Surety vs. Employment Bonds
To secure an employment bond, companies must contract with a U.S. Treasury Department-approved insurance company (a list of these approved insurance providers may be found at the Treasury Department’s website).
Sometimes, a cash surety bond may be used instead of an employment bond. This is an option when a company is denied approval for the latter. A cash surety bond works similarly to an employment bond, but it is issued and held by PACA. “The PACA licensee must provide a cashier’s check for the bond amount, which is deposited into a noninterest bearing account and held for four years, nine months,” Sullivan clarifies.
In addition, a cash surety agreement is drawn up and signed by an officer of the company and by an associate deputy administrator of the USDA’s Agricultural Marketing Service. “At the end of the bonding period,” Sullivan says, “the funds are refunded to the employer, if they have not been called into use.”
All in all, PACA imposed employment bonds protect the produce industry by ensuring reparation awards get paid. And while it may seem at first glance that such a bond would also hasten payment, Sullivan divulges, “we do not necessarily see this as a matter of course.”
While employment bonds may seem like a punitive measure, their purpose is altruistic. First, as mentioned, it promotes fair trade by protecting short-term future transactions against unscrupulous business habits, and one-time offenders. Secondly, it gives vendors confidence in their transactions, knowing they will be paid for their invoices.
Lastly, these insurance instruments tend to dam a potential flood of debt within the volatile perishables supply chain. Although its predominant use is slim relative to the size of the produce industry, employment bonds continue to strengthen the integrity of the industry and its buyers and sellers.