Is It Fair to Sign Employment Agreements Only After Resigning? Let's Discuss Timing and Justice

Timing of Employment Agreement Signing

My query is regarding the employment agreement that needs to be signed by each employee prior to joining the company. In most organizations, this agreement is provided at the time of joining when the employee has already resigned and is completing the joining formalities. Is this the correct timing? Applying the principles of natural justice, I feel that the employee does not have much choice at the time of joining except to sign whether they agree with the terms or not. Instead, this agreement should be provided with the offer letter so that the individual may decide to join or not when considering the offer itself.

Please suggest.

Dear friend,

You have raised the query; however, what is the nature of the agreement? What are the main contents? Do you want the selected job candidate to enter into a contract stating that he/she will not back off from joining your company? Occasionally, companies also back off and withdraw the offer letter. In such a case, will the condition of the offer be binding on you as well?

Please clarify in your post. Further suggestions can be given thereafter.

Thanks,
Dinesh Divekar

Candidate is free to ask all his queries regarding the employment before accepting the offer letter. Even I also have the same opinion as yours; the offer letter should have general conditions of the employment. I think people are generally afraid to ask for general conditions such as working hours, weekly offs, leave policy, notice period, etc.

Dear Mr. Dinesh and Sr. Adv. Bhat,

I am a legal advisor to an IT consultancy firm. The present organization has a practice of having employees sign a confidentiality agreement and an Intellectual Property and non-compete agreement. The confidentiality agreement is signed at the time of joining, and the other agreement is signed upon being relieved. The confidentiality agreement includes a clause stating that confidentiality must be maintained for three years after the termination of the agreement, prohibiting the individual from joining any competing company in the same geographical area.

Objections to Current Practices

I have some objections to this practice:

1. This practice contradicts section 27 of the Indian Contract Act.

2. The organization presents this agreement at the time of joining, after the employee has left their prior employment and provided a relieving letter. This leaves the employee with no choice but to sign the agreement.

3. How can a person be bound post-employment?

Likewise, presenting an "Intellectual Property and Non-Compete agreement" to an employee at the time of relieving them, and informing them that a relieving letter will only be issued upon signing the agreement, can be seen as a form of indirect blackmail, which I do not condone.

Proposed Solution

Therefore, I propose that these documents be provided along with the offer letter, clearly stating that the acceptance of the employment offer by the Employer depends on the employee's expressed acceptance of the terms of the agreement. This will allow the employee to have the terms reviewed by external counsel.

I am unsure if other organizations follow this practice, but it seems fair to me. Additionally, some organizations do not provide employees with a copy of the signed agreement, which I believe may also be against the law.

I appreciate your suggestions in advance. Thank you.

Regards

Case Analysis: Employment Agreement and Non-Compete Clauses

Please refer to the following:

In the case of R. Babu and Another Vs TTK LIG Limited, formerly London Rubber Company (I) Limited, recently published in Labour Law Reporter (Jan-05; 71-73), the Division Bench of Madras High Court refused to grant an injunction against an employee restraining him from engaging in a competitive trade after the termination of his employment. The court stated that an agreement whereby an employee agrees not to join another competitive company for a specific period after the cessation of his employment will violate public policy as stipulated in Section 27 of the Indian Contract Act, 1872. The referred section states, “Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.”

While delivering its judgment, the Madras High Court referred to the cases of N.S. Golikari Vs Century Spinning & Manufacturing Co. Limited (AIR 1967 SC 1098); Rajan G.R.V. Vs Tube Investment of India Limited (1995 (1) LW 274); and Superintendence Company of India (P) Limited Vs Krishna Murgai (AIR 1980 SC 1717).

Legal Perspective on Non-Compete Clauses

Explaining the same in detail, learned advocate Shri. H.L. Kumar has stated in the journal section of the Labour Law Reporter (Feb-05; 38-42) that such a clause is legally impracticable and unrealistic.

In his article, he referred to the case of Pepsi Foods Limited & Others Vs. Bharat Coca-Cola Holdings Pvt. Limited & Others (LLR, 1999, 1027), wherein the Delhi High Court stated, “Injunction cannot be granted to create a situation such as ‘Once a Pepsi employee, always a Pepsi employee.’ It would almost be a situation of economic terrorism or a situation creating conditions of bonded labour.” It also mentioned that the interchangeability of service is an accepted norm of Service Jurisprudence that cannot be curtailed by a court injunction.

It is interesting to note that the Court said in a free market economy, everyone concerned must learn that the only way to retain employees is to provide them with attractive salaries and better service conditions. Employees cannot be retained in employment perpetually or by a court injunction.

Read the following article: http://www.thehindubusinessline.com/...cle1661021.ece

Thanks,

Dinesh Divekar

Dear Mr. Dinesh,

Thank you for the response, which aligns with my thoughts. However, could you also please provide guidance on the applicability of post-termination contractual obligations?

Thanks