Noncompete Clause
5 years ago
Hi
I worked for the particular organization for 2 years & moved in my career to other organization in similar field. My Ex-company found about the same & held back by Relieving letter sighting the non compete clause i signed in appointment letter. I got to know that ex-employer may slap a notice under this non compete clause. Please help me understand:
1. Is this clause valid in India?
2. What should be my stand on this?
3. They are specifically taking action on me saying special case (being in revenue generation department- Sales). How should i defend this, when many in my organization have joined the other competitors as well.
You must know the Indian law which is as follows. Fight legally in Court.
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The Indian courts have been reluctant to restrain the employee from joining a competitor/other employer
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Non compete clause, it is prohibited under the Law of Contracts.
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Section 27 of the Indian Contract Act-1872 provides that ”Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void”.
Exception : One who sells goodwill of a business with a buyer to refrain from carrying on a similar business within specified local limits so long as the buyer, or any person derivingtitle to the goodwill from him, carries on a like business therein provided that such limits appear to the court reasonable, regard being had to the nature of business.
Indian law is therefore very clear and strict on this point, any such non compete agreement shall not be binding on the parties and the same shall be null and void. By using the term void ab initio, for such type of agreements it has shown that it has kept such non compete clause in the agreements beyond consideration. Indian courts have also consistently refused to enforce post termination non compete clauses in employment contracts as “restraint of trade” is impermissible under section 27 of the Indian Contract Act-1872, and have held them as void and against the public policy because of their potential to deprive an individual of his or her fundamental right to earn a living.
However considering the developed social, legal, and corporate circumstances, and the required confidentiality and the integrity of the employments, the judiciary has inclined its view towards giving some regard to the non compete agreements. In the case of ‘Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.’ , the Hon’ble Supreme Court observed that-“restraints or negative covenants in the appointment or contracts may be valid if they are reasonable”. Further in one case - V.F.S. global services Pvt. Ltd Vs Mr. Suprit Roy, 2008(2) Bom CR 446, the Bombay High court established the principle that a restraint on the use of trade secrets during or after the cessation of employment does not tantamount to a “restraint on trade” under section 27 of the Act and therefore can be enforceable under certain circumstances. In the case of Mr. Diljeet Titus, Adv Vs Mr. Alfred A Adebare & Ors 2006(32)PTC 609 (Del), Delhi High court held that “The real test was the degree of employment control to determine whether it was a contract of service…” .
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
Like these there are several other judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements. It shows that Indian courts may in certain circumstances enforce confidentiality agreements intended to protect an employer’s proprietary rights.
Vimlesh Prasad Mishra
Responded 5 years ago
If at the time of your appointment you have signed the non compete clause then you must have honored that. Some companies particularly IT companies are very particular to this clause and usually include in the appointment letters for the managerial positions and above and the employee is also compensated in case of any termination etc.
It is very normal to show the revenue loss in case of any action is taken and the employee is held responsible for the loss.
You may use the unfavorable company policy and differentiation from employee to employee for the reason of leaving the job. Hope you have resigned from the job before shifting to new job.
If necessary please keep your HR informed so as to get help in case of any litigation.
Please do not take any action before the information of legal action from other side.
Thanks,
Vimlesh Mishra
Adv. High Court Lucknow Bench
Anonymous
Replied 5 years ago
Hi Vimlesh
Yes, i have resigned formally & served two months of Notice Period, all the hand over was completed. They accepted my resignation on mail, released my FNF amount.Yes the non compete clause was signed which was part of offer letter, which i objected while joining, but they said it is a necessary part of it & could not be removed.
I have spoken to my current HR which says, relieving letter is required, which you should get or any other doc which have relieving date mentioned. They need me to take legal advice on this.I fear if i go legal way, my ex company may get offended & get furious coming with more invalid allegations.
Ambrose Leo
Responded 5 years ago
Anonymous
Replied 5 years ago
Hi Ambrose
I have resigned officially & parted ways. They later found i joint the competitor organisation & then they started making chaos regarding non compete.
Ambrose Leo
Replied 5 years ago
Then it is ok.There is no bar on your current employment, if you are in a managerial position you have to settle issue amicably no offence or legal hurdles.you are marketing expert better to maintain cordial relation.
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