Is It Legal for Employers to Threaten Legal Action if You Join a Competitor?

I would like to raise a query concerning an employee\'s decision to join a competitor company after resigning from his current job. A friend of mine has decided to resign from his present employer. However, his manager is now threatening him by saying that if he joins a competitor company after quitting, they will file a legal case against him, potentially jeopardizing his career. Is there any validity to such threats? Can a legal case indeed be lodged against an employee for deciding to join a competitor firm?

Did the job contract with the earlier company have any such written agreement about joining competitors?

There is no such clause in the offer letter that was given, or any bond/contract was executed during employment. However, the general mention of secrecy and confidential information is there, which states that no trade secret and confidential information shall be shared while being in employment as well as after quitting.

Reference may be made to VFS Global Solutions v. Suprit Roy decided in 2007 by Bombay High Court. In this case, the non-compete clause regarding joining a competitor after quitting was held to be void as it contravened Section 27 of the Contract Act. However, an injunction was granted concerning the disclosure of trade secrets.

Thanks,
Sushil

Understanding Legal Constraints on Joining Competitors

Is he at a COO or VP level? From your email, I don't think he is. There are many court judgments in India and abroad which have very clearly stated that at the operating level, an employee does not have access to strategy. They can put any clause, but that has to sustain the test of law.

Please go through the forum posts where we have posted the cases of Titan, HP, Adidas, etc., where the courts were very clear that the company cannot restrain its employee from joining the competition on flimsy grounds. Secondly, even if they do, they need to be compensated adequately for the cooling-off period. There has to be a timeframe mentioned as to how long he must refrain from joining the competition. In case they say the cooling-off period is two years, then the company has to compensate him for a period of two years. This is only applicable to those holding strategic roles, not for those who are in operating roles.

So, tell your friend not to get psyched by what his manager says. He can go and join the competition. If required, go through the posts here on not joining the competition and quote those case studies to the manager.

Nothing is going to happen unless and until any unethical activity is done by your friend. Usually, a non-disclosure agreement has such clauses. One should have proper relieving and transparent dealings in transit phases so that problems in employment do not arise.

Dear SVA 2015, there's no need to worry. Let me tell you something very important in this era.

Some employers do not want an employee to join any other organization, especially competitors. For this purpose, they offer a plan called "Stay Period," which may last from 1 month up to several years after resignation from the organization.

However, in this case, the employer will pay you the full salary during your stay at home for a defined period, after which you can join any organization as per your will. During the stay period, the employer wants to make the knowledge and skills you acquired during employment with them obsolete.

During the stay period, you cannot work with a competitor or any organization doing the same type of business, and you will receive a full salary from the previous organization during this time. Nevertheless, you can join any other organization with a different type of business after obtaining written permission from the previous organization, but the stay salary will no longer be available to you.

In your case, as your friend's contract with the employer does not contain such a clause, there is no need to worry. The employer cannot take any action unless they have proof that you disclosed their business secrets to competitors.

Regards,
Ziad Hussain

Dear SVA2015, Is there an HR department in your company? If yes, the manager cannot directly discuss these points with the employee. There might be a case that this is just the ego of the manager not to let go of the employee, hence he is being difficult. Check if this is the case. If HR also takes the same stand with your friend, then ask your friend to write a formal letter to HR stating that as per the clauses mentioned in his appointment letter and subsequent applicable policies, he is not restricted from choosing his own next job. In case the existing company wants to pursue legal action, then it would be unfortunate, but he would have to respond accordingly. Though, he should be ready to sign any non-disclosure agreement with the current employer if asked by HR. Ask him to mention this point in his letter as well. In any case, professionals have contacts throughout the industry. If your friend is joining a competitor, then surely someone from your company would have influential contacts there. If he leaves on a bad note, it may harm his first impression at the next job through bad references. So, ask him to handle this matter professionally and not take things personally.

Best Regards, Amod.

Don't worry, nothing adverse is going to happen. This type of case cannot withstand the test of law.

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Employee Movement Between Companies

Every day, we read in newspapers that very senior employees are shifting from one job to another, from one company to another. Apple to Microsoft, Microsoft to Infosys, Infosys to Wipro... What will happen to them? Will those people be charged? The threats are just rhetoric and have no meaning at all. Even then, there will be a cooling-off or break period while joining a competitor.

During my career, I have relieved a lot of employees who joined our competitor. We never took any action against those people. India is a free country, and anybody can practice or work in any company.

Fundamental Rights Under Article 19(1)(g)

Article 19(1)(g) of the Constitution of India confers fundamental rights on the citizens of India. This Article allows citizens the right to practice any profession or carry on any occupation, trade, or business subject to reasonable restrictions in the public interest. Thus, any restriction on this fundamental right of any citizen goes against the protection granted and guaranteed in the Constitution.

Negative Covenants by Employers

Employers, in order to retain talent, may try to impose negative covenants, for example, "You are not allowed to join a competitor's firm (i.e., having the same product) for at least two years after leaving this company." To my mind, such agreements are void and have no legal effect.

Advice for Employees Leaving Employment

However, employees should equally remember that when you leave your employment, do so in a legal and documented manner. I have read many cases here of people abandoning jobs or leaving by sending emails from personal IDs that are not even acknowledged by HR. This could be a recipe for trouble as the new employer will also not appreciate such actions.

Regards

We have a somewhat similar case wherein one of my friends was asked to sign a self-declaration at the time of relieving. The declaration states that the employee shouldn't join any competitor or start any similar services in the next few years. This has put him in a fix as he has received some similar opportunities that are in competition with his current employer.

Can this pose any trouble to him in the future?

Non-approaching agreements are usually entered into by competing companies, which prevent companies from hiring employees from rival companies. Hence, getting hired by a rival company would not be so easy.

Need advice. I am working as an HR in a private limited company. I got an offer from my client. Will I join or are there any legal issues? Please advise.

Need advice. I am working as an HR in a private limited company. I have received an offer from a client. Are there any legal issues if I decide to accept the offer? Please advise.

Meenakshi Excel,

There should be no issues. Please follow all procedures for getting released from your company. As you are in HR, the procedure should be well known to you.

Dear All,

1. Can an employer demand an affidavit from an employee as a condition for issuing a relieving letter stating that "He/she will not join any companies' vendor or competitor after getting relieved for a period of two years"?
2. If this condition is mentioned in the appointment letter, and the relieving is part of the contract of employment, is it legal as per the Contract Act?
3. Can an employee go to the labor office and file a dispute after getting relieved, claiming that this is "unfair labor practice"?

Please let me know if you need any further assistance.

Employers cannot demand such affidavits from departing or exiting employees. There is freedom of employment, and an employee can join competitors or vendors as long as they do not infringe on the original company's copyrights or patents.

Legal Restrictions on Joining Competitor Companies

Your company cannot stop you from joining any company of your choice once your service has ended with the previous company. The Supreme Court has strictly stated that a company cannot bar its employees from joining a competitor company if the employer finds that company more suitable. Such a clause that asks an employee not to join any company after the cessation of employment is illegal.

I wrote a blog post on a similar issue a few days back. You can check it here - https://labourlawhub.com/2016/02/19/...ts-competitor/

Regards

Employers can take legal action, but it will not stand in court as the High Court has already given a verdict that such a clause is void. Please contact for a copy of the verdict.