Facing a 3-Year Non-Compete Clause for My Relieving Letter—What Should I Do?

Hi all, I worked for an MNC company for 1.5 years. I have resigned from the company, served the notice period, and handed over all responsibilities properly. Now, I require a relieving letter and an experience certificate. My manager and director are asking me to accept and sign a new non-competitive agreement for 3 years. It states that I cannot work for any competitive company for the next 3 years. I was shocked when I saw the agreement. The non-competitive clause in the appointment letter mentioned a condition for 6 months only, but now they are asking me to sign and accept it for 3 years, or else they won't provide me with my relieving letter and experience certificate.

I have already resigned, and my notice period has been completed. Please guide me on what to do and how I can obtain those documents.

Thanks,
Ashish

Earlier, I had shared a link about the verdict of the Delhi High Court on the subject above. Click the following link to refer to it: https://www.citehr.com/571397-delhi-...n-compete.html

At this stage, getting a relieving letter is important. Therefore, you may sign the agreement, if any. Join the competitor if you wish to. If they send you a lawyer's notice, then you may quote the above ruling by the Delhi High Court.

If you wish to quote the verdict of the Delhi High Court, then you may do so; however, your employer could get incensed for being challenged and may create a problem in Background Verification (BGV). Therefore, be cautious on that count.

Thanks,

Dinesh Divekar

Dear Asish, I would also like to join our learned friend Dinesh on the subject matter of the enforceability of the Non-Compete Clause in any contract of employment in India. Article 19(1)(g) and 21 of the Constitution of India guarantee the fundamental right to practice a profession and the right to livelihood. Therefore, a restraint of trade clause in a contract that is intended to prevent one party from practicing a certain profession, trade, or business is only valid under certain circumstances and reasonable restrictions. In the absence of such reasonableness in the restrictive covenants, the contract would become void as per Section 27 of the Indian Contract Act, 1872.

Important aspects to determine the reasonableness of restrictions

The following are the important aspects that would help determine the reasonableness of such restrictions, namely:

(a) Distance - appropriate restrictions on the employee that may prohibit them from practicing a profession within a reasonable stipulated distance.

(b) Time Period/Limit - a reasonable period during which such prohibition may last without affecting their livelihood.

(c) Trade Secrets - reasonable restrictions on disclosing trade secrets in the case of key employees.

Classification of non-compete covenants

The negative non-compete covenants used in employment contracts can be broadly classified into Term Covenants and Post-Term Covenants. In accordance with the Indian Contract Act, such non-compete restrictions imposed on employees during their employment are reasonable and enforceable, whereas those that apply to the post-employment period are void.

As early as 1954, the Apex Court held in Satyavrata Ghosh v. Kurmee Ram Bangur (1954 SCR 310) that a covenant is void when it restrains the employee from working in the future after the termination of their service. The same court held again in Niranjan Shankar Golikari v. The Century Spinning AND Mfg Co., (1967 SCR (2) 378) that non-compete clauses are not to be considered as a "restraint of trade" if they operate during the time period of employment and such injunction is restricted to the nature of employment, time, and area.

Nature of employment and classification of employees

Regarding the nature of employment, Indian companies classify employees based on their role, position, and the degree of confidentiality expected of them as Key-Employees and Non-Key Employees. Generally, Key-employee contracts provide for non-compete restraint during employment along with a "Garden Leave" or a fixed term. The Bombay High Court held in V.F.S Global Services Ltd., v. Suprit Roy [2008(2) Bom CR 446] that a fully paid 3-month "Garden Leave" agreement with a manager did not renew a contract and as such constituted a restraint of trade that is unenforceable.

Here it is worth quoting the following observation of the Delhi High Court in Pepsi Foods Ltd & Others v. Bharat Coca Cola Holdings Pvt Ltd & Others (1999 LLR 1027): "The negative covenants restraining employees from employment elsewhere are 'economic terrorism.'"

Therefore, judiciously weigh the options suggested by Mr. Dinesh Divekar.

You have already resigned from your post. Have you received any acknowledgment of your letter of resignation? Is there any documentary evidence that you have handed over all responsibilities properly?

If yes, and you are sure that all the formalities related to your resignation are over, please wait for some time. Then, send a request letter mentioning your date of employment and last working date through registered post to the employer stating that you have not yet received your relieving letter and experience certificate.

The company you would like to join is a competitor to your previous company. You can consider the suggestion of Mr. Dinesh Divakar and seek refuge under the verdict of the Hon'ble Delhi High Court.

Dear Friend,

Please sign the agreement and collect your RL. This post-facto non-compete clause is not legally binding. The only requirement is that the agreement should bear the current date after your resignation. Ensure that you do not sign a letter with a date prior to the current date.

Do not indicate your awareness that this is unenforceable; sign quietly and complete your tasks.

Warm Regards,

Bharat Gera
HR Consultant
9322404765

Dear All (Dinesh Divekar sir, Umakanth sir, Prabhat sir, and Bharat sir),

Thank you so much for your valuable advice. First of all, my apologies for my delayed reply in this forum. I have asked the Manager to send me a scanned copy of the letters via email to review the contents, but he has refused and is asking me to come to their office to acknowledge the receipt. I may visit by the end of this month.

As Prabhat sir asked, yes, I have received a resignation acknowledgment by email because I submitted it via email, and the director has replied to my email. I have an acknowledgment letter for the handover of all company property (laptop, mobile, documents, and files). Also, my half-month salary is still pending with the company. They have yet to pay me, and it has been close to two months since my resignation. I also have not claimed my annual bonus yet.

Anyway, thank you all for your valuable advice and guidance. Special thanks to Dinesh Divekar sir for his prompt reply.

Thanks.