Does any law allow the employer to keep the passport of an employee?

It's illegal. If your employer keeps your passport and refuses to return it to you, you can go to the nearest police station, or you can go to your embassy in the country to file a complaint.

Please be aware that you have all the necessary rights and privileges to have your own passport and you have all the rights to question your employer if your employer insists on keeping it with him.

Hi S.

A passport is a legal document of an individual and should be kept only with the owner of it.

You can refuse to give it to your employer stating its reason.