ESOP Forfeiture Clause: Is Your Stock Pay at Risk?

Some Indian startups are now adding clauses that cancel your ESOPs if you join a competitor. If you hold ESOPs at your current job, here's what you must check in your agreement before you plan your next move.

Here's what happened: Some Indian startups are updating ESOP policies to cancel vested and unvested options if employees join named competitor companies after leaving.. Legal enforceability is contested — Section 27 of the Indian Contract Act voids broad non-competes, but forfeiture of a discretionary benefit sits in a grey zone.. Employees often discover these clauses only at resignation, when the financial cost of switching jobs suddenly rises sharply..

What you should do: Read your ESOP grant letter and plan document today — search for words like 'forfeiture', 'restricted employer', 'non-compete', or 'clawback'.. Calculate your total vested ESOP value and what it would cost to exercise them before resigning — factor this into any job-switch negotiation.. Consult an employment lawyer before signing a new offer if you hold significant unvested ESOPs at your current employer — a legal opinion costs far less than forfeited options..

Exercising vested ESOPs before resigning locks in your shares — but triggers tax as perquisite income in that financial year. Time it carefully around your tax bracket.

For readers weighing their credit and loan options, our personal loan guide and CIBIL score resources put this update in context.