Facing a Non-Compete Dilemma: Is My Former Employer's Stand Legal and What Can I Do Now?

I was asked to leave in the 1st week of May this year. In lieu of my track record and duration of service, the company offered to waive my 3 months' notice and also offered to pay me a salary during this 3-month period.

My reporting manager had a discussion with me in which he said that in lieu of the company paying me 3 months of notice pay, I would not be allowed to join a competitor.

I honored this commitment (I joined a competitor in September) and the company also paid me a salary for May, June, and July 2013.

However, when I went to the office (around the 3rd of June), I was asked to sign the Non-Compete agreement before I could collect my paycheck for May. This agreement had a clause at the end which said I cannot join a competitor for 12 months from the day of my relieving. This was contradictory to what I was told earlier; however, I had no choice but to sign or risk losing 3 months' pay. And since I have a family to support, I signed the document and also submitted a signed check (blank) in favor of the company.

My previous employer recently presented the check to my account to recover 1 month's pay, which has bounced due to insufficient funds. I have not yet requested a 'Stop Payment' on the check. But I am sure they will now register a case and send me a notice.

My Questions

1) Is their stand justifiable by law?
2) What are my options now, and what should be my course of action?

Here's a response to the query raised in pointwise form:

1. Stand of Company Justifiable by Law

Interesting question, but the core issue is what is justifiable? Anything that can withstand the tests of reasonableness by courts is considered justifiable. If you can prove that whatever they did was unfair and inequitable, then you are justified. Okay, let me not confuse you further.

What they did may amount to fraud provided you have a written email or some document to justify that they indeed committed to you about a 3-month Non-Compete clause. The clause of 1 year is not excessively long to attract the wrath of unreasonableness of the court. So you should have concrete documents to indicate that.

2. Options Available Now

You took everything in good trust, and then at that very moment, your trust was broken by depositing that check and asking for compensation. The question is what to do now. In the first place, you should have stopped the check. But you have failed to do that, and meanwhile, the company has deposited and caused the check to bounce. It seems that the legal solution doesn't appear feasible for you, as I can see that you don't seem to have deep pockets to absorb that long legal tussle, apart from the mental agony that you may go through regarding the company you had so much trust in.

So, there are two options available as of now:

- Speak to the HR head and try to convince them of the deal struck by you and your ex-employer.
- If the HR Head refuses to budge, then try to negotiate the compensation somehow.

One critical thing: Cheque bouncing is one of the events that will ruin your credit history, based on which you may be denied a loan at a later stage. As I understand, it takes at least a year to come back to the same level of credit rating. So, avoid instances of cheque bouncing.

Regards,
Puneet Sarin
CA LL.B

Thank you very much for your detailed response. It really puts things into perspective. I wanted to check if I could request a stop payment now and if it would really make a difference.

You have addressed all of my concerns exhaustively. However, what if I were to counter their claim that they verbally promised me something and presented a different picture at a time when they knew I would not refuse signing on their terms? This is because my salary was at stake. Also, if they pay me for only 3 months, that is the period during which I would not join a competitor. For the remaining 9 months, I have skills and expertise only in that field/Line of Business. Honoring a 12-month commitment would potentially leave me jobless for 9 months. This would essentially deprive me of my source of income without providing any alternative.

What are your thoughts on this?

My Thoughts: It doesn't matter, as the famous Harvey Specter says in the celebrated series "SUITS." Though it seems like a punchline, it's very true.

While you are justified in saying that the company is restricting your right to work, which is guaranteed by the Constitution itself, the employer is justified in viewing such conditions as reasonable to protect one's business. This view will hold valid in a court of law and could be evidenced.

About Stopping a Cheque Now: There's no extra edge that you can obtain now, but as a protective measure, you can always do that. However, it's not suggested based on what we have already discussed.

Regards

Joining a Competitor After Leaving a Job

You may join a competitor by proving that you left the job not on your own but at the company's request, as stated earlier. The court may deem this 12-month restriction as unreasonable. Additionally, you may ask the company to pay 12 months' salary if they expect you to stay at home without a job for that period.

Legal Implications of Verbal and Written Commitments

For verbal assurances, there is no legal basis. If you have given a written commitment, willingly or unwillingly, it is binding on you. It is a sort of bond that you are supposed to honor for 12 months, and for which your company has taken a security cheque, so that this bond has some value. Since you did not keep your commitment, the company has deposited the cheque, which has bounced.

Potential Penalties

Primarily, there are two faults for which you may be penalized:

1. You did not honor the written commitment.
2. Bouncing a cheque is an offense.

The above-stated are the real facts in your case.

Possible Defense Strategies

To escape from the punishment, your stance can be:

- The Indian constitution allows any person to work anywhere, at any time, and nobody can be stopped/restricted from their livelihood.
- If you are sure that there is no other liability on your part payable to the company, stating such a reason can help you protect yourself for not honoring the cheque.

Suggestion for Resolution

Take a very lenient view with your ex-employer. Talk to them in a very soft way, stating that this situation arose because it was the only option you had, and therefore, you joined the competitor company. Tell them this is a matter of your survival. In practice, no company usually proceeds with any kind of action.