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What is meant when a US company asks new employees for a "guarantor" who will pay for damages caused by a breach of employment contract?

Does it mean that if an employee resigns after a few months (for instance due to intolerable conditions), the company could ask money to the guarantor?


Context: A US company is trying to hire my friend as a marketing consultant, and wants her to find a "guarantor" who accepts to sign this:

If your company suffers damage due to the Person's breach of the employment contract, I will be liable to compensate the damage.

The "guarantor" contract is for 3 years, while her work contract is for 1 year.

  • 4
    I assume you mean "guarantor". This seems very odd if you are really talking about an employee. If the company is trying to hire a contractor, it is possible that the company is looking for the contractor's company to have some type of bond or insurance which isn't terribly unusual. Heck, it's pretty unusual for an American employee to have an employment contract. Most employment is at-will or governed by an overarching union contract. – Justin Cave Jul 17 '16 at 4:28
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    Not all that unusual for there to be a contract even if it is employment at will -- they have to put all the IP and non-compete clauses somewhere, after all. But the demand for a guarantor seems an entirely unreasonable request. Don't walk away from this opportunity -- run. – keshlam Jul 17 '16 at 4:52
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    There is no way in hell that I would ever sign to be a guarantor for a loan, much less for something like this. Run, like keshlam told you, but try to run faster :-) – gnasher729 Jul 17 '16 at 7:35
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    I would go even further and recommend that you contact your state's labor department to check if this is something you should be reporting somewhere. This sounds more like a scam than an employer. – Lilienthal Jul 17 '16 at 11:06
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    "The 'guarantor' contract is for 3 years, while the work contract is for 1 year" -- So a year and half after the employment contract ends, their lawyer could contact your guarantor and say, "we don't like something, whatever it was, that your guy did or didn't for us two years ago: we reckon that's a breach of contract which has damaged us, and so we want you to indemnify us?? – ChrisW Jul 17 '16 at 15:54
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Short answer: Unless you have a lawyer give you a very clear indication as to the limitations of this clause and how much risk is associated with it to you and your guarantor, run away as fast as you can.

My warning bells aren't just ringing, they are Big Ben sized. The risk of a guarantor having to pay an unspecified (and quite possibly unlimited) amount for anything that the employer deems as "damage" (which is also unspecified) is so high that you would be hard pressed to find any reasonable person sign for you. And for very good reason.

All of the risks are placed on the guarantor and none on the company, all at their discretion. Run. Away.

  • 27
    "all at their discretion" -- well, ultimately at a court's discretion. A court doesn't necessarily just take your word for it if you say, "you broke my pencil, that's $1 million of damages please". They might well say "no it isn't, it's 10 cents", but of course everyone has incurred massive legal costs by then. – Steve Jessop Jul 17 '16 at 11:07
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    @SteveJessop But what if they demand $1000 for something not so spurious as a broken pencil? $5000? More? You still have to take that to court and you still have to pay legal fees. Better to not put yourself in that position in the first place. – Jane S Jul 17 '16 at 11:11
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    Oh sure, nobody wants to take on unlimited liability for somebody else's actions. But the guarantor's liability is no more "at the company's discretion" than the employee's liability would be anyway even if this clause didn't exist. Your employer, or for that matter some stranger you walked past in the street, could sue you for $5000 tomorrow and you'd be in exactly the same tricky situation of deciding whether it's worth fighting or not. – Steve Jessop Jul 17 '16 at 11:12
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    @SteveJessop The difference being, you haven't signed a contract with some random stranger on the street saying you are willing to pay an unspecified amount for unspecified damages. – Jane S Jul 17 '16 at 11:18
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    @steveJessop You're also implying that the court will be fair. Any company that uses this kind of language in their contract has already found a court that will find in their favor. $10 says the contract contains an Arbitrage Clause naming a very specific court location. – Shadur Jul 18 '16 at 0:44
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To answer your actual questions: 1. This is so unusual that I would conclude such a demand can only be made with malicious intent by a company that intends to have "damages" and to sue the guarantor, in order to scam them. 2. In the situation described, the company not only can but will demand money from the guarantor, because that's the whole idea why they want a guarantor in the first place.

The unstated question: Should I go for this job? No way. Run. As fast as you can. Don't sign anything. If they give you any paper to sign, don't. Under no circumstances.

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    Clarification on the second point; while the company may and likely will demand compensation from the guarantor, it's unlikely such a demand would be upheld in the case of a simple resignation (which is what the OP specifically asked about). Generally a resignation would not be a breach of the employment contract. In such a case the guarantor could simply refuse to pay the demand, and the company would have to take the matter up in civil court and prove their "damages arising from breach of contract". It's extremely unlikely that any sane judge would rule in their favor. – aroth Jul 18 '16 at 2:02
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    @aroth but I would never advise going with something that might be a scam on the grounds that "well, the scammy-interpretation is unenforceable, and therefore if it were a scam, the courts will find in my favor". That's needlessly playing with wildfire. – LindaJeanne Jul 18 '16 at 13:19
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    @LindaJeanne I agree: Never wager anything you cannot afford to lose. – user37746 Jul 18 '16 at 13:39
  • @LindaJeanne - Of course. I'm not suggesting in any way that the OP should consider taking the offer. They shouldn't. Just pointing out that the answer to the specific question posed in the OP's query is slightly more nuanced than what's mentioned here. Though strictly speaking, it would be the guarantor taking the gamble and not the OP. – aroth Jul 18 '16 at 16:49
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This idea of a guarantor would appear to be a do-it-yourself alternative to professional indemnity insurance. There's a difference, though, which is that the insurance typically wouldn't cover overtly malicious or criminal acts by the policy holder, whereas on the face of it your guarantor is being asked to take responsibility for anything you might do.

It is certainly not a typical clause in an employment contract. Aside from anything else, many employees are financially independent and even if they wanted to they could not find a guarantor who is any richer or easier to sue than the employee is themself. If there isn't a good prospect of recovering the damages from the guarantor then there's no major benefit to the employer in having the guarantor. The whole point of proper insurance is that it's underwritten by people with very deep pockets. I would guess that this clause is designed for employing children (or adults who the employer intends to treat like children, which is a warning sign in itself), who are expected to have their parents sign for them.

As for whether it (ostensibly) covers resigning, that depends on the other other terms of the contract. OK, it's a 1-year contract, but that doesn't necessarily mean there's no provision in the contract to give shorter notice than that. I'd advise reading the contract to find out, except that this clause is already so objectionable that it probably doesn't matter what else is in there...

In the event that you did resign without notice due to intolerable conditions, I expect you would claim that this is not a breach of contract (by definition of "intolerable"), and they would claim that the conditions weren't so bad and it was a breach. As you've guessed, this would be no fun for either you or your guarantor.

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There may be some specific cases when this is a valid issue.

I worked, for a while, for a company that worked together with a shelter for mentally unstable, and sometimes challenged, people, in order to get them back to a condition where they would be able to work again, or in some cases work at all for the first time in their life.

Those people would work for somewhat between 1 and 4 hours per day, and be assigned to an environment that was safe for them, and where they weren't able to do much damage to the company. Also, they were under near-constant supervision, but in a real company, that supervision naturally can't be 100%. So, it's not entirely impossible for someone with mental problems to get lost, enter a production area, and cause great damage to themselves, or company property.

In this case, the company had a contract with the shelter stating a) the shelter would do their best to send only people they deemed stable enough, b) limited the company's responsibility and c) have insurance to cover possible damages.

So while a guarantee like this isn't completely unheard of, the circumstances are way different. There is a greater-than-average risk of something going wrong, the guarantee is given by an organization that specializes in these things, and it's an insurance company that is going to pay, not the organization and definitely not a single individual. Also, "marketing consultant" as a job description sounds way too independent for anything like this.

So unless there are some very specific circumstances you didn't mention, i agree with the other answers: do not sign this, and recommend to the person in question to find a different opportunity.

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I've been working in the US for over 40 years. (That's a scary thought when you think about it!)

I have never seen a clause like this, anywhere. I have never heard of a clause like this, from anyone.

RUN AWAY.

1

This is A) scary, and B) completely overreaching. It is not uncommon for a company to ask an employee or contractor to sign a contract holding them liable for damages for breaches of certain contractual obligations. Likewise, employees and contractors can and have been sued (although it is difficult) for actions that are grossly negligent, malicious, criminal, or in cases where they knowingly went against company directives and their actions resulted in monetary damages. I have, however, never seen any instance where an employee or contractor was specifically asked to provide a person who would pay for any damages that the employee might cause.

The closest thing I've seen to this is (in the case of a consultant) is the company requiring the consultant to have professional insurance, and to provide proof of such insurance.

I agree with others that this request absolutely sounds like a scam. A reasonable person would never sign a document accepting full financial responsibility for someone's work screw-ups while receiving no consideration for the immense risk they are taking. The only scenario that pops into my head is some desperate, starry-eyed, inexperienced kid getting an offer for what looks like their "dream job," who then talks their elderly and impaired rich aunt into signing this crazy contract. The kid is set up for failure, and poor Aunt Bessie has her life savings litigated away.

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