Yes, it's not the right way to do it.  It's demeaning and contradicts a person's human right.  Another thing, the passport is the property of the individual whose name it bears, the country to which that individual is citizen of, or the embassy which issued it.  No one has the right to withhold someone else's passport.  But there are two sides to this. It may be kept by the sponsor for safekeeping to avoid lost or further related problem to both the employer and the employee.