Company contract breach

Dear client,

In your situation, you are concerned about the possibility that your previous company could claim a contract breach due to an agreement that restricted you from joining certain companies, which you were not aware of when you joined your current employer. Since you have already been with your current company for two years and worked for another company in between, here are a few steps you can take to mitigate any potential issues for future employment transitions:

Review the Agreement: Carefully review the terms of any contract or agreement you had with your previous company, particularly any non-compete or non-solicitation clauses. If you were unaware of these restrictions, it’s important to understand whether they were legally enforceable and clearly communicated to you.

Consult with Legal Counsel: It would be wise to seek advice from an employment lawyer. They can review the contract's terms, assess whether the restrictions were valid, and advise on how enforceable such clauses are in your jurisdiction. Employment law varies, and in many regions, non-compete clauses have limits in terms of time, geography, and scope, and some may not be legally enforceable.

Document Your Situation: Since you were unaware of the restrictions and your current company confirmed that it wouldn’t be an issue when you joined, keep a record of these conversations, including any email or written communication, as they may serve as evidence if needed in the future.

Background Check Concerns: If your previous company threatens to flag this issue in future background checks, it’s essential to be transparent with future employers. If asked about the situation, explain that you were not aware of the restriction at the time, and that you acted in good faith. You can highlight that your previous and current employers did not raise this as a significant issue at the time of your employment.

Non-compete Enforcement: Non-compete clauses are often scrutinized by courts for reasonableness. Many jurisdictions do not enforce overly broad non-compete agreements, especially if they unfairly restrict your ability to earn a living. Courts typically look at factors such as duration, geographical scope, and whether the restrictions are necessary to protect legitimate business interests.

Impact on Future Job Searches: Since you have worked for two companies after leaving your previous employer, and there has been a significant gap since you left that company, the risk of any issues arising during future job searches may be lower. However, you should be prepared to address this issue proactively if it comes up.

While you don’t need to be overly worried, it is advisable to consult a lawyer to review the specific contract terms and assess your legal position. Keep documentation of your situation, be transparent in future job applications, and be prepared to address the issue if it arises during a background check.

Dear Client,
Section 27 of the Indian Contract Act, 1872 prohibits any agreement/contract in restraint of trade and profession. The law states that an agreement or employment contract will be illegal only if it restrains someone from exercising a lawful profession/ trade/ business. As per the mandate of Section 27, any terms and conditions of an agreement that directly or indirectly compels the employee to serve the employer or puts a restriction on them joining the competitor or other employer are not valid and are to be void on contest. The employee has the right to resign from the employment for a better opportunity, even if there is a non-compete clause in the contract of employment or if he/she has agreed to serve the employer for a specific period under a service bond. In the case where the employer can prove that the employee is joining the competitor to disclose the trade secret then the court may issue an injunction order restricting the employee from joining the competitor. Further, Section 73 of the Act makes provision for un-liquidated damages (not stipulated in a contract), Section 74 deals with liquidated damages (stipulated in a contract), and no compensation is attracted for mere breach of contract u/s.73. 74 of the Act unless such breach resulted in an actual loss or damage to the opposite party employer. Background verification (BGV) check is a process many organizations carry out to verify the information provided by the candidate during hiring. Verification of EPFO records through UAN is critical for conducting employee background checks because it allows employers to confirm that their employees are not using false or stolen identities to gain employment. In case of a negative background verification check an employer can even reject/terminate the employment of the candidate and that will potentially damage your service career. So, receiving the threat or warning from the previous employer to damage your background verification check putting a stigma of breach of contract which apparently proves the unfair labour practice of the employer, can be challenged by invoking Section 27 read with Sections 73 & 74 of the Indian Contract Act. in the given scenario, serving a strong legal notice to the previous employer who adopted unfair labour practice to damage the career of an ex-employee, reach out to the office of the concerned State Labour Commissioner or the office of the Chief Inspector, Shops and Establishments, as the case may be, to file a complaint against the company over alleged unfair labour practice for redressal of your grievance, provided you are a workman as defined under Sec.2(s) of the Industrial Dispute Act, 1947. But, if you are holding the position of Manager or Administrator in the Company, you have to file a civil suit against the Company before the Civil Court seeking desired relief in the matter. If required, reach out to an Advocate experienced in service matters for guidance and steps. Be informed that to restrict IT Companies from exploiting their employees by playing double standards, the Division Bench of the Karnataka High Court in the case of Commissioner of Income Tax v. Texas Instruments India Pvt Ltd (2021) 435 ITR unambiguously held that the IT sector employees considered to be "workmen" under Section 2(s) of the Industrial Dispute Act, 1947. Further, the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Ltd. v. Shivkranti Kamgar Sanghatana, 2024 SCC OnLine Bom 938, decided on 28-03-2024 ruled out that the nature of duties and functions is the determining factor in ascertaining ‘workman’ under S. 2(s) of Industrial Disputes Act, 1947.

Dear Client,

Your situation involves potential concerns with an agreement between your previous company and your current one, likely a non-compete or non-solicitation agreement, which might restrict employees from joining client organizations. Here’s a breakdown of your situation and the best steps to take:

1. Understand the Nature of the Agreement
Review Your Contract: Go back to your employment contract with the previous company. Look for any non-compete clauses, non-solicitation clauses, or other restrictive covenants that may have been agreed upon.
Non-compete clauses: May restrict you from joining competitors or clients of your previous company for a certain time period after leaving.
Non-solicitation clauses: May prevent you from engaging with or working for clients of the previous company.
If you weren’t aware of such an agreement or if it was not explicitly mentioned to you during your exit, this strengthens your case.

2. Current Company’s Stance
Since your current company was informed and told you it wouldn’t be an issue, this is a positive sign. This means they likely evaluated the risk and decided to proceed with your employment, potentially implying the agreement isn’t a significant legal concern.

However, it’s important to confirm if the current company is still confident in that assessment. You may want to check with HR or legal teams if they have officially reviewed the agreement from your previous employer.

3. Impact on Future Employment
Background Check Concerns: Your previous employer threatening to raise a "contract breach" issue during future background checks may seem concerning. However, it’s important to note:
Non-compete clauses in India are often unenforceable beyond the term of your employment. Indian courts generally do not support contracts that restrain trade or professional freedom under Section 27 of the Indian Contract Act, 1872.
After two years with your current employer and a stint at another company, it's unlikely that your previous employer would have a strong claim that this non-compete still applies.
Changing Jobs in the Future: While it’s possible that the previous company may try to flag this in background checks, you have already demonstrated a good faith effort by informing your current employer when you joined. Additionally, any prospective future employer would likely understand that after multiple years in different companies, a previous non-compete clause should no longer have much legal standing.

4. Steps You Can Take Now
To be fully certain about the agreement’s enforceability, you should consult a lawyer specializing in employment law. They can review your old employment contract and the nature of any non-compete clauses, advising you on the legal risks.

If your previous employer continues to harass or threaten you with "breach of contract" claims, you could have your lawyer send a cease and desist notice. This will show that you’re willing to challenge their claims legally if they continue making baseless accusations.

Document Everything: Keep a record of any communications with both your previous and current employer about this issue. This can be useful in case future employers request clarification during a background check.
Proactively Address the Issue: If you decide to change jobs in the future, consider proactively discussing the situation with HR at the new company during the hiring process. Be transparent and explain that you worked at the current company for two years without issue and that the previous employer’s claims are invalid due to the nature of employment laws.

Your previous employer would find it difficult to pursue legal action because:

You weren’t aware of the non-compete.
The clause likely has limited enforceability after such a long period.
You’ve acted in good faith by informing your current company.


Regards