Legal Query
6 years ago
An ex-employee working in a new company whose job is to promote the company which is an online portal for freelancing has asked the former company employees to enroll in the website to freelance. So what kind of offense is this? How can the ex-employee defend himself and what kind of case can the former company file against the ex employee or the new company he is working in?
Deepak Yashwantrao Bade
Responded 5 years ago
A.dear client in your case if the ex-employee is doing the said work after the expiry of the cooling period then he is immuned otherwise they may file a case for loss of profit and breach of terms of agreement which is not directly but indirectly applicable to the ex employee as he has also signed that agreement. For the current persons who are working there,if the promotion has made them earn some profit, then they can be terminated or issued warning notices depending on the gravity of the mistake which is at the sole consideration of the management to decide.
Helpful
Helpful
Share
A.The Indian courts have been reluctant to restrain the employee from joining a competitor/other employer
========================================================================================
Non compete clause, it is prohibited under the Law of Contracts.
======================================================================================
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.
========================================================================================
Non compete clause, it is prohibited under the Law of Contracts.
======================================================================================
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.
Helpful
Helpful
Share
A.Every employment contract has non-compete and non-solicitation clause to ensure that ex employees can not solicit the employees and take away with them. It depends on how strongly that clause has been drafted and with what intensity it is being followed. Another point is to find out whether the agreement has this clause that even asking fro freelancing will amount to soliciting is to be checked out.
Additionally, the Non Disclosure Agreement (NDA) has to be seen whether these kind of activities are barred under the NDA or not. If any of the so called clauses are breached by the ex employee then he can be booked under the law.
Additionally, the Non Disclosure Agreement (NDA) has to be seen whether these kind of activities are barred under the NDA or not. If any of the so called clauses are breached by the ex employee then he can be booked under the law.
Helpful
Helpful
Share
Read Related Answers
No Leave Encashment - Worked for 18 plus years in the organization
Dear Client,
Leave Encashment Rules for private companies vary according to their policies and local regulations. Each company has a unique leave encashment policy. Some may have a cap on the number o...
Salary FnF not done
Dear Client,
Your query requires more details and transparency in explaining the cause of action that attracts legal remedies. However, it may be noted that if you tender your resignation following th...
Shift Allowance
Dear Client,
If the payment of shift allowance does not appear in your offer/appointment letter or the wage and salary policy of the Company, you cannot claim it as a matter of right. Other than the d...
Notice period on probation period in company
Dear Client,
Yes, of course, the Company can take action against you for breach of the terms of the contract as per its HR policy. Once you accept the Company's offer letter, you should abide by its...
Can a company deny experience-relieving letter for violating NDA
Dear Client,
For a breach of the terms of an employment contract, an employer can take legal action against the employee claiming damages arising out of the breach of said contract. But the action of...
Read Blogs on Employment and Labour
Employment and Labour Lawyers
Find Lawyers by Location
