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Hiring and Employment Bonds

Worth the price?

Securing a Bond
In the event a business decides to move forward with an employment bond, certain information is requested by PACA. First, Sullivan explains, “We ask the employer questions so we can understand the volume and nature of its business, as well as what role the violator will have in the employing firm.” Additional pertinent information that may be requested includes balance sheet and income statements; monthly average produce purchases; annual produce sales; the total number of employees; the violator’s title and duties; the level of his/her supervision; customary payment terms; PACA’s history with the employing firm; any bankruptcy actions; and even the company’s Blue Book rating.

“We use the same factors for all bond determinations,” Sullivan notes, “but will aggravate or mitigate as appropriate, based upon the factual situation.” Once all of the information is collected, it is analyzed and a commensurate bond amount is determined. “The bond amount for an employee whose license was suspended for unpaid reparations should not be less than what is owed to PACA licensees,” she states.

Even with unpaid reparation obligations owed to the trade, a violator can still be eligible for immediate employment if his/her employer posts a surety bond. However, if a business loses its PACA license due to violations of the Act, the company’s principal is ineligible for employment for one full year. After this time, an employer is required to post an employment bond to hire the individual. Otherwise, an additional year of sitting on the sidelines is required before all restrictions reset to zero.

The Gambit
So why hire a violator and go through the hassle of obtaining an employment bond? There are many reasons, including the person’s experience, skill set, and contacts within the industry. “There are also situations where violators are unable to pay their produce debt for reasons beyond their control,” points out Sullivan, such as when a company goes bankrupt, setting off a chain reaction of losses and nonpayment.

Sometimes a person has been deemed a responsible party within a violating company, but had minimal involvement with the violation. Another example is a bankruptcy brought on by personal issues, such as medical bills. In this case, a PACA licensee is incapable of paying, or draws upon assets until the funds are depleted. “Nonetheless,” Sullivan asserts, these parties are culpable and still “held responsible under PACA law.”

Trying to circumvent a mandated employment bond is risky. A business that hires a restricted employee without the proper bond jeopardizes its PACA license, not to mention having to nurse expensive headaches. “The penalty for nonlicensed operations is $1,200 for each offense and not more than $350 for each day the offense continues,” states Sullivan. “These types of cases are referred to the U.S. Department of Justice for prosecution.” It should be noted that even businesses without a PACA license are subject to these rules, if they are required to have a license.