What is an Employment Bond?

Bond for Employment

performance bond application

An employment bond is a type of fiduciary bond. This type of bond is different from the standard contract bond. In a standard contract bond, the bond is written based on the terms of the underlying contract. So, what the surety looks to if there is a dispute is the contract to determine what needs to be done. The contract itself contains all of the terms of the agreement and the surety will perform according to those terms.

In a fiduciary bond context, the bond is based on a particular individual. For an employment bond, the surety is writing the bond based solely on the person being bonded. So, what the surety looks to is the character of the person being bonded. This includes the financial position of the individual, such as their net worth. In addition, a surety may look at other characteristics, such as whether there are negative issues in the persons past, like a bankruptcy, instances of fraud, drug usage or even a gambling addiction.

A good example of an employment bond is a bank teller. The bank wants to make sure that it won’t lose a ton of money by hiring a bank teller that is taking cash. So, they get a surety to write an employment bond. In the old days, the bank would actually have each teller fill out an application and then the surety would underwrite each teller. In modern times, most employment bonds are written based on a class of employees. That is, a bank would just get an employment bond that covered its tellers and then not have to name each one.

Like in all bond underwriting, the surety is wanting to make sure that there will not be a claim made against the surety. Remember, bonds are written on a no assumed losses basis. What that means is that they are not assuming any losses. This is different than insurance, where losses are assumed.

We hope that this has been helpful in explaining what an employment bond is.