Ripe for abuse? It is being abused even by what were some of the most reputed and respected brand names in India.
Yes; what these employers do fits into the legal definition of "extortion". If an employee does not comply with the demands of the company, (s)he stands to lose the job offer from the new company. This tactic is especially prevalent in companies facing severe attrition. The problem is, the older generation was more compliant and has been conditioned into accepting coercion from companies. It is the younger generation that has to fight to change this. Sadly enough for these companies, employees lose respect for the company on seeing how the resigning employees were treated, and make plans to hand in their resignation soon.
India has groups like F.I.T.E which might help in fighting the menace of relieving letters. Some organizations try to manipulate employees by bullying them into saying that they cannot approve the relieving of the employee unless they serve the (obscenely long) 90 day notice period, even though the employment contract clearly states that the employee can leave whenever they want, provided they pay the amount for the 90 days minus notice period number of days.
Even Indian companies (the more progressive ones) are mature enough to not ask for unnecessary paperwork and to relieve an employee as per contract, without using abusive/coercive techniques.
In any case, prevention is better than cure. If during your interviews you encounter a company asking for unnecessary details or your original certificates or if you see Glassdoor reviews where employees mention the trouble they had when they submitted their resignation, then simply don't join such a company.
So my suggestion on preventing abuse is:
Awareness with a solution
- Create a template. Any organization that wants to change its age-old practices would need to know the steps of how to weed out fake applicants and hire new talent quickly. A template/guideline or forming an association with job sites could help solve the problems because of which employers resort to abusive/dumb techniques.
- Spread word. Ask people to write reviews about their current/former companies on Glassdoor.com, if the company refuses a relieving letter or makes it difficult for employees who have resigned. And of course write positive reviews about good companies too :-)
- Contact F.I.T.E or similar groups (feel free to edit this answer and add more group names), mention the problem (not just relieving letters, but also the practice of asking for payslips, other paperwork and retaining original certificates), discuss on how the menace could be solved and do it.
- Raise awareness on social media. Not just about relieving letters, but also about how companies need to shorten the notice period. Unless all companies do so, the ones that do shorten it, stand to lose.
- Write to newspapers/magazines. If you have contacts who know whom to contact, to be able to get articles on the subject published, contact them and get it done.
Creating awareness and offering a better solution than abuse are one way to solve the problem.
The awareness can also eventually bring legislation into effect, which can make it illegal for an employer to not offer a relieving letter to an employee who has resigned as per the terms of the employment contract. The legislation also has to cover situations where the contract specifies how long the employee should have worked in the company to be eligible to be relieved, but where the contract does not mention any escape clause for the employee to quit before the duration of work is completed.
Legislation is important. For example, Facebook can initiate legal action if people are forced to reveal their Facebook password.
I'm not entirely sure if this is the reason for relieving letters, but in approx the 1960's to 1970's, some of the youth in India took it to their head that they could quit their job anytime, without even telling the employer that they were quitting. I personally know one person who did that. As a safety mechanism, companies began asking people to submit their original school and college marks cards when they joined the company, and the company would keep it with them until the employee resigned. Of course, this system started being abused by unscrupulous companies and there was no guarantee that the marks cards wouldn't get lost, so the practice slowly died down, and I assume the alternate strategy that companies came up with, was to issue relieving letters.