Dear All,
In my Appointment Letter, the company has mentioned that within 12 months, I can't join any competitor company, vendor, or customer company. If I break that clause, can the employer take legal action?
Along with that, can you please provide a copy of the SC/HC verdict on that issue?
Regards,
Dibyendu
From India, Bhubaneswar
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In my Appointment Letter, the company has mentioned that within 12 months, I can't join any competitor company, vendor, or customer company. If I break that clause, can the employer take legal action?
Along with that, can you please provide a copy of the SC/HC verdict on that issue?
Regards,
Dibyendu
From India, Bhubaneswar
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One year is a reasonable term for asking you not to join competitors, especially if your previous employer had arranged any specific training for you and if you had signed a bond for the same. If the employer had invested sufficient funds for that, and if your resignation would have any impact on the working of the company, then only the previous employer would have the right to refrain you from joining their client company.
Take specific advice from a lawyer after showing them the agreement and the nature of the job being done by you, and whether any special training was given to you.
From India, Pune
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3180Take specific advice from a lawyer after showing them the agreement and the nature of the job being done by you, and whether any special training was given to you.
From India, Pune
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Dear Mr. Nathrao,
Thank you for your reply. The company has not conducted any induction or training program, and I have not signed any bond. That clause is only written in my Appointment Letter, which I received 2.5 months after joining the organization. Can you please advise if there are any legal implications for the employer against me?
Kindly reply at your earliest convenience.
Thank you.
From India, Bhubaneswar
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Thank you for your reply. The company has not conducted any induction or training program, and I have not signed any bond. That clause is only written in my Appointment Letter, which I received 2.5 months after joining the organization. Can you please advise if there are any legal implications for the employer against me?
Kindly reply at your earliest convenience.
Thank you.
From India, Bhubaneswar
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It is a debatable point. At some stage some kind of restriction was imposed on you and you had agreed. What I suggest consult a local lawyer and show him all the papers and then decide.
From India, Pune
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From India, Pune
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Penal Clauses and Employment with Competitors
Is there any penal clause that would affect you in case of taking employment with a competitor or vendor? In the absence of such a clause, taking any action against your decision to take such employment is not sustainable before a court of law. Clauses that refrain individuals from taking employment with a competitor are known as negative covenants. However, these types of clauses are not enforceable in court as they are affected by Section 27 of the Indian Contract Act 1872, which states: "Agreement in restraint of Trade Void - Every Agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is, to that extent, void."
Based on this, the Madras High Court ruled in R Babu & Others VS TTK LIG Ltd on 01.03.2004 that "An Agreement whereby an employee agrees not to join another competitive concern for a specific period after the cessation of employment will be violative of public policy as stipulated by the Indian Contract Act."
Therefore, you have a strong chance to challenge any legal action initiated against you for taking employment with a competitor, vendor, or similar entities and succeed. Employers are well aware that such legal actions will likely not succeed in court, but they may initiate them to cause some harassment. In such cases, you may have to endure the process, but I am confident that you will ultimately succeed.
Regards,
From India, Mumbai
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Is there any penal clause that would affect you in case of taking employment with a competitor or vendor? In the absence of such a clause, taking any action against your decision to take such employment is not sustainable before a court of law. Clauses that refrain individuals from taking employment with a competitor are known as negative covenants. However, these types of clauses are not enforceable in court as they are affected by Section 27 of the Indian Contract Act 1872, which states: "Agreement in restraint of Trade Void - Every Agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is, to that extent, void."
Based on this, the Madras High Court ruled in R Babu & Others VS TTK LIG Ltd on 01.03.2004 that "An Agreement whereby an employee agrees not to join another competitive concern for a specific period after the cessation of employment will be violative of public policy as stipulated by the Indian Contract Act."
Therefore, you have a strong chance to challenge any legal action initiated against you for taking employment with a competitor, vendor, or similar entities and succeed. Employers are well aware that such legal actions will likely not succeed in court, but they may initiate them to cause some harassment. In such cases, you may have to endure the process, but I am confident that you will ultimately succeed.
Regards,
From India, Mumbai
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Dear friend,
You could have checked this forum. Anyway, please check the following thread: https://www.citehr.com/571397-delhi-...n-compete.html
Thanks,
Dinesh Divekar
From India, Bangalore
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You could have checked this forum. Anyway, please check the following thread: https://www.citehr.com/571397-delhi-...n-compete.html
Thanks,
Dinesh Divekar
From India, Bangalore
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Understanding Employment Bonds and Legal Restrictions
You are governed by the bond as long as you are in employment. Upon cessation of employment, the bond has no role to play. The Indian Contract Act has restricted all clauses that limit one's rights. Section 27 of the Indian Contract Act states: "Any agreement in restraint of trade, void. Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is, to that extent, void." You should relax and work freely, avoiding any unjust thoughts in your mind.
From India, Mumbai
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You are governed by the bond as long as you are in employment. Upon cessation of employment, the bond has no role to play. The Indian Contract Act has restricted all clauses that limit one's rights. Section 27 of the Indian Contract Act states: "Any agreement in restraint of trade, void. Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is, to that extent, void." You should relax and work freely, avoiding any unjust thoughts in your mind.
From India, Mumbai
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Dear Prabhat, my view differs; the law of contract states that any agreement in restraint of trade or practice can be challenged. Accordingly, the terms and conditions of a contract that prevent an employee from joining another organization would be invalid (Sec 27 of the Contract Act). However, the law permits reasonable terms and conditions to be laid down in a contract. While an employment bond is being prepared, ensure that all the stipulated terms and conditions are reasonable and valid. For example, the period of time for which the employee is obligated to work with the organization and the compensation payable in case of any violation should not be harsh and must be justifiable.
Principles for Employment Bonds
The courts have laid down a two-fold principle while dealing with such cases of bonds: the interests of the employers must be considered, and they need to be compensated in case of a breach of contract. Air India trains pilots abroad at a huge cost, and they leave for better pay. So bonds by AI have been upheld in courts. The penalty that may be imposed on an employee or his guarantor cannot be exorbitant and unreasonable. There have been several cases where the court has held that under certain circumstances, an employer is entitled to prevent the employee from joining another organization. For example, if there is a possibility that the employee may reveal trade secrets of company A to company B, company A is entitled to prevent such an employee from joining company B. So the ban is not absolute and has to be examined on a case-to-case basis.
From India, Pune
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Principles for Employment Bonds
The courts have laid down a two-fold principle while dealing with such cases of bonds: the interests of the employers must be considered, and they need to be compensated in case of a breach of contract. Air India trains pilots abroad at a huge cost, and they leave for better pay. So bonds by AI have been upheld in courts. The penalty that may be imposed on an employee or his guarantor cannot be exorbitant and unreasonable. There have been several cases where the court has held that under certain circumstances, an employer is entitled to prevent the employee from joining another organization. For example, if there is a possibility that the employee may reveal trade secrets of company A to company B, company A is entitled to prevent such an employee from joining company B. So the ban is not absolute and has to be examined on a case-to-case basis.
From India, Pune
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Dear colleague,
The question is whether the employer can proceed against you for breaching the clause relating to not joining a competitor company within the stipulated period. The answer is yes, provided the relevant clause in the appointment letter provides for the recovery of damages in the event of a breach, which you have accepted.
Regards,
Vinayak Nagarkar
HR Consultant
From India, Mumbai
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The question is whether the employer can proceed against you for breaching the clause relating to not joining a competitor company within the stipulated period. The answer is yes, provided the relevant clause in the appointment letter provides for the recovery of damages in the event of a breach, which you have accepted.
Regards,
Vinayak Nagarkar
HR Consultant
From India, Mumbai
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Dear Mr. Nathrao, thank you for sharing your views and suggestions on the topic. It is natural to have different perspectives because we interpret things from various angles and perspectives. In law, nothing is concrete and absolute. The contract acts restrict employees by prohibiting employment with competitors, which poses a threat to one's trade and business. (Employer-friendly) At the same time, employers are restricted under Section 27 of the Indian Contract Act, which states that every agreement restraining anyone from exercising a lawful profession, trade, or business of any kind is void to that extent. However, it allows for the incorporation of a clause for compensation towards loss and damage caused due to non-compliance. (Employee-friendly)
In most cases, some discussions become very interesting and always lead to more knowledge if there is something to learn.
Some information is exceptionally given below for enhancement of information:
Restraint after Employment:
The succeeding paragraphs discuss the contemporary and moot issue of the enforceability of negative covenants beyond the period of employment. In 1966, the Gujarat High Court attempted to consolidate the fundamental principles relating to the negative stipulation in a contract of service during and after the service period. It tried to balance the antithetical interests of the employer and employee. The Court stated that it must be seen whether the enforcement of the negative stipulation is "reasonably necessary for the protection of the legitimate interests of the employer. If it is not going to benefit the employer in any legitimate manner, the Court would not injunct the employee from exercising his skill, training, and knowledge merely because the employee has agreed to it."
Further, in the Pepsi Food Limited case, the Court held that a negative covenant clause in the employment agreement restraining the employees from engaging in employment for a period of 12 months after leaving the employment was void as being opposed to public policy, and the action for temporary injunction was denied. It is important to note here that the Court expressly stated that what is prohibited by law cannot be permitted by the Court.
In a recent case, the Bombay High Court held that considering that an employer has the right to terminate the contract of employment on the ground of misconduct, it would be unfair to the employee if he had absolutely no right to resign from the employment on account of better prospects or other personal reasons.
Further, in the Jet Airways case, the defendant was employed by the plaintiff aircraft company as a pilot. The plaintiff had organized necessary training for the defendant and other pilots. In consideration, the defendant agreed and undertook that during a period of seven years from the date of completion of training in India and abroad and on resuming actual services with the plaintiff as first officer, he would not accept employment, similar in nature, either full-time or part-time with any other employer. The defendant resigned from the services, for which the plaintiff invoked the negative covenant clause along with other stipulated remedies under the agreement. In this case, the Bombay High Court held that the plaintiffs can be suitably compensated by an award of damages in the event the suit is finally decreed against the defendants and in favor of the plaintiffs. Further, the Court pointed out that the plaintiffs have failed to show prima facie any legal or equitable right for the grant of injunction against the defendant.
In the above cases, the Courts appear to rely heavily on the employees' contention that it would be unfair and unreasonable to enforce such restraints after their period of employment as they have a right to explore new business opportunities, which goes to their fundamental right to earn a livelihood. This argument can be given credence as long as the termination of employment is done in good faith by the employee and there is no intention by the employee to disseminate, misuse, or disclose confidential information, trade secrets, and intellectual property of the employer.
An argument can be made about accepting the all-encompassing statement of the Court in the Pepsi Food Limited case, where the Court held that what the law prohibits, the Court cannot permit. The pivot of this opinion would be the letter of the law rather than the spirit of the law. Therefore, although Section 27 of the Indian Contract Act is an absolute prohibition on restraint of trade (subject to the one exception), it is important to note that this was a provision enacted in the 1900s. The vagary of modern transactions was far from the law's contemplation at that time, and the Indian Contract Act in its wisdom attempted to address the existing nature of transactions at that time.
Also, if one were to strictly go by Section 27 and the statement of the Court in Pepsi Food Limited, the judiciary may have erred in passing the type of decisions it did in the Niranjan Golikari case.
Finally, more important than anything, if the Courts start adopting such a myopic view of law, the beautiful surge of judicial activism would be reduced to a mere ripple. The role of the judiciary is germane to any developing society. The law may be enacted at a time when certain instances or circumstances would not be within the contemplation of either the legislature or society itself (who indeed could have imagined that signatures could be affixed to documents digitally). Therefore, it is left up to the judiciary to provide a cogent and pragmatic interpretation of the law within the dynamics of a changing world. If the judiciary were to apply only a strict interpretation of the laws, it would curb development and render the judiciary a mere observer rather than a custodian of the legal system itself.
The above decisions of the Court making any restriction after the term of employment void got a reprieve in the case of Lloyd Electric Engg. In this case, the High Court considered the applicability of a negative covenant imposed by the company on the employee wherein the employee was required not to compete with the company for three years from the date of termination of employment, directly or indirectly. It was held that the negative covenant was not harsh or opposed to public policy so as to make it void.
In another case in point, the plaintiff obtained an ex parte injunction against an ex-employee of the plaintiff from working with the sub-contractor of the plaintiff. The 1st defendant, who was an employee of the plaintiff, left the service of the plaintiff and joined the service of the 2nd defendant. The plaintiff and the 2nd defendant had been discussing the possibility of teaming and working together to undertake a joint initiative and bid for one particular customer. The plaintiff had some skill sets, and the 2nd defendant had some other skill sets, which together would have become a successful venture. The 1st defendant was the key link between the plaintiff company and the 2nd defendant, and it was established that the sole reason for the 1st defendant joining the employment of the 2nd defendant was to utilize the confidential information and trade secrets of the plaintiff. This would benefit the 2nd defendant and render the involvement of the plaintiff in the proposed venture redundant. In an action for permanent injunction, the Trial Court granted a temporary injunction in favor of the plaintiff, restraining the 1st defendant from joining the 2nd defendant and disclosing vital, confidential, and proprietary information of the plaintiff to the 2nd defendant or anybody till the disposal of the suit. Although, on appeal, the High Court set aside the order of injunction issued by the Trial Court granted in favor of the plaintiff restraining the 1st defendant/appellant from working with the 2nd defendant was set aside (since there had also been a considerable lapse of time from the decision of the Trial Court till when the case was heard and decided by the High Court), the remaining part of the order restraining the 1st defendant from revealing or disclosing vital, confidential, and proprietary information of the plaintiff to the 2nd defendant was upheld.
This was at that time thought to be a radical judgment of the Trial Court as the 2nd defendant was not even a competitor of the plaintiff. However, the Trial Court recognized the circumstances of termination of employment by the employee and accordingly determined that it was reasonable to restrain the employee from working with the 2nd defendant for some time.
In another recent case, the plaintiffs were running a law firm where the defendants were working. It was alleged that one of the defendants came to the office of the plaintiffs after a dispute arose between the parties after office hours and downloaded 7.2 GB of the plaintiff's crucial data. The plaintiffs also claimed that the defendants stole even the hard copies comprising over 10 proprietary drafts of the plaintiffs. The plaintiffs prayed for protection of their exclusive data under the Indian Copyright Act, 1957. However, the defendants claimed ownership of the copyright in the work done by them while they were in the organization of the plaintiff. This was refuted by the plaintiffs, who contended that they had spent a substantial amount of money in training skills, computer network, specialized and customized software, law library, office infrastructure, etc., and the work of the defendants in fact belonged to the plaintiffs. The Delhi High Court, after considering rival arguments, concluded that the plaintiffs had a prima facie case in respect of the data taken by the defendants and restrained the defendants from using such data. Therefore, although the Court did not restrain the defendants from carrying on a similar service per se, it definitely recognized the protection that needed to be afforded to the plaintiffs under law, and to that extent, there was a restraint on the use of information by the defendants after the term of their employment.
In yet another case in 2006, the central issue in the appeal was whether the right of first refusal under clause 31(b) of the permission agreement entered into between the appellant employer and the respondent employee is void under Section 27 of the Indian Contract Act and, therefore, in restraint of trade. Clause 31(b) of the agreement merely provided that the employee had an obligation to provide an opportunity to the employer to match an offer of employment from a third party (prospective employer) after the original term of the agreement, before the employee could accept the third party offer of employment. Here, the Supreme Court left all the issues open on the basis that considerable time had elapsed. Therefore, the Court refrained from opining in specific terms on this case as no interim relief had been granted in favor of the appellant during the past two years during which the contract between respondent Nos. 1 and 2 has been in operation, and since the contract was soon to be completed, "there is no cause for interference at this late stage by this (Supreme) Court." However, it is interesting to note that the Supreme Court stated that the appellant is not barred from filing a suit for breach of contract against the respondent. This implied that the Court had not deemed the contract or the condition under it relating to the first right of refusal void and recognized that there may be a sustainable claim for breach of contract by the appellant.
Therefore, sometimes restraints, whether general or partial, may be required and considered reasonable if they protect the bona fide interests of the employer without causing undue detriment or hardship to the employee. Therefore, a strong argument can be made that a restraint reasonably necessary for the protection of a covenant must prevail unless some specific ground of public policy can be clearly established against it.
From India, Mumbai
Acknowledge(0)Amend(0)
In most cases, some discussions become very interesting and always lead to more knowledge if there is something to learn.
Some information is exceptionally given below for enhancement of information:
Restraint after Employment:
The succeeding paragraphs discuss the contemporary and moot issue of the enforceability of negative covenants beyond the period of employment. In 1966, the Gujarat High Court attempted to consolidate the fundamental principles relating to the negative stipulation in a contract of service during and after the service period. It tried to balance the antithetical interests of the employer and employee. The Court stated that it must be seen whether the enforcement of the negative stipulation is "reasonably necessary for the protection of the legitimate interests of the employer. If it is not going to benefit the employer in any legitimate manner, the Court would not injunct the employee from exercising his skill, training, and knowledge merely because the employee has agreed to it."
Further, in the Pepsi Food Limited case, the Court held that a negative covenant clause in the employment agreement restraining the employees from engaging in employment for a period of 12 months after leaving the employment was void as being opposed to public policy, and the action for temporary injunction was denied. It is important to note here that the Court expressly stated that what is prohibited by law cannot be permitted by the Court.
In a recent case, the Bombay High Court held that considering that an employer has the right to terminate the contract of employment on the ground of misconduct, it would be unfair to the employee if he had absolutely no right to resign from the employment on account of better prospects or other personal reasons.
Further, in the Jet Airways case, the defendant was employed by the plaintiff aircraft company as a pilot. The plaintiff had organized necessary training for the defendant and other pilots. In consideration, the defendant agreed and undertook that during a period of seven years from the date of completion of training in India and abroad and on resuming actual services with the plaintiff as first officer, he would not accept employment, similar in nature, either full-time or part-time with any other employer. The defendant resigned from the services, for which the plaintiff invoked the negative covenant clause along with other stipulated remedies under the agreement. In this case, the Bombay High Court held that the plaintiffs can be suitably compensated by an award of damages in the event the suit is finally decreed against the defendants and in favor of the plaintiffs. Further, the Court pointed out that the plaintiffs have failed to show prima facie any legal or equitable right for the grant of injunction against the defendant.
In the above cases, the Courts appear to rely heavily on the employees' contention that it would be unfair and unreasonable to enforce such restraints after their period of employment as they have a right to explore new business opportunities, which goes to their fundamental right to earn a livelihood. This argument can be given credence as long as the termination of employment is done in good faith by the employee and there is no intention by the employee to disseminate, misuse, or disclose confidential information, trade secrets, and intellectual property of the employer.
An argument can be made about accepting the all-encompassing statement of the Court in the Pepsi Food Limited case, where the Court held that what the law prohibits, the Court cannot permit. The pivot of this opinion would be the letter of the law rather than the spirit of the law. Therefore, although Section 27 of the Indian Contract Act is an absolute prohibition on restraint of trade (subject to the one exception), it is important to note that this was a provision enacted in the 1900s. The vagary of modern transactions was far from the law's contemplation at that time, and the Indian Contract Act in its wisdom attempted to address the existing nature of transactions at that time.
Also, if one were to strictly go by Section 27 and the statement of the Court in Pepsi Food Limited, the judiciary may have erred in passing the type of decisions it did in the Niranjan Golikari case.
Finally, more important than anything, if the Courts start adopting such a myopic view of law, the beautiful surge of judicial activism would be reduced to a mere ripple. The role of the judiciary is germane to any developing society. The law may be enacted at a time when certain instances or circumstances would not be within the contemplation of either the legislature or society itself (who indeed could have imagined that signatures could be affixed to documents digitally). Therefore, it is left up to the judiciary to provide a cogent and pragmatic interpretation of the law within the dynamics of a changing world. If the judiciary were to apply only a strict interpretation of the laws, it would curb development and render the judiciary a mere observer rather than a custodian of the legal system itself.
The above decisions of the Court making any restriction after the term of employment void got a reprieve in the case of Lloyd Electric Engg. In this case, the High Court considered the applicability of a negative covenant imposed by the company on the employee wherein the employee was required not to compete with the company for three years from the date of termination of employment, directly or indirectly. It was held that the negative covenant was not harsh or opposed to public policy so as to make it void.
In another case in point, the plaintiff obtained an ex parte injunction against an ex-employee of the plaintiff from working with the sub-contractor of the plaintiff. The 1st defendant, who was an employee of the plaintiff, left the service of the plaintiff and joined the service of the 2nd defendant. The plaintiff and the 2nd defendant had been discussing the possibility of teaming and working together to undertake a joint initiative and bid for one particular customer. The plaintiff had some skill sets, and the 2nd defendant had some other skill sets, which together would have become a successful venture. The 1st defendant was the key link between the plaintiff company and the 2nd defendant, and it was established that the sole reason for the 1st defendant joining the employment of the 2nd defendant was to utilize the confidential information and trade secrets of the plaintiff. This would benefit the 2nd defendant and render the involvement of the plaintiff in the proposed venture redundant. In an action for permanent injunction, the Trial Court granted a temporary injunction in favor of the plaintiff, restraining the 1st defendant from joining the 2nd defendant and disclosing vital, confidential, and proprietary information of the plaintiff to the 2nd defendant or anybody till the disposal of the suit. Although, on appeal, the High Court set aside the order of injunction issued by the Trial Court granted in favor of the plaintiff restraining the 1st defendant/appellant from working with the 2nd defendant was set aside (since there had also been a considerable lapse of time from the decision of the Trial Court till when the case was heard and decided by the High Court), the remaining part of the order restraining the 1st defendant from revealing or disclosing vital, confidential, and proprietary information of the plaintiff to the 2nd defendant was upheld.
This was at that time thought to be a radical judgment of the Trial Court as the 2nd defendant was not even a competitor of the plaintiff. However, the Trial Court recognized the circumstances of termination of employment by the employee and accordingly determined that it was reasonable to restrain the employee from working with the 2nd defendant for some time.
In another recent case, the plaintiffs were running a law firm where the defendants were working. It was alleged that one of the defendants came to the office of the plaintiffs after a dispute arose between the parties after office hours and downloaded 7.2 GB of the plaintiff's crucial data. The plaintiffs also claimed that the defendants stole even the hard copies comprising over 10 proprietary drafts of the plaintiffs. The plaintiffs prayed for protection of their exclusive data under the Indian Copyright Act, 1957. However, the defendants claimed ownership of the copyright in the work done by them while they were in the organization of the plaintiff. This was refuted by the plaintiffs, who contended that they had spent a substantial amount of money in training skills, computer network, specialized and customized software, law library, office infrastructure, etc., and the work of the defendants in fact belonged to the plaintiffs. The Delhi High Court, after considering rival arguments, concluded that the plaintiffs had a prima facie case in respect of the data taken by the defendants and restrained the defendants from using such data. Therefore, although the Court did not restrain the defendants from carrying on a similar service per se, it definitely recognized the protection that needed to be afforded to the plaintiffs under law, and to that extent, there was a restraint on the use of information by the defendants after the term of their employment.
In yet another case in 2006, the central issue in the appeal was whether the right of first refusal under clause 31(b) of the permission agreement entered into between the appellant employer and the respondent employee is void under Section 27 of the Indian Contract Act and, therefore, in restraint of trade. Clause 31(b) of the agreement merely provided that the employee had an obligation to provide an opportunity to the employer to match an offer of employment from a third party (prospective employer) after the original term of the agreement, before the employee could accept the third party offer of employment. Here, the Supreme Court left all the issues open on the basis that considerable time had elapsed. Therefore, the Court refrained from opining in specific terms on this case as no interim relief had been granted in favor of the appellant during the past two years during which the contract between respondent Nos. 1 and 2 has been in operation, and since the contract was soon to be completed, "there is no cause for interference at this late stage by this (Supreme) Court." However, it is interesting to note that the Supreme Court stated that the appellant is not barred from filing a suit for breach of contract against the respondent. This implied that the Court had not deemed the contract or the condition under it relating to the first right of refusal void and recognized that there may be a sustainable claim for breach of contract by the appellant.
Therefore, sometimes restraints, whether general or partial, may be required and considered reasonable if they protect the bona fide interests of the employer without causing undue detriment or hardship to the employee. Therefore, a strong argument can be made that a restraint reasonably necessary for the protection of a covenant must prevail unless some specific ground of public policy can be clearly established against it.
From India, Mumbai
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Dear Prabhat, nice of you to come up with a detailed answer. The Indian Contract Act is of 1872 vintage but has stood the test of time. However, changing times and circumstances necessitate amendments to the law.
Post-termination non-compete clauses
Post-termination of a contract, any non-compete clause in the contract is void as they are treated as "restraint of trade" under Section 27 of the Indian Contract Act, 1872. Legal experts note that provisions like non-compete are ubiquitous in modern international contracts, especially if parties have similar bargaining powers. In the case of 'Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.', the Hon'ble Supreme Court observed that "restraints or negative covenants in the appointment or contracts may be valid if they are reasonable."
Enforceability of non-compete agreements
Foreign judiciary, subject to certain limitations and reasonable boundaries, declares non-compete agreements to be enforceable to a reasonable extent. For example, in 'HRX Holdings Pty Ltd Vs Pearson (2012) FCA 161', the Federal Court of Australia upheld a post-employment restraint preventing a senior employee from competing with his former employer for two years. The court upheld the two-year non-compete clause with consideration.
Impact of contract termination
How a contract is terminated makes a difference. A pilot receiving training for an aircraft and Jet/Indigo, etc., spending crores on training only to lose him to another airline is not in order. Courts decide on matters arising in such cases on a case-by-case basis.
Additionally, I may add that the Contract Act has stood the test of time, though it is over a hundred years old. However, the time to recognize that contracts are changing due to privatization, industrialization, urbanization, and globalization has come. Many new terms have emerged in contracts, for example, e-contracts, escrow agreements, joint venture agreements, contract farming, outsourcing contracts, etc.
Anyway, I learned from your views. Thanks for an informative discussion.
From India, Pune
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Post-termination non-compete clauses
Post-termination of a contract, any non-compete clause in the contract is void as they are treated as "restraint of trade" under Section 27 of the Indian Contract Act, 1872. Legal experts note that provisions like non-compete are ubiquitous in modern international contracts, especially if parties have similar bargaining powers. In the case of 'Niranjan Shankar Golikari Vs the Century Spinning and Manufacturing Company Ltd.', the Hon'ble Supreme Court observed that "restraints or negative covenants in the appointment or contracts may be valid if they are reasonable."
Enforceability of non-compete agreements
Foreign judiciary, subject to certain limitations and reasonable boundaries, declares non-compete agreements to be enforceable to a reasonable extent. For example, in 'HRX Holdings Pty Ltd Vs Pearson (2012) FCA 161', the Federal Court of Australia upheld a post-employment restraint preventing a senior employee from competing with his former employer for two years. The court upheld the two-year non-compete clause with consideration.
Impact of contract termination
How a contract is terminated makes a difference. A pilot receiving training for an aircraft and Jet/Indigo, etc., spending crores on training only to lose him to another airline is not in order. Courts decide on matters arising in such cases on a case-by-case basis.
Additionally, I may add that the Contract Act has stood the test of time, though it is over a hundred years old. However, the time to recognize that contracts are changing due to privatization, industrialization, urbanization, and globalization has come. Many new terms have emerged in contracts, for example, e-contracts, escrow agreements, joint venture agreements, contract farming, outsourcing contracts, etc.
Anyway, I learned from your views. Thanks for an informative discussion.
From India, Pune
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Hi All, after working for 13 years in a company and recently joining another company, my ex-company sent me a legal notice stating that I can't join any competitor company. I recall that during my tenure, I never encountered the term "competitor." However, I have learned that my ex-company made some policy changes after my departure. Consequently, my gratuity for 13 years is also on hold.
Understanding Legal Clauses
I seek your assistance in comprehending clauses 378, 420, 405, 406, and 407 of the IPC, which were included in the legal notice sent to me. Furthermore, it specifies that I am prohibited from joining any client or vendor for 24 months, and I am required to compensate the ex-company for their losses as per the aforementioned clauses.
Regards, Sujit Singh
From India, Bengaluru
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Understanding Legal Clauses
I seek your assistance in comprehending clauses 378, 420, 405, 406, and 407 of the IPC, which were included in the legal notice sent to me. Furthermore, it specifies that I am prohibited from joining any client or vendor for 24 months, and I am required to compensate the ex-company for their losses as per the aforementioned clauses.
Regards, Sujit Singh
From India, Bengaluru
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Hello Prabhat Sir, I am facing some challenges with my existing employer. May I request your suggestion, please.
After working 13 years in a company and recently joining another company, my ex-company sent me a legal notice that I can't join any competitor company. I remember that during my service, I never heard any mention of a competitor. However, I got to know that my ex-company had made some changes to their policy after my relieving. Due to all these, my gratuity of 13 years is also stuck.
I need your support to understand clause 378, 420, 405, 406, and 407 IPC which they added in the legal notice to me.
Also, it has been mentioned that I can't join any client or vendor for 24 months, and due to all the above clauses, I have to pay the ex-company for their loss.
Regards,
Sujit Singh
From India, Bengaluru
Acknowledge(0)Amend(0)
After working 13 years in a company and recently joining another company, my ex-company sent me a legal notice that I can't join any competitor company. I remember that during my service, I never heard any mention of a competitor. However, I got to know that my ex-company had made some changes to their policy after my relieving. Due to all these, my gratuity of 13 years is also stuck.
I need your support to understand clause 378, 420, 405, 406, and 407 IPC which they added in the legal notice to me.
Also, it has been mentioned that I can't join any client or vendor for 24 months, and due to all the above clauses, I have to pay the ex-company for their loss.
Regards,
Sujit Singh
From India, Bengaluru
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