Madhu.T.K
Industrial Relations And Labour Laws
Archnahr
Consultant, Writer And Trainer
Tajsateesh
Recruitment/talent Acquisition, Career Counselling
+3 Others

PRIME SPONSOR - FACTOHR - Payroll Software with GPS Enabled Attendance, Travel, Performance Management, HRMS. Explore Features
Hi,
Is it correct for an employer to restrict an employee to join a competitor? Is it not against the constitution law of the individual.
If the businessman can start his business based on profitability or an employer launch a new product or an employer recruits from his competitor
why should not an employee join the competitor based on higher salary or better work condition.
Cite.Co is a repository of information created by your industry peers and experienced seniors sharing their experience and insights.
Join Us and help by adding your inputs. Contributions From Other Members Follow Below...
No employer can rstrict an employee to join a competitor. Even if an employee has signed such an agreement with the employer, such document has no legal standing. Documents with conditions like restricting employees from joining a competitor is voidable in the court of law.
Hello Kamal Prasoon,
It would really be great if you can attach some more information regarding the same,there are many people who sign such bonds without even knowing their legality.
I would request you to mention the Act which specifies about such bonds being illegal or any such court proceedings or examples.
That would really be of help...
Negative covenants in service agreements is void and against section 27 of the Contract Act. In Sandhya Organic Chemicals v. United Phosphorous (AIR 1997 Gujarat HC 177) it was held that an employee cannot be prevented from utilizing the knowledge and experience that he has gained while being in employment. Similarly, the Supreme Court in Superintendence Co. of India v. Krishun Murgai. (AIR 1980 SC 1717) has ruled that under Section 27 of the Contract Act, a service covenant extended beyond the termination of the service is void. Agreement restricting an employee from joining a competitor is one which accrues only after termination of service contract and hence it is void and not maintainable.
Regards,
Madhu.T.K
Hello Kamal Prasoon Sinha,
I am not sure how did you arrive to the conclusion you mentioned:'.........is voidable in the court of law'.

Before going into the legality aspect, I hope everyone is clear the ACTUAL BASIS/REASON why some Companies get such a Document signed at all. Quite a few companies, especially US-based, HAVE THE GENUINE NEED to protect their trade secrets & IPRs. The need for this precaution is well-recognized the world over--pl note that this is different from HOW this is enforced.

Now, pl note that the Factuals of the Legal position on any such Agreement [this could be equally applied to Employment Agreements too....but that's beside the present issue] is this: Once an individual signs a document [in this case, the Bond/Agreement NOT to join a Competitor before a particular period of time], he/she is WILLFULLY BINDING himself/herself to that said position. Once he/she signs such a document, he/she can't later say it's not valid--if he/she knew it wasn't valid, then why did he/she sign it at all?
Hope you got the point.


The ONLY WAY the individual can get away EVEN AFTER SIGNING SUCH A DOCUMENT, will HAVE TO BE to show to the court[comfortably assuming that the Company WILL go legal in case of any violation] that the Company forced him/her into it by whatever means & ways. As you can see, that's a tough call to prove.
It's also IMPORTANT to remember that once the case goes legal AND the individual takes the above-mentioned stand, one can be REASONABLY SURE that the Company COULD PORTRAY that the individual acted contrary to the interests of the company by violating the IPR Act, etc., etc.....

And let's face it: EVEN IF there are Court Decisions/Rulings saying that such Agreements/Binds are illegal, just try to talk to any reasonably good lawyer. He/she will show you 'hazaar' ways to argue in the court that THOSE RULINGS DON'T APPLY TO THIS CASE.
Hope you get where this will be leading to--at the very minimum you will be stuck with a case rather than work in peace.

So, in a nutshell, pl sign such a document ONLY IF YOU INTEND TO HONOR IT. Else, look for another job where this won't be an issue.

Rgds,
TS
Any type of Employment Bonds are nothing but a private agreement between two parties which are governed by Indian Contract Act. There is nothing called Employment Bond Act etc.



Such bonds are applicable only if the company has spent money on the personal grooving and enhancement of the employees, but not just a training that helps employees perform better.



i.) As per the Indian Contract Act contracts entered between two parties if is one sided then such contract would be null and void. Most of the Employment Bonds are one sided.

ii.) Again as per the Indian Contract Act no contract can be enforced on any person if the contract which is being so enforced causes any harm to the person on whom it is enforced and if performed would violate principles of natural justices.



In India Bond is illegal in relation to employment since as per the Indian Statute, bonded labor system was long abolished and no bond can force any person to work against the employees wishes.



Accorcing to Article 19 of Indian Constitution right work is a fundamental right, and under no circumstance does the Fundamental Rights under Article 19 be infringed by any person nor can any person be forced to do something that amounts to the violation of the rights mentioned under Article 19.



As per Sec 368 of Indian Penal Code if any person or institute holds back any document or any use any legal document or threatens any legal suits or actions and thus forces a person to perform any act against his wishes or which is illegal or wrong as per the statute of Law of the land.



Sec 368 of Indian Penal Code talks about extortion by the threatening to file a legal suit and minimum punishment under this act is two years.

The Hon. Supreme Court of India and several High Courts have clearly stated in a number of cases that no employee can be forcefully employed against his will, just because he has signed a contract with the employer and that the employer can not hold back any personal document of the employees as they are earned by the employees and the company has no claim on the same.



A bond merely as employee retention tool is bad in law.
i would like to add certain observations by the Court in Superintendence Co. of India v. Krishun Murgai. (AIR 1980 SC 1717):

"The drafting of a negative covenant in a contract of employment is often a matter of great difficulty. In the employment cases so far discussed, the issue has been as to the validity of the covenant operating after the end of the period of service. Restrictions on competition during that period are normally valid, and indeed may be implied by law by virtue of the servant's duty of fidelity. In such cases the restriction is generally reasonable, having regard to the interest of the employer, and does not cause any undue hardship to the employee, who will receive a wage or salary for the period in question. But if the covenant is to operate after the termination of services, or is too widely worded, the Court may refuse to enforce it. ……………At the time of the agreement, the employee may have given little thought to the restriction because of his eagerness for a job; such contracts "tempt improvident persons, for the sake of present gain, to deprive themselves of the power to make future acquisitions, and expose them to imposition and oppression."

In the above case, The respondent was employed in the appellant firm. The contract of service contained a negative covenant restricting him from joining a competitor or doing a similar business of his own. He was terminated by the company and thereafter he started a business of his own which was similar in nature to the business done by the Superintendence Company of India P Ltd.

The court had also discussed in large the matter of "leaving/ resigning and joining a competitor" which should be treated different from 'dismissing/ Discharging/ terminating from service since in the instant case the employee did not leave by himself but was terminated from service.

Regards,

Madhu.T.K
Hi,
Thanks for the replies. So it is clear that no employer can legally restrict an employee from joining a competitor unless the Employer proves that he has imparted and met expenses on the employee for a very specialised training which otherwise the employee would not have gained. This restriction will also have a time limit.But what happens if the employer does not settle the accounts of such an employee in full settlement due to such reasoning.
Regards
Rajeev Nambiar
Dear Mr. tajsateesh,

Your input about the factuals of the Legal position on any such Agreement that "Once he/she signs such a document, he/she can't later say it's not valid--if he/she knew it wasn't valid, then why did he/she sign it at all?" is not correct from legal point of view.

First I would like clear your conception about an contract agreement signed between two parties.

There are two types of contract agreemnets which is bad in law.

1.) Void Contract Agreement - means an agreement which is not enforceable by law and which is bad in law right from its origin.

2.) Voidable Contract Agreement-means an agreement which is enforeceable at the option of one of the parties. Such contract agreements are bad in law if one of the parties raise an objection to it.

Employment Contract falls in the 2nd category of contract agreement. . If a party raise an objection against the clauses of the agreement in court of law, it may be declared as void by the court.

Your input that "EVEN IF there are Court Decisions/Rulings saying that such Agreements/Binds are illegal, just try to talk to any reasonably good lawyer. He/she will show you 'hazaar' ways to argue in the court that THOSE RULINGS DON'T APPLY TO THIS CASE." is confusing.

At one point you are accepting that there are court rulings saying such agreements are illegal at the same time you are talking about lawyers who says that THOSE RULINGS DON'T APPLY TO THIS CASE."

You should know that the law laid down by Supreme Court of India is binding upon all courts in the country under Article 141 of the Constitution, and numerous cases all over the country are decided in accordance with the view taken by Supreme Court. Pleading(argument) and Appeal in courts is a right of every Indian citizen, its a part of legal procedure. But it doesnt mean that court will give judgement in your favor.

I dont understand how a lawyer is going to argue and win a CASE in any court of India which has already been declared as illegal by the Supreme Court.

regards,

kamal
Dear Archna, Hope your request for specific Acts and court rulings related to employment contract are met. regards Kamal
PRIME SPONSOR - TALENTEDGE "Interactive Anywhere Learning". Executive courses from top reputed institutes like IIM, XLRI, MICA. View Courses

Add Reply Start A New Discussion






About Us Advertise Contact Us
Privacy Policy Disclaimer Terms Of Service



All rights reserved @ 2019 Cite.Co™