A bond that protects a contractor from dishonest employees is known as what?

The correct answer is a fidelity bond. A fidelity bond specifically provides protection to an employer against losses caused by dishonest acts of employees. This type of insurance is particularly important for contractors and businesses that handle sensitive information, significant amounts of money, or valuable property, as it helps to mitigate the risk associated with employee theft or fraudulent behavior.

In contrast, a surety bond is a three-party agreement that ensures the contractor will fulfill their contractual obligations, a performance bond guarantees the completion of a project according to the contract terms, and a compensation bond—often referred to in the context of worker's compensation—provides insurance coverage for employees who are injured on the job but does not specifically address issues of employee dishonesty. Therefore, the fidelity bond is the appropriate choice for protecting against dishonest employees.