What is a loyalty contract?

“Since 1996, companies started to tap this resource more aggressively, when an increasing number of Romanian managers in multinational companies wanted to follow expensive courses, such as EMBA”, said Marilena Petrec, CEO of APT Resources & Services advisor.

The loyalty contract can be signed together with the employment contract or few months or years later, when the employee is promoted and needs special expensive courses or even an MBA.

“The clauses of a loyalty contract shows the support given by the organization to its internal component (MBA, special training, Phd). In other cases, the company cannot afford a mobile workforce in certain positions, and holding up an employee for two or three years, due to the loyalty contract terms will ensure the stability of the company,” said Aura Cadis, consultant at Horvath & Partners.

A loyalty contract should not be confused with the professional training clause or non-compete clause in the employment contract. If in the employment contract the clauses are enforceable since the very beginning, the additional collateral loyalty contract can be adopted only when the employer plans to invest in workforce, to shelve their know-how for a longer period.

“Non-compete clause refers to employee’s duty to not divulge any confidential information about the company or business practices, upon the termination or resignation or not to pursue a similar profession in competition against the employer”, said Monica Ion, managing partner at Psihoselect.

The most common clauses introduced in the loyalty contract refer to employee’s duty to complete professional training courses and the payment of an amount if he decides to leave the company before the termination of the retention period set out in the contract, Psihoselect specialist.

In a nutshell, for the various courses followed by the employee on the company’s expenses (MBA and other certificates), he is bound to use the acquired knowledge in enhancing the organization’s productivity.

If the employee agrees to stay for 3-5 years in the company, the employer can resort to a monthly/annual-payment system of a “loyalty bonus”.

If an employee decides to leave the company before the termination of the contract, he would be compelled to return the amount spent by the company for his professional training as well as an additional amount designed to cover the expenses of recruiting a new person for the vacant position.