

Let us start with a question! Have you ever considered to insert in an individual labour agreement (“ILA”) a clause which can impose an obligation to an employee not to leave the company sooner than expected and, in case such departure cannot be avoided (let’s not forget about the right to work anywhere a person wants), the company to be entitled to recover part of the money paid to the departing employee?

In answering to the above, we bring to your attention “the fidelity clause”, which may be included in an individual labour agreement (“ILA”) concluded with a newly hired employee. For efficiency reasons, such clause should provide at least for an incentive (as an amount of money) to be granted to the employee, under the condition that the employment relationship shall not be terminated by said employee within a certain period of time. In case of breach of such obligation by an employee, which would involve her/his premature departure from the company, she/he should be liable to return the amount paid as fidelity incentive, in total or in part, depending on circumstances. 

Notably, the fidelity incentive could be granted either as a one-time amount which is payable at the signing of ILA or payable on a monthly basis for a predetermined period of time (highly recommended to indicate the time period).  Irrespectively of payment frequency, the amount should be distinctively defined as being paid apart from the monthly salary. 

The employers are often concerned that in case of breach of a fidelity clause, an employee would escape from the payment obligation and therefore no efficiency in using such clause. 

From our experience, in several cases we dealt with such refusal to pay coming from employees who were the beneficiaries of a fidelity incentive, we successfully recovered such amounts on behalf of our clients, and the decision has been formulated by the courts in a consistent manner relying exclusively on contract principles. 

However, an employer would not be entitled to set-off any due amounts payable to an employee with the obligation (of the departing employee) to return the amounts paid to her/him as fidelity incentive.

Last but not least, we observe that clients are granting “signing bonuses” to special talents and such bonuses are granted without any obligation attached to the employment relationship. We challenge you to consider replacing the signing bonus with a fidelity incentive.

We hope the above has been informative! We will continue to post new articles on the forthcoming editions of ABSL’s newsletters!  Have a good weekend ahead!

Fine Law Team

 

The above information should not be construed as legal advice on a matter which your company is seeking resolution. You should seek tailored advice of legal counsel before acting upon any information provided in the above article.  For any additional information and/or questions, you can reach us at This email address is being protected from spambots. You need JavaScript enabled to view it.    

 

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