• Non-compete clause post termination

Hello,

I work at an Indian IT company (ABC) as a software developer and have the following non-compete clause in my agreement.

......I agree that for a period of six (6) months following the termination of my
employment with ABC for any reason, I will not:

a. accept any offer of employment from any Customer, where I had worked in a professional capacity with that
Customer in the twelve (12) months immediately preceding the termination of my employment with ABC.

b. accept any offer of employment from a Named Competitor of ABC, if my employment with such Named
Competitor would involve me having to work with a Customer with whom I had worked in the twelve (12)
months immediately preceding the termination of my employment with ABC.

For the purposes of this Clause, "Named Competitor" shall mean the following entities and their wholly owned
subsidiaries:-
1. XYZ
2. XYZ
3. XYZ

Section 27 in The Indian Contract Act says that such agreements are void.
Section 27 in The Indian Contract Act, 1872
27. Agreement in restraint of trade, void.— Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind,is to that extent void. 

In view of the non-comete clause in my agreement with ABC and section 27, can you please advice on the following:
a) is the non-compete clause applicable if I work for a customer through another party which is not a named competitor
b) the legal validity of non-compete agreement in India post termination of contract

Kind Regards,
Asked 7 years ago in Labour

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5 Answers

1. Such agreements with non compete clause has been severally challenged before Supreme Court and the said Court has viewed such clause as infringement in to the right to earn hence invalid. However you can work for a customer through a third party. Even if you work directly with the specified customer, nothing will happen to you for reasons mentioned above.

2. There is no legal validity of such non competition agreement post termination of employment contract as has been explained above.

Krishna Kishore Ganguly
Advocate, Kolkata
27245 Answers
726 Consultations

5.0 on 5.0

Any agreement in restraint of trade is void

2) you are at liberty to work for competitor post termination of service

3) you can work for customer through another party if you so desire

Ajay Sethi
Advocate, Mumbai
95221 Answers
7612 Consultations

5.0 on 5.0

1. With the changing scenario of economic developments and more so in the context of globalisation of business the applicability of section 27 has seen fast changes as far its interpretation is concerned.

2. In other words the non compete clause which is nothing but agreement in restraint of trade is valid in India if the restrictions imposed hereby is reasonable and based on sound principles of law.

3. Under that scenario the limitations imposed in the present agreement is very much valid and enforceable in the eye of law.

Devajyoti Barman
Advocate, Kolkata
22921 Answers
498 Consultations

5.0 on 5.0

1. The Non Compete clause extracted by you is not in the nature of an absolute restraint on your right to seek employment and also work independently. It only limits for 6 months your right to engage professionally with a competitor of your previous employer. Hence, the clause does not fall within the mischief of section 27 of the Contract Act.

2. If you engage with a competitor who is not named in the clause it shall be perfectly legal.

Ashish Davessar
Advocate, Jaipur
30763 Answers
972 Consultations

5.0 on 5.0

In view of the non-comete clause in my agreement with ABC and section 27, can you please advice on the following:

a) is the non-compete clause applicable if I work for a customer through another party which is not a named competitor

Since you do not work directly with the named competitor, it may not attract the clause mentioned above.

b) the legal validity of non-compete agreement in India post termination of contract

The Indian courts By using the term void ab initio, for such type of agreements it has shown that it has kept such non compete clause in the agreements beyond consideration. Indian courts have also consistently refused to enforce post termination non compete clauses in employment contracts as “restraint of trade” is impermissible under section 27 of the Indian Contract Act-1872, and have held them as void and against the public policy because of their potential to deprive an individual of his or her fundamental right to earn a living.

There are several judgements of various High courts which have laid down certain tests or guidelines to check the validity and legality of imposition of restrictions on such non competing agreements.

T Kalaiselvan
Advocate, Vellore
85422 Answers
2239 Consultations

5.0 on 5.0

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