Non-Compete Agreements: Is Requiring an Undated Cheque for 5 Years Legal?

Dear All,

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

In light of the above, the employee is also required to submit an undated cheque for 6 months' gross salary in the name of the company. This is so that in the event the employee violates the agreement, the company can use the cheque to cover losses.

Do you think this is valid? Will such a provision hold up in a court of law? Please advise.

Regards,
Mitali

It is not a valid agreement. You cannot prevent one from working with any other person. Certainly, you can say not to work for your competitors as long as he is with you. After he leaves, you cannot.

If the check is presented and later bounced, will you be able to recover the sum? You cannot proceed against the employee (drawer of the check) under Section 138 of the Negotiable Instruments Act because a holder of a negotiable instrument (check) is expected to receive it after "a lawful consideration" to be called a holder in due course. What consideration would you show as given by the employer in return for the check received? Nothing.

Regards,

Madhu.T.K

What about overseas travel agreements signed by an employee going abroad? The bond is signed on a Rs20 stamp paper in India, and the clause states that one needs to work for 12 months after returning to India or else pay a maximum of $5000. Is this valid?

If the employee is going abroad for training which costs the employer $5,000, then the bond will be maintainable; otherwise, it will not be valid.

Regards, Madhu.T.K

Thank you for your reply, sir.

The company projects it and names it as "On-the-job training," but I certainly work here and have been working in the US for 1.5 years. The company pays for room rent, fuel, and a rental car. Basically, the company takes care of my stay here, but there is no salary in US dollars. So, there is no specific training that directly costs $5000 USD.

If I quit, what are my chances of getting away without paying such a huge amount? I appreciate your help.

P.S: Sorry for hijacking mitali95's thread, but I hope this information helps you as well.

If the company has taken care of your stay in the USA and salary is paid in India, then it means that you underwent your 'training' at the cost of the company. The company seems to have taken concern over you and had invested money to train you. If so, why don't you remain with the company at least for the stipulated period? If you have become much equipped to take up better employment, can't it be considered as gained after the training given by the company? These are some of the questions to which you have to find answers before proceeding against the company. Think and act.

Regards,

Madhu.T.K