How to Handle a Former Employee Joining a Competitor Despite Non-Compete Agreement?

Hi everyone,

Can anyone please let me know what should we do when one of the candidates resigns from the company and if that candidate joins our competitor's company with the same job profile and the same product, even if it is already mentioned in the appointment letter that when the candidate resigns from the company, he/she is not allowed to join the competitor's company or work with the same product and job profile for the next 5 years, else legal action will apply accordingly. The same has happened with my company.

Kindly let me know what type of action we should take for the same so that the person can learn something. Also, many of our orders for the same product have now been transferred to their company, causing us to suffer from this condition.

Kindly request all of you to suggest something.

Thanks & Regards,
Yogita

Hi Yogita,

When a person has gained experience, they may feel the need to seek a change within a similar experienced role. Why should they consider a different role when they do not possess any experience in related areas?

Action can be taken only if the person has taken any data from your company. Other than that, who are you to dictate that they should not join a competitor's company? It is important to understand the reasons for their departure from the organization and to ensure that others do not leave your company.

As you have mentioned everything in the appointment letter, would you offer a job to someone without experience in the related field? It is important to think expansively.

This is solely my personal opinion. Take it easy.

Dear Y,

I do not agree with Ashok's view. Every company has its own policies, and everyone has to follow them. It has some meaning. Okay.

Have you formed a bond with the employee? Have you taken acknowledgment of the offer/appointment letter, stating that they have read and accepted it?

Go to the Legal Department and issue a show-cause notice for the violation of rules and regulations of your company.

If you need more information, please email me at sagar.umrikar@gmail.com.

Hi,

Yes, of course, he has signed the appointment letter only after reading all the details. How can I know if he has taken any data from the PC? The world has changed, and technology has increased day by day. How can I determine if he has transferred any data to his pen drive?

Kindly suggest for the same.

Thanks,
Yogita

1. I agree with Ashok's views, and I am of the same viewpoint.

2. Dear Yogita, as far as taking data is concerned, even if he takes data, you can't do anything. He must have all his own contacts in the industry, and for the competitor, he is doing the same as he did for you. Just because your competitor succeeded in satisfying his needs, he joined the competitor's company. There is nothing wrong with that. Tomorrow, there is no guarantee that you will join another company and take your current company's work data on a pen drive, and copy-paste the policies into another company. I boldly state that I also copy data from my old company and use it in my new company. Everyone does it, and no HR can do anything because it's impossible to have such strict policies. As I am working, I need a pen drive, and little by little, I will collect data daily and simultaneously create my own database parallelly on my home PC so that whenever I leave, I will have the same data. This is what I do. Yogita, don't waste your time.

Do you think any company will hire a person who worked in another field's product and give him training? No, dear. Appointment letters are just for writing, but real life is different, dear.

Think sensibly.

Hi Yogitha,

This is India. Rules and regulations won't work in our country. Do you think that he will be punished? Okay, anyhow, it's up to you and your company, but don't waste time with unnecessary things. If you file a complaint, what will happen? You will have to deal with courts and police stations. Anyhow, it will take a lot of time. It's not as easy as it sounds. Okay.

Take care.

Good luck.

Hi Ravi,

Thanks for supporting me.

And Yogitha, remember one thing, when he was joining your company, he might have used the old company database.

As Ravi said, all letters are just for proof, that's it. It won't work in real life.

Dear Yogitha,

As Ravi and Ashok mentioned, documents will not support you in catching this guy and punishing him. In this cutthroat competition, the meaning of success and ethics has changed over a period of time. No one can prevent others from sharing their knowledge with a new employer.

Regarding data transfer and copying, here are some steps you can take:

1. Sit with your system support or system admin team and ask them to track official emails of employees and keep a copy on the mail server.
2. Ask them to remove CD, floppy disk, and USB drives from all systems in the office, except for the key ones used by management or higher officials.

Regards,
P Umesh

My god, up until now I felt HR people were meek and mild, but I see some good tigers and lions over here.

Dear Yogitha,

As Ravi and Ashok mentioned, documents will not support you to catch this guy and punish him. In this cutthroat competition, the meaning of success and ethics has changed over a period of time. No one can stop anyone by sharing his/her knowledge with the new employer. As far as data transfer and copying are concerned, what you can do is:

1. Sit with your system support or system admin guys and ask them to track official emails of employees and keep a copy on the mail server.
2. Ask them to remove CD, floppy, and USB drives from all the systems available in the office except the key ones which management or higher officials use.

Regarding your point number 1, it is valid. However, your point number 2 is not entirely true. If you implement the restriction of CD, floppy, and USB drives only for management and higher-ranking officers, it may lead to issues in cases of emergencies or when the network is down, or when executives work remotely. They may blame HR by saying, "HR did not provide us with pen drives or CD facilities, so how can we work?" HR would then become the scapegoat. Writing is easy, but implementing it in reality is challenging.

To be honest, I have been to many companies where it is clearly stated in bold letters outside that no pen drives or storage media are allowed, but the security personnel do not even bother to ask me about it. Even if they ask, I simply deny having any and easily gain access inside, enabling me to potentially steal data with the help of any employee. This is the situation in India; there is a lot of room for improvement in our security and systems.

Regards,
P Umesh

Dear Yogita,

You can't put such a clause legally. If you include a clause prohibiting an employee from seeking employment with competitors, courts will not entertain it. This situation reminds me of a court case where an executive from a financial company joined a competitor. The initial employer filed a case in court, claiming that the resigned employee possessed knowledge of their customers and various accounts, and requested the court to prevent the employee from working for the competitor. However, the court dismissed the plea stating that an employee can choose to work for any employer as per their wish.

The second aspect concerns data theft. If you have concrete evidence of data theft, you can file a complaint with the police regarding the incident.

Regards,
Ravi

Section 27 of the Indian Contract Act, 1872 clearly states this principle: "Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is void." Employment agreements can only restrict an employee's activities during the tenure of their employment. Thus, rules prohibiting part-time work (moonlighting) are upholdable, but any restraint purporting to be effective after termination/retirement is invalid in the eyes of the law. There is ample case law upholding the right of an employee to pretty much do what he/she wants after leaving their current employer. So one-sided appointment letters, bonds, or whatever are pretty much useless pieces of scrap paper when presented in court. Proving the malevolent intent of the employee in joining a competitive concern is very, very difficult; so good luck with that. Hope that helps.

Dear Yogita,

If an employee does not have the right to join any company after resignation, then it is the employer's right to hire a new candidate for the same position. I believe your company's appointment letter is one-sided. Has your company mentioned that they also do not hire anyone after their resignation for the same position?

Regards,
Nimesh

Yogita, by trying to punish the employee who has already left, you will be sending a wrong signal spiralling across the organization's culture. It's an organization, not a jail. Make sure the leaving formalities are complied with.

I read someone commenting, "yeh India hai, yaha rules regulations follow nahi hota hai." That's really not a professional way to go about.

Kane

Dear Yogitha,

Most of the agreements employees are made to sign when they join a company have been invariably found to be unilateral. Such agreements generally fail in terms of bonafide when it comes to court cases. I think there is hardly anything that can be done to undo the damage.

As a preventive measure, you can:

1. Track the emails of employees working on sensitive data (as already suggested by Ravi).
2. Conduct surprise checks of the pen drives used by the employees (you can impose fines or take other punitive actions).
3. The most important thing is to develop a positive mentoring approach with a focus on building trust and loyalty (the toughest thing to do...haha).

Thank you.

Dear Yogita,

By writing wrong conditions in your organization's appointment letter, don't show the weakness that you are feeling scared for coming into the fair competition. This is market. It happens and it's traditional.

Just think if your organization is selling Robots, would you appoint any personnel, who have an experience in selling lingerie's. No!!! The CV will go directly in dustbin. But you will highly consider the personnel from your own trade, from some of your competitor.

What is more important is to design good policies so that candidates don't leave organization and maintain the name and quality of your product in market.

At last I would like to suggest you to forget it and delete the said condition from your organization's appointment letter.

Regards,

Farhat Parveen
Falah Recruitment Consultants
Cell : 9811224748
Mail : [Login to view]

“Express yourself through your work”

Hi Yogita,

These are the common things that are prevailing across the globe these days in all sectors. I work with an IT company, and we have our own products with copyright. We have an NDA (Non-Disclosure Agreement) that we get signed by each employee who joins our company. This agreement is signed on a Rs. 100 stamp paper, stating that any work they do with our organization and our customer database cannot be shared or used with a competitor's company in the future if they join one.

We recently encountered a similar case where one of our employees joined a competitor's company and used our customer database to convert our customers to theirs. Upon discovering this, we informed our ex-employee, made him aware of the situation, and provided evidence of his use of our database. Simultaneously, we filed a case against that employee and his current employer. As a result, he is facing consequences as he now has a legal case against him, which is detrimental to his career. Additionally, his current company has reprimanded him since they are an MNC and do not engage in such legal misconduct.

I disagree with Ashok and Ravi's belief that legal papers do not work in India; they do work if executed correctly. While it is common to utilize past experiences or data in current roles, it should not harm the former company one has worked with. Enforcing HR policies is acceptable as it does not directly impact business, which is a common practice. However, using a customer database, which directly impacts business, is unethical and should be avoided.

Yogita, I recommend discussing the situation with your ex-employee, making him aware of the consequences. Inform him that further actions, including legal recourse, will be taken if such behavior persists. Clear communication can often resolve such issues. If the behavior continues, taking legal action may be necessary, putting his career at risk. It is unlikely he would want to face such repercussions. While your company can pursue a legal case, it would be challenging for him, endangering both his current job and future career prospects.

I hope this advice proves helpful.

Regards,
Surendra

Hi Yogita,

I agree with Surendra regarding the NDA. It works with most of the employees when the person has signed on a stamp paper and it's notarized. The document has a legal standing in the court of law, and this would also help you to target the competitor who encourages such an approach. Also, you have to ensure that any documentation you have done in such a manner is taken seriously. The ex-employee has to be invited to the office and be warned officially. This discussion can be recorded by the HR department, and this can be used by you if you have to go ahead with the case. Once you set examples regarding such issues, new cases won't follow.

The alternate solution would be not to have all the eggs in one basket. Keep a rotation policy in your office, especially in sales (by rotation policy, I mean let the person go from sales to service to customer service, etc.). If that's not possible, then arrange at least two people to service the same client so that even if one person leaves, you have the other person as backup, and he shares all the contacts. Also, if you can ensure the same level of service or quality to the same client, I don't think he would have reasons to change your product.

Thanks & Regards,

AJ

Dear Yogita,

In my opinion, your organization has no right to act against the said employee. It is his/her personal choice to resign from the services of your company. All he needs to do is to settle his account with the company and complete his full and final settlement.

I have come across a similar case in a legal journal where the Honorable court disallowed the organization from taking action against the departed employee because he had joined their competitor in the same role with increased salary and other perks.

All you need to do is to establish sound HR policies such as a Competitive Salary Structure, Better Facilities, Recognition, Respect for employees, and perks to retain experienced employees and attract those serving in your competitor's organization.

Hope this helps resolve your query.

Regards,
Amit Anand Gera

Hi Everyone,

Can anyone please advise on what steps to take when a candidate resigns from the company and joins a competitor with the same job profile and product, despite the clause in the appointment letter prohibiting such action for the next 5 years under legal consequences? This situation has occurred in my company, leading to the loss of orders for the same product.

Kindly suggest appropriate actions to address this issue and help the individual learn from this experience.

Thanks & Regards,
Yogita

Joining Competitor - Can't Be Restrained

An agreement whereby an employee is restrained from joining a competitor will be violative of public policy as stipulated in Section 27 of the Contract Act, 1872.

In matters relating to employment, the employee and employer both enjoy certain rights, but they can never be used to the detriment of either party. An employee cannot be forced to remain loyal to the employer if that loyalty is not properly outlined in accordance with existing Acts. No employee can be compelled or forced to stay in employment at the expense of their own advancement or progress. If an employee has the opportunity for better employment, they cannot be prevented from leaving their current job on the grounds that it would benefit a rival organization greatly.

Hope this clarifies any doubts.

Regards,
Tapan Pandit
HRD

Dear Yogita,

Despite the clause in the contract stating that the employee will not join a competitor, that clause is unenforceable as it infringes upon the employee's fundamental right to earn a livelihood in a job that they can only perform in their related field. You cannot prosecute the employee for simply taking ideas from the company. However, you can take action against them if it is proven that they have copied confidential data and are using it to benefit a competitor, as seen in the Daljeet Titus case of the Delhi High Court. Nevertheless, proving this can be cumbersome and involves police intervention and raids to gather evidence.

I suggest not worrying about the employee joining a competitor but rather being cautious about safeguarding confidential information in the future. Explore ways to protect this information and prevent employees from taking it outside of the office premises.

Kind regards

Dear Yogita,

Currently, I am fighting a similar case in Pune Court wherein the company from which a few employees joined another company has filed a case for a loss of business amounting to tens of crores of rupees. You can certainly initiate legal action against the individual employee, and if your company management is certain of the loss of business or loss of profit, your company can also decide to file a suit in the court of competent jurisdiction against such a "poaching" company. If you need any further advice, please feel free to call me on my cell number 09822394170.

Regards & all the best in your venture.

Hi all,

You cannot punish somebody for joining a competitor. Restricting someone from pursuing any "legal job" (a job that is not illegal) is unconstitutional. You can sue him only on the grounds of:

1) Non-compliance with the notice period.
2) Breach of confidentiality (if you have substantial evidence).

Other than this, your case will not stand in the court of law. If you file a case against him for any unreasonable grounds, there is a chance that he can file a counter case for malicious prosecution against you.

If you need any further guidance, feel free to call me.

Dear Tapan,

We have a non-compete and non-disclosure agreement in our company which also states that the employee will not join any of our company's competitors for 5 years after leaving our company (for any reason).

In lieu of the above, the employee also has to submit an undated check for 6 months' gross salary in the name of the company so that in case the employee violates the agreement, the company can use this check to cover losses. Do you think this is valid? Will such a thing stand in the court of law? Please advise.

Regards,
Mitali

JOINING COMPETITOR-CAN'T BE RESTRAINED

An agreement whereby an employee is restrained from joining a competitor will be violative of public policy as stipulated in Section 27 of the Contract Act, 1872.

In matters relating to employment, the employee and employer both enjoy certain rights, but they can never be used to the detriment of either party. The employee cannot be forced to remain tied to loyalty to the employer if that is not properly outlined in accordance with existing Acts. No employee can be compelled or forced to stay in employment at the cost of their betterment or progress. If the employee has the opportunity for better employment, they cannot be prevented from leaving the job on the grounds that it would benefit a rival organization significantly.

Hope this clarifies any doubts.

Regards,
Tapan Pandit
HRD

Hi,

I agree with Ashok's views, and I am of the same viewpoint. However, if possible, please hold his/her final settlement dues, if any. Additionally, please consult with your legal advisor.

Thank you.

Hi,

I have gone through all the comments posted on this thread. I find some of the comments funny, entertaining, unprofessional, and very amateur, lacking subject knowledge.

1. It is not true that anything written on stamp paper and signed by both parties is legally tenable. HR professionals have a habit of including clauses in the appointment letter that only serve to increase the weight of the appointment letter but cannot be legally enforced.

2. Once an employee resigns from the organization, they are free to join the employer of their choice, and no one can stop them. Any clause, agreement, or bond to that effect cannot be legally enforced.

3. Every employer prefers to hire individuals from competitors, and what is wrong with that? You get ready-made talent with relevant skills and experience, giving you a market advantage.

4. Employment is also a market, a free market! You cannot have restrictions in choosing the right employer, just like you have the liberty to choose your soap and toothpaste.

5. Ms. Yogita, are you not employing candidates from your competitors? Similarly, your competitor has the right to employ your ex-employees.

6. If you feel your employees should not join the competition, then ensure you are better than them. Provide better work conditions, keep your employees satisfied and engaged so that they will not leave you, and instead, your competitor's employees will join you.

7. When an employee leaves the company, they take with them business knowledge, and no one can avoid this. However, if you think they may carry sensitive information or technology, ensure you have ways to protect them by registering your technology/process under copyrights and patents.

8. There is one solution to the problem of employees frequently changing jobs within a few companies, leading to avoidable attrition. For example, many employees of Tata Motors and Maruti Udyog might be switching jobs. If both managements feel it necessary and agree, they can have a clear understanding that they will not employ each other's employees. Such arrangements are common and well-publicized among employees. Hence, employees always know that they can never join a company with whose management their employer has an understanding.

Thanks & Regards

Mr. K. Ravi, the employees' problem regarding the requirement of CDs and USBs can be solved by the IT Department. They can request and transfer the data to the hard disk under their supervision. This practice is implemented in my company, so I can assure its success.

Dear Yogita,

In this case, you cannot do anything. The stipulation in the appointment letter which you mention is not tenable legally and is bad in law. You will surely not get any legal relief.

Regards,
Jai

Hi,

I have gone through all the comments posted on this thread. I find some of the comments funny, entertaining, unprofessional, and very amateur, lacking subject knowledge.

1. It is not true that anything written on stamp paper and signed by both parties is legally tenable. HR professionals have a habit of including clauses in the appointment letter that only add weight to the letter but cannot be legally enforced.

2. Once an employee resigns from the organization, they are free to join the employer of their choice, and no one can stop them. Any clause, agreement, or bond to that effect cannot be legally enforced.

3. Every employer prefers to hire a person from a competitor, and there is nothing wrong with that. You get ready-made material with relevant skills and experience, giving you a market advantage.

4. Employment is a market, a free market! You cannot have restrictions in choosing the right employer, just like you have the liberty to choose your soap and toothpaste.

5. Ms. Yogita, are you not employing candidates from your competitors? Similarly, your competitor has the right to employ your ex-employees.

6. If you feel your employees should not join the competition, then ensure you are better than them. Make sure you have better working conditions, keep your employees satisfied and engaged so that they will not leave, and your competitor's employees may join you instead.

7. Whenever an employee leaves the company, they take with them the body of business knowledge, and no one can avoid this. If you feel they may carry sensitive information or technology, ensure you have ways to protect them by registering your technology/process under copyrights and patents.

There is one solution to the problem of employees often changing jobs within a few companies, leading to avoidable attrition. For example, many employees of Tata Motors and Maruti Udyog might be changing jobs frequently. If both managements feel it is necessary and agree, they can have a clear understanding not to employ each other's employees. These kinds of arrangements are common and well-publicized among employees. Hence, an employee always knows that they can never join a company with whose management their employer has an understanding.

Thanks & Regards

Dear Yogitha,

As per the terms and conditions outlined in the Letter of Appointment for joining the organization, the employee agrees to join. The employee should be clearly notified, and detailed information should be provided regarding the terms of joining, which includes non-competition and non-disclosure agreements. This will assist you in taking necessary action against the employee if needed. The employee considers their appointment letter as a token of their employment; however, it is crucial for the terms and conditions to be clearly understood.

Thank you.