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India – Job seekers rejecting a job offer should get ready to pay penalty

26 August 2013

Job applicants who accept a job offer but don't join may have to pay a penalty as employers are starting to insert 'penalty clauses' in their job offer letters, holding them liable to pay 5% of offered salary if they accept the offer but don't join.

"It takes us back by months if a probable employee backtracks. We ask them to think twice before signing the offer letter," says Sabyasachi Bhattacharya, executive director of human resources (HR) of Philips Carbon Black.

Search for the right fit in junior cadre takes a week while it can go up to 3 months for senior professionals, say recruiters. Last minute dropout wastes all their efforts. "Almost 25% of candidates accepting a job offer back out. They are suffering from fear of last-in first-out syndrome because of the plunging economy," said Shiv Agrawal, managing director of ABC Consultants.

Such a penalty clause is uncommon in India, says Sajan Poovayya, managing partner of Poovayya & Co, but niche skilled jobs in the West have this clause. "Such a clause is absolutely valid as it does not hinder the employee's right to earn a living," he says. "It is a very smart and legal way of weaving in the exact damages that one has to pay if there is a breach of contract," said Kartik Ganapathy, partner, Indus Law.

"It is a contractual obligation between two parties but will be difficult to prove legally," says Rajeev Uberoi, group general counsel for IDFC. The firm, according to Uberoi, will find it difficult to explain how the value (5%) was reached. Companies want recruitment firms to find ways to make candidates feel the pinch of rejecting an offer.

"Tiredness has crept in hiring teams of companies with employees refusing to join after the entire process is over. Few IT and FMCG firms have approached us on (finding) a penalty form," said Ajit Isaac, chairman and MD of Ikya Human Capital Solutions.

Phillips Carbon Black is cracking the whip on recruitment firms as well. In a pact, with its recruiters, the agents will have to replace a candidate for free if they backtrack. In case, another agent provides the replacement then the first agent will have to pay 50% of the hiring cost.

"This was added to ensure a recruiter does a thorough job," added Bhattacharya. 

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