Navigating Freelance Work: Is It Okay to Work for a Client of My Former Employer in India?

Hi, I need some clarifications from experts here. I recently resigned and shifted to another company named "ABC" from "X" company just 2 months back. A company named "Y" reached out to me to do freelance work. Originally, the work was given by "Z" company to "Y".

Actually, "Z" is a client of "X" company. Directly or indirectly, I never shared/asked/reached out to "Y" company to reach "Z" company and get work. Now, "X" company is saying, "How can you work for 'Z' company?" I said to them that I never reached out to them for business. I got work from a "Y" company, and I am doing it, that's it.

Hence, I request clarification: as per Indian rules and regulations, can I work for "Y" company even though "Z" is a client of "X" and "Y" companies?

Understanding Non-Compete Provisions in Employment Contracts

As such, there are no statutory or legislative provisions that prohibit a person from working in any organization. The only restrictions that apply in the situation you describe above emanate from employment, contractual, partnership, and other similar agreements or contracts. Collectively and popularly, these restrictions are referred to as 'non-compete provisions'.

If, at the time of accepting employment with company X, your 'contract of employment' or 'letter of appointment' contained non-compete clause(s), and you signed that letter or contract having been made fully aware of such clause(s) by company X, then company X may be within its rights to object to your working for company Z.

However, it's not as cut and dry as I've made it out to be in the previous paragraph. That is intended to give you fundamental info regarding a non-compete clause. It's one thing to have a non-compete clause. It's another thing to determine its veracity, legality, fairness, and, above all, enforceability.

Legal Perspective on Non-Compete Clauses in India

The Supreme Court of India has (in the recent past) declared unanimously that any non-compete clause that unfairly and unjustly infringes upon an individual's or a company's constitutional right to participate in employment or conduct business as their primary source of income in an area where they have core skills and those activities form their primary employment or business activity is unjust and unenforceable.

Even where the Supreme Court has found non-compete clauses to be legally sound, it has frowned upon any period of non-compete exclusion that exceeds 3 - 6 months (for companies) and 2 - 4 weeks for individuals.

The Supreme Court has also held that where a non-compete clause exists and the plaintiff intends to execute such clause, then in such circumstances, the plaintiff MUST compensate the disadvantaged party/parties to an amount not less than the last highest compensation which the defendant was entitled to immediately prior to the separation of both parties.

Common Occurrences and Compensation

This is a very common occurrence for merchant bankers, brokerage firms, legal firms, etc., where the disadvantaged party is prohibited from conducting any employment or business activity for up to 6 - 8 weeks post-separation. However, the disadvantaged party is compensated in full for the entire duration of non-compete provisions. These judgments have had a significant impact on partnership agreements and appointments of senior executives.

Specific Case Considerations

In your case, however, it could well be a case of bruised prestige or sour grapes. Because the truth is, if you were a contractor with company Y and they sub-contracted you to work for company Z, there is literally no remedy available to X to pursue a non-compete clause even if it's been meticulously drafted.

Also, the fact that you've been gone from X for over 2 months puts you on solid ground, even if X were to litigate against you. And, to litigate, they must first send you a formal 'cease and desist' notification citing enforceable provisions from your contract or appointment letter when you first started to work for them.

Disclaimer

DISCLAIMER: My reply to you on this post is intended as information ONLY. I am NOT a lawyer and do not intend for this post to offer you, or for its contents to be substituted for, construed (or misconstrued) whether inadvertently or by design, as legal advice - implied or explicit. I strongly encourage you to seek legal advice from a qualified and authorized lawyer to ensure the veracity of information upon which to arrive at an informed decision regarding next steps.

I hope this helps you. All the best!

There are a few major issues to be observed here, Mr. (you) love your work:

1) Whether the company to which you are assisting as a freelancer is a "competitor company," or the company which holds its business in the same field or sector of the company you are regularly working?

2) Whether the job you perform as a freelancer requires the same knowledge and skill sets that you shall use in your regular job?

3) Does your employment agreement oppose any such activities? (In fact, it is considered as the implied terms of employment. The precedents are clear on the aspect, so you cannot defend saying that the employment agreement is not explicit on the condition... Of course, if the work you do as a freelancer has nothing to do with your regular job and entirely different kinds of skills required, this implication does not apply...) (Also, if you yourself own a company that requires the same skills/knowledge when working as an employee, the employer must have the knowledge that you own such a company during the employment, and in case you have not revealed the company, the company may go for employment malpractices against you.)

4) Do you have knowledge about the company as the client competitor of the company you are regularly employed by?

If any of the above issues has a positive reply "yes," then your freelancing would be considered as "malpractice" under employment, and the company may issue a termination letter to you or may also take disciplinary action against such activity, since you can never prove that the company's confidential and work-related information is not being revealed and utilized against the regular company.

So, the freelance work done for the company is not justified under the law, in any way.

I totally agree with BSSV's advice. It is sound advice for conflict of interest situations—where there is a direct or indirect conflict of interest between a person's current employment and their participation in competing activities (simultaneously and concurrently) without complete disclosure of the conflict to the current employer, and that employer consenting to the continuation of that conflict.

But, if I understand the question correctly, he/she resigned from his/her employer 2 months prior to the situation arising. The issue of conflict isn't being raised by his/her current employer. Instead, it's being raised by the former employer from whom he/she has been separated for about 2 months.

Thus, for the previous employer to consider the new activity as a conflict (of any variety) can only be substantiated if the original appointment letter or contract of employment (or any mutually consented document signed during the term of employment) contained a non-compete clause that would kick in post-separation.

Thanks for your reply. I never signed any papers related to a contract agreement, etc. If I signed, should I not work for clients of "X" for 3-6 months? I don't understand the distinction between the company and an individual here. Before issuing a "cease and desist" notification, can they take any legal action, such as involving the police? I appreciate your time; I will consult a lawyer soon.