Facing a Non-Compete Bond: Can I Join a Competitor Without Legal Trouble?

Dear Sir, I work in a proprietary company with a total strength of 30 employees. I work as a salesman, and my salary is 20K per month. There are no PF, medical, or any other benefits provided. However, during joining, we were required to sign a legal bond (on stamp paper) stating that once we leave the company, we cannot join any competitor for 2 years. There are no consequences mentioned in the bond, and in my offer letter, no notice period is specified. The company has a poor history of employee satisfaction. I have now received an offer from a competitor, which is a multinational corporation (MNC). Kindly suggest what I can do in this scenario as I am interested in joining them.

Thank you.

Thank you very much, Jayesh sir. But what if he files a case against me? Also, can he demand monetary compensation from me, and should I discuss this issue with the new company?

The bond is not valid. You can proceed to join as you like. However, there is a possibility that they will not relieve you from service, won't provide the service certificate, and also will not settle your account.

Regards,
D. Gurumurthy
HR & IR Consultant
Hyderabad

Dear Hemant,

Understanding the Non-Compete Agreement

First, a bit of background about the bond that you appear to have signed. Let me preface my comments by saying that it is my guess about the nature of the bond that has been signed by you.

This kind of bond is usually referred to as a Non-Compete agreement. It is typically applicable to senior officers of organizations who have access to competitive or sensitive information that could be detrimental to the interests of the company if it falls into the hands of a competitor. It is also common that when a Non-Compete is in force, the company that mandated it (the company that the employee is leaving) provides financial benefits or compensation for missed opportunities during the Non-Compete period.

Your Situation

In your case:
- It is unlikely that you would have access to competitive information that would be detrimental to your ex-company.
- There does not appear to be any additional compensation likely to be paid in lieu of the non-compete.

Recommended Actions

My view is that:
- You should inform your new employer that you have signed this bond because you did not have any option and it was mandated before your employment started.
- Share with them the original copy of your letter of appointment, which states there is no notice period for resigning.
- Be prepared for the fact that you may not receive a relieving letter and your final settlement.

It is unlikely that the company will proceed legally since they are already on weak ground by not having PF, which is a statutory requirement for any organization employing 20 employees or more.

Regards,
Raju Bhatnagar

The agreement that you have signed is void under the Indian Contract Act because the Act states that all agreements signed in restraint of employment are void. The reason is that a company cannot take advantage of your necessity for the job and make you sign such agreements.

Hence, you can resign and join another company, and the present company cannot take any action against you.

Regards,
D. Phani Kumar
DGM- HR
Vasavadatta Cement (B.K. Birla Group of Companies)
Sedam, Gulbarga Dist. Karnataka.

The legal law states that any company with more than 20 permanent employees must register for PF, and if anyone's salary is greater than 15K, ESI is mandatory.

So, legally, they aren't right.

Any service bond is legally permissible only for training, and it must mention the training period (considered to be full-time classroom training) and the cost involved. The bond should include a clause for repayment in case of seizure.

No company is permitted to legally bind employees from joining their competitors. An employee is an asset of the company only while under their roof, and they cannot impose limitations on any citizen or employee outside their premises.

Moreover, the consequences aren't mentioned as well.

At most, the company can send a legal notice, and the ex-employee can also contest the case.

An additional point for the employee would be if they can prove that employees aren't satisfied. Anything against labor law can be additional points to prove the employer's fault.

Answer in Brief: This employee can provide a personal reason such as health, family, or relocation and proceed.

If your next employer is ready to hire you without any formal relieving letter, nothing stops you.

Regards,
Harish

Dear Hemant, I would suggest that you do the following before resigning:

1. Collect all your payslip hard copies.
2. I assume that you have not mentioned your reason for resigning to your current company. To avoid problems with your FNF and relieving, provide them with a different reason for resigning, such as moving out of town, etc.

As mentioned by the seniors above, the bond is void. By following the steps above, you can ensure that you receive your relieving letter as well.

Regards, Saurabh.

Dear Hemant, I feel this type of bond is a nuisance and not a positive option at the start of a career. The legality of this contract is not an important matter. The real problem is that based on this contract, this employer can harass you by not providing an experience certificate. They may also delay clearing at least one or two months of expense accounts and salary for at least 15 days to one month. My advice would be to try to find an alternative or start looking for a proper job immediately.

Wishing you all the best.

Dear Hemant, I am in agreement with the views expressed above. In the present case, the bond cannot bind you. I suggest that you contact your prospective employer and explain the entire issue, such as the bond and your availability, without the proper relieving letter. Please carry with you your letter of appointment, as well as your original salary slips to show to them.

Resignation Process

As for your present employer, please tender your resignation expressing your personal/family exigencies and your requirement to be relieved from a particular date. In case you do not hear anything from them by the stipulated date (please stipulate one month's time, to be fair), please write to them. Explain that since you have already submitted your resignation in a reasonable manner and have received no reply from them, you are left with no alternative but to consider your resignation as deemed accepted. Request your unpaid salary and relieving certificate. Before taking this step, ensure to surrender all company items issued to you with an acknowledgment from them. If you do not receive any satisfactory response, you may approach the labor-legal authorities for recovery of the same.

I am sure this approach can solve your problems.

Good luck.

Regards, S.K. Johri