Execution of a Suretyship Agreement as a Precondition for Employment and Its Invalidity

My decision to write this article was prompted by several cases I encountered, which I later found out reflect an existing and established practice in Georgia. Specifically, when concluding an employment contract, the employer demands that the employee bring someone (mostly a family member) to sign a suretyship agreement along with the employee. In some cases, the guarantor signs a suretyship agreement where the maximum amount of suretyship can be defined as 15 or sometimes 20 times the amount of the salary the employee receives monthly. I believe that this practice and these established standards do not comply with the legislation currently in force in Georgia. Although, as far as I am aware, there has not been a case to date where the issue of its invalidity has been raised in court (I will probably have such a case in about 3 or 4 months), I consider this suretyship agreement to be void, and it is void ab initio (from the moment of its conclusion). This, of course (in my opinion as a lawyer), means, in short, that it possesses no binding/obligating precondition for the parties. However, let us follow the sequence;

The Organic Law of Georgia, the "Labor Code," stands higher in the hierarchy of laws than other ordinary laws. This attitude toward the Labor Code is conditioned by the regulatory scope of the organic law. Namely, the Labor Code regulates "labor and its accompanying relations on the territory of Georgia" (Article 1.1). "Labor relations arise on the basis of equality of parties as a result of an agreement reached through free expression of will" (Article 2.1). "An employment contract may not define norms different from those provided by this Law if they worsen the condition of the employee" (Article 1.3). During employment relations, apart from the constitutional right to labor, these articles represent the main foundation. The employment contract, like all other contracts, is subject to the norms of the Civil Code of Georgia, according to which the interpretation of this contract occurs; namely, whether the said contract complies with the norms and principles reinforced by the Civil Code of Georgia;

From a person who is to sign an employment contract with the employer—a contract that must comply with the established requirements of the Organic Law of Georgia—the employer demands to "bring" (this is the exact term usually used to explain this, which is quite interesting for a lawyer) someone who will sign a suretyship agreement with the employer. As for the suretyship agreement, it is an ordinary means of securing the main contract. This means that without a main contract, a suretyship agreement cannot exist (Article 153.1 of the Civil Code: an accessory right is a right that is so connected to another right that it cannot exist without it). The main contract is the basis for the suretyship agreement. Accordingly, the suretyship agreement itself is interpreted as follows: By a suretyship agreement, a guarantor undertakes the obligation towards the creditor of a third person to answer for the performance of the latter’s obligation (Article 891.1);

First of all, it must be explained that under the word "creditor," the law implies a person who has a right of claim against another person; specifically, when one party to a contract is empowered to demand from another person the performance of an action or to demand abstinence from performance. The suretyship agreement is a unilateral contract, as the obligation under the contract is assumed only by one party—the guarantor. As a rule, no performance of any obligation is imposed on the creditor. Consequently, upon the execution of the employment contract, the employer acquires the right to claim against two persons, namely: the employee and a third person. This means that in the event of any damage, they can demand compensation for this damage not only from the employee but also from the guarantor, who is not actually in an employment contractual relationship;

In practice, an ordinary (standard) suretyship is very rare. Suretyship agreements imposing solidary (joint and several) liability (solidary suretyship) are more common. In this case, the creditor no longer needs to attempt compulsory enforcement against the debtor (Article 895 of the Civil Code). For a suretyship agreement to exist, an employment contract (the main contract) is not sufficient; the written form of the suretyship agreement itself is also required, as well as a written statement by the third person to the creditor that the suretyship agreement arises, along with an indication of a specific sum (Article 892.1 of the Civil Code of Georgia) (I have, of course, had to provide legal services in such disputes);

If all these preconditions are met and the third person acts as a guarantor for the employee, a suretyship agreement is in place. Specifically, the employee starts "working," their guarantor has an agreement signed with the employer, and the contractual relationship continues. At first glance, all essential conditions necessary for the validity of the contract are present. However, the Civil Code, in its entire essence, acts as a protector of rights between the parties throughout the entire period of the contractual relationship. Therefore, the issue arises as follows: what prevents the existence of this contract? Aren't the parties executing the contract and undertaking the obligation to perform it within the scope of freedom of contract? 

To answer this, we must start with the necessity of the lawful exercise of a right. Namely, Article 8(III) of the Civil Code of Georgia imposes on participants in private legal relations the obligation to exercise their rights and duties in good faith. (This issue is often a matter of dispute between lawyers, judges, and jurists, as one part believes that the law should not interfere in contractual relations).
Although good faith is considered a moral obligation of the participants in a relationship, Article 8(III) in connection with other articles can also be viewed as a legal basis for a claim. In one of its decisions, the Supreme Court indicated the following: "The said norm is not of a declarative nature, and the violation of the principle of trust and good faith generally constitutes a basis for a claim to impose an obligation on the violator" (Article 8.3 of the Civil Code of Georgia: Participants in a legal relationship are obliged to exercise their rights and duties in good faith). In some cases, the Supreme Court of Georgia considers that the operation of this article, together with Article 115 (Article 115 of the Civil Code of Georgia: A civil right must be exercised lawfully. It is inadmissible to exercise a right solely with the intention to cause harm to another), is possible when we do not have a contractual relationship, or if we do but the contract does not specify anything regarding a certain issue—these articles play a supplementary role. However, I believe that this article is subject to a broader and more all-encompassing interpretation than just contractual relations;

Accordingly, the employer—besides being bound by the Labor Code and entering into a relationship with the employee that is subject to the Labor Code—cannot invalidate this suretyship agreement on the basis of the Labor Code. This is because the right to claim the invalidity of the suretyship agreement belongs not to the employer, but to the third person who is not in an employment relationship with the employer. Consequently, the issue of the invalidity of the suretyship agreement is a matter for the Civil Code to decide. As for signs of discrimination based on this suretyship agreement, that is a separate issue which may be the subject of further discussion. Therefore, what necessity drives the employer to execute a so-called suretyship agreement with a third person? The answers can be presented as follows (at least, this is how the question should be posed):
It is necessary for the employer to have an additional lever over the employee;
In the event that the shortage/damage is large, they need an alternative person for the satisfaction of the claim;
The more obligated persons there are, the higher the presumption or expectation of satisfying the claim;
Because the employee is the weaker party, hanging even more obligations on them means rendering the person defenseless. Additionally, it must be considered that the employer can and has the right to conclude an agreement on full material liability with the employee, aside from the fact that in case of causing damage, the claim for damage compensation comes into play in the ordinary manner;

No matter how relevant the employer's demands and goals may be, in my opinion, this suretyship agreement is void due to the following conditions. The lawful exercise of a right means using the right or claim in such a way that no danger of harm arises against the other party. That is, if the protection of my right exceeds the legitimate aim, then there is an unlawful exercise of the right. The demand for the said suretyship agreement and its execution contradicts Article 54 of the Civil Code of Georgia, namely:
Article 54. A transaction that violates rules and prohibitions established by law, or that contravenes public order or principles of morality, is void. The restrictions provided by Article 54 apply to all transactions: unilateral (e.g., a will), bilateral (e.g., a contract), and multilateral.
The article highlights "three types of values," the violation of which causes the transaction to be void: rules and prohibitions established by law, public order, and moral norms. The norm of the law itself is divided into three parts:

Article 54 does not contain the concept of law. Therefore, the understanding of law as a normative act must be made on the basis of the Law on Normative Acts and the relevant norms of the Civil Code. According to the doctrinal concept, public order implies the fundamental principles of civil circulation, such as freedom of property, contract, and entrepreneurship, the violation of which infringes not only on the rights of a specific participant in the relationship but also on the interests of the State and society. The third value, the violation of which causes the transaction to be void, is morality. Specifically, a transaction concluded contrary to moral norms is void. Regarding morality, Article 54 contains a general norm, the specification of which depends on judicial practice;

In the present case, invalidity of the transaction due to public order might be present, but public interest in a private legal relationship cannot outweigh the principle of freedom of contract. Therefore, the moral aspect of the transaction, or rather its immorality, must be juxtaposed with the principle of freedom of contract. According to the Tbilisi Court of Appeals, a transaction is immoral if "it contradicts the principle of social justice and places a party to the contract in a disproportionately difficult position." When checking for immorality of a transaction, the subject of scrutiny is not the behavior of the participants (i.e., the employer and the guarantor), but the content of the suretyship agreement itself, its subject matter. Meaning, the relationship of the content to morality. True, what constitutes morality is, of course, not defined at the legislative level, and it requires explanation in every specific case as to why the transaction should be considered immoral. In this, first and foremost, the lawyer must be ready to prove the client's interests;

The factual circumstances preceding the execution of this transaction are as follows:
The employee wishes to perform work in exchange for remuneration;
The employee, without giving the employer the opportunity to check their work performance and/or conclude a material liability agreement with them, is asked for a suretyship;
The guarantor, solely to allow the employee to enter into a contractual relationship, acts as a guarantor for the latter regarding compensation for damages caused during the performance of the work;
Apart from acting as a guarantor for the employee in the work to be performed, the guarantor receives only one benefit: the employee starts working. At the same time, the guarantor themselves might not know the difficulty of the work to be performed by the employee, etc.;

During a loan agreement, the guarantor agrees to only one thing: they personally secure the return of the funds by the debtor (i.e., the loan is issued once, and the amount must be returned in parts). In the present case, the employee has to perform many obligations, and this must be carried out repeatedly, and moreover, this repetition is unchecked. The principle of freedom of contract is not boundless; it is necessarily confined within certain frameworks. Accordingly, the employer's legitimate aim to be protected in case of damage must collide with the guarantor's aim, and the main question is formed: which will outweigh the other?;

In a rule-of-law state, the existence of legal order is ensured by both law and the standard of moral conduct. Accordingly, despite the fact that the principle of private autonomy and free contracting operates in private legal relations, a transaction that contradicts the "generally accepted standard of conduct" in society is considered an immoral transaction and entails the legal consequences of invalidity. The purpose of the legislative provision of Article 54 of the CC is precisely to prevent such transactions that are formally not illegal but essentially violate public order and worsen the coexistence of subjects of civil circulation, which consequently hinders civil circulation; The Supreme Court of Georgia explained in one case that:
Derived from the suretyship agreement, there exists a means of legal protection such as general defenses arising from the suretyship agreement, for example, a claim for the invalidity of the suretyship agreement due to the violation of moral norms and the basis of the transaction. German judicial practice considers suretyship agreements (or the joint assumption of similar obligations) by family members who possess no property as a violation of moral norms. The Cassation Chamber notes that, based on its content, a suretyship agreement is inconceivable as bringing any material or non-material benefit to the guarantor. In the event of a breach of obligation by the principal debtor, it is linked to such a significant obligation as performing the assumed obligation instead of them; and in case of non-performance of this obligation, the protective mechanisms of the contract are activated. In the given case, such a mechanism was the attachment of the property owned by the guarantor and its subsequent realization. Accordingly, it is unequivocal that this type of contract imposes an excessive responsibility on the guarantor, which causes a clear negative result for their stable development, psycho-emotional, and economic state;

The application of the principle of good faith becomes relevant when a person's claim or action formally complies with existing substantive legislation, but its implementation in a specific case is unfair. Accordingly, its function is to prevent clearly unfair results, specifically at a time when:
The employer does not know the employee's work capabilities;
The suretyship agreement becomes a precondition for formalizing the employment relationship;
No verification of the guarantor's income or property status is conducted;
Because the precondition for the employment relationship is not the employee's skills, abilities, and professionalism, but rather the employer—already the stronger party—putting the employee in an even more difficult position;

Because the guarantor does not know exactly what volume of work and in what manner the employee must perform it; Because the employer uses this transaction to prevent damage (the more, the better) and lacks a legitimate aim: specifically, it concerns potential damage that the guarantor does not know about and cannot influence regarding the employee (unlike a loan agreement where paying the amount is key, here it is the simultaneous performance of a set of obligations which a third person is physically unable to do);

Because formally it is absolutely acceptable, but morally it contradicts Article 54 of the Civil Code of Georgia, as the disproportionately large gap between performance and claim, as well as the established principle in society, necessarily mean that the employee themselves should be held accountable for their unfulfilled obligation, not a third person. Based on the above, I believe that this suretyship agreement, executed as a precondition for entering into an employment relationship, is void;
In case of additional questions, please contact me: 
Attorney Guram Kontuadze, full legal and advocacy services throughout the territory of Georgia;
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ადვოკატი თბილისში ადვოკატი საქართველოში ადვოკატი რუსთავში ადვოკატი თელავში ადვოკატი მარნეულში ადვოკატი ზუგდიდში ადვოკატი ქუთაისში ადვოკატი ბათუმში ადვოკატი სურამში ადვოკატი ვაკეში ადვოკატი ვერაზე ადვოკატი ციხეზე ადვოკატი წალკაში ადვოკატი საბურთალოზე ადვოკატი ვარკეთილში ადვოკატი ახალ რუსთავში ადვოკატი  ახალ რუსთავში ადვოკატი დმანისში ადვოკატი ბოლნისში ადვოკატი საგარეჯოში ადვოკატი მიწის სამოქალაქოს ადვოკატი საადვოკატო მომსახურება თბილისში საადვოკატო მომსახურება რუსთავში საადვოკატო მომსახურება თელავში საადვოკატო მომსახურება მარნეულში საადვოკატო მომსახურება ზუგდიდში საადვოკატო მომსახურება ქუთაისში საადვოკატო მომსახურება  ბათუმში საადვოკატო მომსახურება  საგარეჯოში საადვოკატო მომსახურება  ახალ რუსთავში საადვოკატო მომსახურება ახალ რუსთავში იურისტი ახალ რუსთავში იურისტი დმანისში იურისტი  თბილისში იურისტი საქართველოში იურისტი რუსთავში იურისტი   ბათუმში იურისტი ქუთაისში იურისტი ზუგდიდში სამოქალაქო საქმის ადვოკატი სისხლის სამართლის ადვოკატი ადმინისტრაციული სამართლის ადვოკატი მიწის საკითხებზე მომუშავე ადვოკატი განქორწინებაზე მომუშავე ადვოკატი ქონებაზე მომუშავე ადვოკატი ქონების ადვოკატი ადვოკატი სამოქალაქო საქმეზე ადვოკატი სისხლის სამართლის საქმეზე განქორწინების შემდგომ რა ხდება განქორწინების შედეგები ადვოკატი სამოქალაქო საკითხებში სამოქალაქო საქმის ადვოკატი საქართველოში სამოქალაქო საქმის ადვოკატი ზუგდიდში სამოქალაქო საქმის ადვოკატი ბათუმში სამოქალაქო საქმის ადვოკატი საგარეჯოში სამოქალაქო საქმის ადვოკატი  მარნეულში სამოქალაქო საქმის ადვოკატი თელავში ადმინისტრაციული საქმის ადვოკატი თბილისში ადმინისტრაციული საქმის ადვოკატი საქართველოში ადმინისტრაციული საქმის ადვოკატი ზუგდიდში სისხლის სამართლის  საქმის ადვოკატი თბილისში სისხლის სამართლის  საქმის ადვოკატი საქართველოში სისხლის სამართლის საქმის ადვოკატი რუსთავში სისხლის სამართლის საქმის ადვოკატი ზუგდიდში სისხლის სამართლის საქმის ადვოკატი საგარეჯოში სისხლის სამართლის საქმის ადვოკატი  მარნეულში სისხლის სამართლის საქმის ადვოკატი თბილისში სისხლის სამართლის  საქმის ადვოკატი ბათუმში სისხლის სამართლის  საქმის ადვოკატი საგარეჯოში ბიზნეს ადვოკატი რუსთავში ბიზნეს ადვოკატი თბილისში ბიზნეს ადვოკატი ბათუმში ბიზნეს ადვოკატი ქუთაისში სტარტაპ ადვოკატი თბილისში საადვოკატო ბიურო თბილისში საადვოკატო ბიურო  საქართველოში საადვოკატო ბიურო  რუსთავში საადვოკატო ბიურო ზუგდიდში საადვოკატო ბიურო  საგარეჯოში საადვოკატო ბიურო  მარნეულში საადვოკატო ბიურო თელავში Юрист в Тбилиси Юрист в Грузии Юрист в Рустави Юрист в Телави Юрист в Марнеули Юрист в Зугдиди Юрист в Кутаиси Юрист в Батуми Юрист в Сурами Юрист в Ваке Юрист в Вере Юрист в Цихе Юрист в Цалке Юрист в Сабуртало Юрист в Варкетили Юрист в Ахал Рустави Юрист в Ахал Рустави Юрист в Дманиси Юрист в Болниси Юрист в Сагарехо Юрист по земельным гражданским делам Юридические услуги в Тбилиси Юридические услуги в Рустави Юридические услуги в Телави Юридические услуги в Марнеули Юридические услуги в Зугдиди Юридические услуги в Кутаиси Юридические услуги в Батуми Юридические услуги в Сагарехо Юридические услуги в Ахал Рустави Юридические услуги в Ахал Рустави Юрист в Ахал Рустави Юрист в Дманиси Юрист в Тбилиси Юрист в Грузии Юрист Юрист Юрист в Рустави, Батуми Юрист в Кутаиси Юрист в Зугдиди Юрист по гражданским делам Юрист по уголовным делам Юрист по административному праву Юрист по земельным вопросам Юрист по разводам Юрист по недвижимости Юрист по недвижимости Юрист по гражданским делам Юрист по уголовным делам Что происходит после развода? 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