How to Formally Include a Non-Binding One-Year Stay Request in an Appraisal Letter?

Respected management,

I have to create an appraisal letter for my employee. I need to add a line in the appraisal letter stating that after the appraisal, the employee cannot leave the company for at least one year.

I need to write this in a formal way because this line is not a contractual obligation, but I need to include it in the letter.

Please help me with this; I would be very thankful.

Thanks.

Dear Sunakshi,

Do you mean to say that after conducting the Performance Appraisal (PA), a salary hike will be given to the employee, and because of the salary hike, the employee cannot leave the company for one year?

It may be noted that Performance Appraisal (PA) and the annual salary increment, though related, are two distinct terms. Therefore, these cannot be used interchangeably.

Now coming to your query. It appears that employees leave the company even after receiving an annual salary increment. To curb their exit, you wish to make a trade-off: take an annual increment but stay compulsorily for a year. Though such conditions are tempting for the employer, their legal validity is questionable. Under the provisions of which act can you introduce this condition?

PA is conducted to measure the work done in the past. The salary increment is a recognition of that. The organization should recognize the work, whether the employee stays with the company in the future or not. In the case at hand, your organization demands that not only should the employee render a desired level of performance, but over and above, he/she must stay in the organization also.

If you introduce a sentence of compulsory employment in the company for a year, then two issues will arise. One is what if the employee quits before one year? Will you ask the employee to refund the amount already disbursed? Secondly, what if the employee wants the freedom of choosing his career opportunities outside your organization and is ready to forego the annual salary increment?

Therefore, before initiating the whole thing, I recommend you consult a lawyer who handles cases under the Indian Contract Act and take his/her opinion.

From the HR Management point of view, the case needs to be seen with due sensitivity. This condition could demotivate the employees. In that case, what will be the cost of demotivation? Will it be lesser or more than the total cost of the salary increment?

Employees work in the company when they are convinced that their intellectual growth takes place. They also work when they feel that they are learning something new in the company. However, the condition that you are proposing will put a focus only on the money. It will set off a culture of trade-off, and it is not good for the organization in the long run.

Final comments: While you have asked for help in drafting a sentence in the post-PA letter issued to the employee, I have given a long post. It may sound like an unwanted lecture to you; nevertheless, it may be noted that the posts on a public forum are bound to come under public scrutiny. The essence of these forums lies in questioning and debating, and not obediently fulfilling the requirement of a fellow member.

Thanks,

Dinesh Divekar

Enforceability of Non-Contractual Terms

If it is not specifically written in an employment contract, then how is it enforceable? I'd be taking legal advice on that one, lest you open one big can of worms with unintended consequences.

Just curious, how do you propose to enforce this clause? Do you think people will stay just because it is in the appraisal letter? Or do you think that this is enforceable in a court or in any other forum?

Appraisal Letter Considerations

An appraisal letter handed over to an existing employee is a letter of acknowledgment of their commendable services during the past year, and they are given an XYZ increment/perks, etc. The management or HR would appear unprofessional and simplistic if it includes a clause of compulsory employment for one year effective from the appraisal date/letter, which undermines HR policy. If the employee does not perform up to your standards, call them, counsel them; if they still do not perform, you can terminate their services through a proper HR framework. This does not warrant any inclusion in the appraisal letter.

Leaving or joining a company

Leaving or joining a company is based on mutual agreement with the terms and conditions mentioned in the appointment letter and accepted by both parties.

Appraisal process

Appraisal is the process of improvement and growth for employees and employers. There is no need to state, "After appraisal, you can't leave the company for at least 1 year." The notice period for leaving a company is applicable as agreed upon by the employee.

Regards,
PNR

Performance appraisal as a tool

Performance appraisal is a tool to measure an employee's performance for the review period (previous year) by their immediate supervisor, reviewed by their HOD, and approved by a higher authority. Based on the final rating, an increment is awarded, and a salary increment letter is issued to the concerned employee.

You cannot ask the employee to commit to staying for a full year solely because of the increment. If you are awarding an excellent rating and proportionate increment to employees, you can arrange a meeting with all employees and the HR Director. Inform them that their performance has been reviewed and that management has shown appreciation by enhancing their package. Emphasize the importance of their involvement for the company's success and growth in the future, and urge them to contribute to the company's growth.

But never write in the appraisal letter that "you can't leave the company for 1 year."

The impact of restrictive policies on employee retention

It will otherwise harm the organization. You would see the exodus of employees because of this restriction, as well as prospective manpower avoiding joining the organization. Thus, the risk is multifold in the long run.

Retaining good employees

It is better to retain good people by offering them a withholding bonus.