Employees Jumping Ship to Competitors: How Can We Handle Their Demands and Legal Threats?

I am working in an IT services company based in Mumbai. Our employees are leaving one by one and joining our direct competitors. How should we deal with this situation? We don't have their signed non-compete agreements. However, we have started implementing them now, but those who have left are asking for full and final settlement (FNF) and a relieving letter. What should we reply to them? They are threatening to go to court.

Dear Swati K,

Retention of employees, whether the company is small or big, is always a challenge. However, the Delhi High Court has ruled that obtaining a non-compete agreement is illegal. You may click here to refer to a past thread I had posted a few years ago.

However, the problem that you are facing is being faced by almost all the micro and small enterprises. With great difficulty, they employ someone, and after a while, a big fish from the same industry gulps them. Occasionally, the owners of micro and small enterprises rue over having reduced their company to a training center for the big companies.

So what is the solution?

The solution is to drive the business despite this inherent challenge. Nevertheless, you can make the service conditions attractive by:

a) Creating a healthy interpersonal environment in the company.
b) Creating a culture of empowerment.
c) Measuring performance scientifically and rewarding for the performance.
d) The employer must demonstrate strong technical competence. The employees should feel privileged for getting a chance to work under such a person.

Thanks,

Dinesh Divekar

Employee Retention Strategies

Best and next best is the key. If you are the best company for employees, then they must know what the next best option is for them, provided by the company. Competitions will be there, and employees may leave. Think about what can retain them. Consider employee engagement initiatives and practices. Remember that the trust and loyalty of employees can be won only with trust and loyalty.

Dear Swati K,

The most significant work of the HR Department is to retain its employees. Employee retention involves offering a lucrative package, creating a conducive working environment, and ensuring employee welfare. You need to understand why your people are leaving one by one for your competitors' company. You have to plug the hole first, which remains the main reason for your employees leaving.

You can implement some measures such as notice pay clauses, taking a bond for losses due to noncompliance with work, adopting wage retention strategies, enhancing welfare facilities, and offering competitive packages.

The right to a Full & Final settlement is something that cannot be denied. You need to pay those who have resigned and left after serving the notice period, issue them a relieving letter, send an absconding notice to those who haven't resigned officially or served the notice period, and claim losses for tasks not completed. It is essential to address these issues legally to ensure fairness and transparency.

Please review the text and let me know if you need any further assistance.

Dear Colleague,

Non-Compete Disclosure: Challenges

A very good discussion and a very important point that HR has to handle very tactfully. The business will pressure HR to handle such cases as talents directly go and join competitors, pulling the business down.

It is a tough situation for HR professionals to satisfy the business leaders on one side and talents on the other side, navigating through the legal systems prevailing. The non-compete agreements, as replied by our colleagues, will not be seen favorably in the eyes of the law. Best retention is the main strategy here, and we also know how difficult it is for all of us to retain talent. This challenge is universal.

Ways Forward in This Complexity

1. Talents Who Have Already Left

Regarding full and final settlement, it is not correct to withhold any dues but to settle with the talents who have left with a letter stating that he/she shall not disclose any company confidential business data in an advisory tone. If any violations are noticed, they will be dealt with appropriately. This may not help much legally, but it communicates morally that sharing company details is not fair. Also, ensure that all digital data is collected back/erased from the talents before settling.

2. For Existing and New Talents Who Will Join in the Future

Even though the courts view non-compete agreements unfavorably, it is suggested:

a) Share and get agreement on the non-compete agreement during the hiring process. If the talent is selected, execute the agreement during onboarding alongside the appointment order terms. This will make the company's communication clear. Ensure to have a legally well-drafted non-compete agreement obtained from a reputable advocate.

b) Exclude the non-compete clause in the appointment order terms, as courts typically view job seekers as in a weaker position. However, have a separate non-compete agreement that mentions potential civil breaches if the talent joins a competitor directly. From the employer's perspective, this creates a moral binding, even though there is less legal support for such agreements.

c) From the employee's viewpoint, they may feel they have the fundamental right to join any employer of their choice. However, by making communication clear and executing a fair agreement, the employee will have moral obligations, and the employer can pursue civil proceedings if needed. Yet, such legal actions could harm the organization's reputation and hinder attracting future talent.

In Summary

1. Settle with an official letter as stated in Para 1, instead of withholding dues.

2. Clearly communicate the non-compete disclosure agreement from the initial hiring process.

3. Keep appointment order and non-compete clause as separate documentation, signed by both parties.

4. Retrieve data from the talent before settling, and implement IT controls to prevent data leakage.

5. Use this for moral obligations, not to handle employees harshly upon leaving.

6. Strengthen retention processes/strategies.

7. Consider clauses like performance bonus or incentive in the appointment order, tying disbursement to KPI fulfillment and non-competition.

Thank you to colleagues who provided valuable insights on this subject.

Best wishes,

Dr. P. Sivakumar
Dr. SIVAGLOBALHR
Tamil Nadu

Dear Swati, even if no such conditions are stipulated in their appointment letter, if model standing orders apply in your establishment, then you may refer to the standing orders and deduct notice pay from the F&F amount. However, you cannot force any employee to work during the notice period or restrict him/her from leaving your employment.

Regards, S. K. Mittal

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