A non-competition clause or non-compete clause in an employment agreement is a clause by which an employee agrees not to work with a rival company or not to start a similar business or profession on his own during a specified period after leaving his current employer.
The operation of the non-compete clause is of two phases: (1) during the period of employment and (2) post termination of employment.
However, Indian Judiciary has divergent views on the legality of such a clause.
The enforceability of the non-compete clause is vehemently opposed by certain jurists under the main provision of section 27 of the Indian Contract Act,1972 which declares that every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is void to that extent. The jurists who are against this proposition derive support from the exception clause of the same section 27 of the Act. In India, the higher judiciary have held that the non-compete clause post termination of employment is void ab initio as its curtails one's fundamental right to earn his livelihood through a lawful means and as such it is opposed to public policy. In some other cases, the higher Judiciary have held that such a negative clause can be justified in the backdrop of confidentiality of modern business strategies combined with the integrity of the persons employed therein.
In Superintendence Company of India Pvt Ltd v. Krishan Murugai, the hon'ble Supreme Court of India held that a contract which has an object of restraining trade is prima facie void. It was also observed by the Apex Court that even if the restrictive covenant was to include cessation of employment at the volition of the employee, there could be no post employment restriction u/s 27 of the Contract Act. Again in the year 2006, the two-Judge Bench of the Supreme Court refused enforcement of a post-employment restriction on the same ground of section 27 of the Indian Contract Act,1872 in Percept D'Mart India (P) Ltd v. Zaheer Khan and Others.
However, in V.F.S Global Services v. Mr. Suprit Roy, the Bombay High Court held that a restriction on the use of trade or business secrets during or after the termination of employment does not constitute a " restraint on trade " u/s 27 of the Contract Act,1872 and can thus be enforced in certain situations. Besides, in Niranjan Shankar Golikari v, the Century Spinning and Manufacturing Company Ltd, the Supreme Court held that restraints or negative covenants in the appointment or contracts may be legal if they are justified. The ratio decidendi of these judgments reflect the conviction of the higher Judiciary that the validity of the non-compete clause in an employment contract can be tested on the anvil of protection of confidentiality of an organization and its proprietary rights of patents and trade marks.
Juxtaposing the above two sets of views of the higher judiciary, we can conclude that a non-compete clause operative during the course of employment is legally sustainable but after cessation of employment, its maintainability is dependent on the reasonable factors such as the position held by the employee, the limits of time and distance of debarment, compensation, if any payable under the contract for the compulsory period of unemployment, trade secrets etc.
Of course, the response of Mr.KK!HR is one arising out of practical wisdom because the post-termination ban period of reemployment with certain specified competitor companies seems reasonable.
Since the poster has stated that such an agreement was obtained from him after his joining, he can fight the case if he has the wherewithal and patience after taking the prospective employer into confidence as suggested by Mr.Banerjee.