Most people have been asked, when applying for a job, if they are bonded or bondable. Many of them really didn’t have the slightest idea what that meant.

            The concept of employee bonding is really an insurance matter relating to the employer’s efforts to protect itself against wrongful acts by its employees. In industries where employees have direct access to money or to property, the employer will often be keen to protect itself against the impact of employee theft.

            Also certain businesses will be required by their customers to provide proof that they are bonded. For instance, customers of commercial cleaning companies might demand the cleaners be bonded. This provides both peace of mind (that the cleaners are trustworthy) and financial protection in the event of theft.

            The employer simply purchases what is known as a fidelity bond from an insurance company. This is, effectively, an insurance policy which pays out when there is an instance of theft (or, possibly, some other wrongful act).

            There are several types of fidelity bonds. Employers may obtain what is known as a “name schedule” bond which provides coverage for only the employees named on the bond. When a new employee is hired, his/her name must be added to the bond. Coverage is only provided when a theft or loss can be traced directly to a named employee.

            Also available are “blanket position” bonds, which provide coverage for all the employees. The bond automatically covers new employees. It allows for a certain amount of protection against the acts of each employee. So, if the bond is for $5,000 and three employees are engaged in theft, the bond could provide as much as a $15,000 payment.

            Finally, employers may obtain a “primary commercial blanket” bond. These are similar to a “blanket position” bond except they have a flat maximum payout regardless of how many employees are involved in the wrongful conduct.

            Fidelity bonds are to be distinguished from contract (or bid) bonds, which are commonly used in the construction industry. A contract (or bid) bond is used to ensure that the contractor who is the lowest bidder on a job can and will complete the contract at the tendered price.

            Fidelity bonds are also to be distinguished from licensing bonds which a company may be required to provide to a regulatory body. In the security industry, for instance, to obtain an operating license in B.C. the security business must obtain a bond payable to the Registrar of the Private Investigators and Security Agencies Act. The bond must stay in place; if it is cancelled, the operating licenses is no longer valid.

            In acquiring a fidelity bond the employer obtains what is effectively an insurance policy, protecting them against losses relating to employee conduct. The insurance policy may require that the employees do not constitute an undue risk of theft.

            As a result, the employer’s screening process will often include questions about whether the employee is bonded or bondable. These are intended to determine whether the individual’s background suggests a heightened risk of criminal conduct. The enquiry often focuses on prior criminal activity (relating to theft or fraud) or a poor personal credit history. An employer which is carefully screening will usually require the applicant to complete an extensive questionnaire on these topics.

            The pre-employment inquiries are now subject to increased scrutiny because of the existence of B.C.’s Personal Information Protection Act. If the employer cannot demonstrate that it has a reasonable need for the background information (in the context of the particular job being offered) then its demand for that information would be unlawful. This will likely cause the number of businesses asking pre-employment questions for bonding purposes to diminish as time goes on.

            These items are intended for general information purposes only and should not be construed or relied upon as legal advice. The legal issues addressed in these items are subject to changes in the applicable law. You should always seek competent legal advice concerning any specific issues affecting you or your business.