Anil Kaushik
Chief Editor,businessmanager
Hr Specialist - Policy,compehsation &
Corporate Hr Head
Hr Consultant
Manager - Finance & Hr
Hr Trainee At Telserra India Pvt Ltd
+1 Other

One of my employ of the company who joined us with a bond of 3 years (The bond was companies letter head just saying “you have committed to serve company for 3 years”)
Other clauses in bond are
1. He if wants to leave before 3 years he has to pay Rs. 200000/-
2. If at all he pays and leaves he can’t join our competitor for 3 more years
3. Even after completing he can’t join or start similar business for 3 years.
(If you want I can give you exact statements)
But a employ has resigned on medical grounds and it has come to our notice that he has joined our competitor (our competitor is a leader in market and we are small company)
Now, management is asking to send him notice…. I feel Clause 1 may be valid but the clause 2 and 3 seems to work against us if we take legal action? What is the best way to tackle this situation?
Any inputs from senior HR personal
Will it work out?
Some similar cases please help.
Thanks …

From India, Mumbai
I am in agreement with you that clause 2 and 3 may not be valid clauses. But best way will be to consult a good advocate. KKT
From India, Delhi
clause 2 and 3 are illegal and invalid restrained by sec. 27 of contract act. now there are several courts judgments declaring such clauses against public ploicy. pepsi case is important on this point.
anil kaushik
chief editor
smriti sadan,28, raghu marg, alwar-301001 (raj) india

From India, Delhi
A different viewpoint:

Clause 1. If he wants to leave before 3 years he has to pay Rs. 200000/-

I think that the operative words here are "if he wants", implication is that the departure is voluntary. In this case the resignation was prompted by "medical reasons", for which the company, based on its policies, could be partially responsible for. If company has a policy which insists that all employees be "physically fit and able to perform duties assigned" without regard to any minor physical defect - such as leg problems, where a chair/stool would be of benefit to a machine operator - then the clause is, I believe, invalid (since the employee was "forced" to resign) and therefore the employee is released from the liability.

Clauses 2 and 3 have a definite business purpose, provided that the employee was in a position to acquire/learn proprietary information regarding processes, products, customers, vendors, and similar items relating to the former employer's business activities. Had it not been for his employment the s/he would never have been exposed to such information which make him/her a valuable asset simply because the information s/he possesses would be of extreme positive benefit to a competitor (or themselves if they intended to compete with the former employer). A business has the right, I believe, to protect itself from "industrial espionage", and to that end can impose non-compete clauses on prospective employees.

If the employee has not been in a position to acquire such knowledge, then the Clauses are, in my opinion, not enforceable.

If a person has any misgivings with such restrictions, s/he can choose not to join the company; but, if they agree and sign the clause, they should be responsible enough to adhere to the conditions.

A suggestion: If the competitor recruited the former employee, the demand for the Rs 200000/- should be made to the company, not the employee, where there are grounds for asserting such a demand.

From United States,
Kindly refer to the following cases:

N.S.Golikari Vs Century Spinning & Manufacturing Co. Limited (AIR 1967 sc 1098); Rajan G.R.V. Vs Tube Investment of India

Limited (1995 (1) LW 274) and Superintendence Company of India (P) Limited Vs Krishna Murgai (AIR 1980 SC 1717).

Explaining the same in detail, learned advocate Shri. H.L. Kumar has stated in the journal section of the Labour Law Reporter (Feb-05; 38-42) that such clause is legally impracticable and unrealistic.

In his article he has referred to the case of Pepsi Foods Limited & Others Vs. Bharat Coca-Cola Holdings Pvt. Limited & Others (LLR, 1999, 1027) wherein the Delhi High Court has said, “injunction cannot be granted to create a situation such as “Once a Pepsi employee, always a Pepsi employee”. It would almost be a situation of economic terrorism or a situation creating conditions of bonded labour”. It has also said that inter-changeability of service is an accepted norm of Service Jurisprudence that cannot be curtailed by a court injunction.

It is interesting to note that, the Court said that, in a free market economy, everyone concerned, must learn that the only way to retain employees is to provided them attractive salaries and better service conditions. The employees cannot be retained in the employment perpetually or by a Court injunction.

I trust the above information would siffice your requirement.

A. Pinto

Manager Finance & HR

From India, Mumbai
Thank everyone of you for your valuable inputs.
I shall talk with managements with regards to this.
But definitely he has not taken any patents or proprietary things, (its difficult to prove if has taken also) because our comeptetor has much advanced tools then we have.
As far as asking 200000/- from currents employer looks again difficult as we provide KPO services to their branches out side India. ( we have no relation with Indian branch) they are biggest client to us.
One thing he did was he did not have a reliving letter while joining them.
Can some thing be done on this bases. He might have even produced a fake reliving letter as getting letter head from our company is not difficult. But how to find it is also a big question to me.
Please help

From India, Mumbai
if the employee is paying the amount mentioned in the doc it is legally not right to hold him back.However if you masde him to sign NDA he can be held for violating the NDA which must be containing non compete clause.

From India, Calcutta
All above clause are against the principles of balance of convinence. No employee can be forced "not to join any of competitiors or subject to financial penalty"
Without any harm to the business interest to his employer by his joining to competitors.
If employer wants to sack or terminate employee does same clause being mentioned to balance the agreement I think negative this is where this agreement is invalid in the eye of law. Because employer does not share similar risk towards employee by compensating Rs 200,000 compensation for termination.
If employee is under legal obligation not to join competitor he should have been protected by offering salary at par with competitor is rule of the game. You cannot say just one piece of paper written document as legal binding anyone in the name of employment contract not to opt for better livelihood is against principles of law.
I think this is enough to know how legal interpretation works.

From Saudi Arabia
It is possible that the company did not ask him for a relieving letter. Probably because, he would have requested - quoting the clauses mentioned in the letter - and the company accepted.
My suggestion - talk to him informally to understand things - which may help you in future. For current situation, experts have already given some citations in similar issues.
All the best!!

From India, Hyderabad
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