This has probably, nay, definitely been answered around here to varying extents. However, at the risk of having you repeat yourselves, can someone please help me out here?
Background - I'm into client servicing and also actively involved in client acquisition. One such client that I brought into my firm has now made an offer to have me join them. The client is based out of Hong Kong and is opening an office in India after I join. However, in their first engagement with my firm they did sign a contract that includes a non-solicitation clause. I've appended the entire statement below. Additionally, I've also included the relevant parts of my employee contract that forbid my joining a client. From the research I've done, I've come to understand that these clauses hold no grounds under section 27 of the Indian Contract Act, except in the case of goodwill, which I don't think is at stake here. Can someone shed some light on this? I don't think I have anything to lose and the client is also willing to sign a longer contract with my firm if it'll help my cause.
Here's the section clients sign:
Non-Solicitation: Each party undertakes that during the Term of this engagement and for a period of one year following its termination or expiration, it shall not, without the previous written consent of the other party, employ or engage the services of any person who was employed by/ rendering services to the other party at any time during a period of 12 months preceding the date on which the offer for employment/engaging the services is made by such party.
Here's the section employees sign:
You shall not for the period of 12 months after the termination of your employment with the Company, wherther as principal, servant, agent, consultant or otherwise, solicit the custom of or deal with the business of any person, firm or company:
- if you have, at any time during the 12 months preceding the termination date canvassed, called on, solicited business from or procured and accepted orders from such person, firm or company, and/or
- if the person, firm or company who was, at any time during the 12 months preceding the termaintion date, a Client or a Prospective Client of the Company to whom the company has made or is intending to make a formal business presentation (the terms or details of which you are aware of or concerned with) at any time during the 12 months preceding the termination date
Asked 2 years ago in Civil Law from Bengaluru, Karnataka
1. You can join the said Company now,
2. You have the constitutional right to take employment of any company you like to which can not be barred by any agreement entered in to with a third party.
Indian courts have consistently refused to enforce post-termination non-compete clauses in employment contracts, viewing them as "restraint of trade" impermissible under Section 27 of the Indian Contract Act, 1872, and as void and against public policy because of their potential to deprive an individual of his or her fundamental right to earn a livelihood.
In Percept D’Mark (India) Pvt. Ltd. v. Zaheerhan & Anr8 it was held by the Supreme Court
that “… a restrictive covenant extending beyond theterm of the contract is void and not enforceable”
1. Non-solicitation during the existence of contract is permissible, but any embargo placed on the right of the client after the completion or termination of contract, as the case may be, is unsustainable in view of section 27.
2. The courts in India do not enforce non-solicitation clauses except during the subsistence of contract.
Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
This is the provision of law and also any such contract is and against public policy because of their potential to deprive an individual of his or her fundamental right to earn a livelihood.
The provisions of section 28 is Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to the extent.
It is, therefore, important that you are aware of the effect of any post termination restrictions affecting your business. Advice should be sought either when negotiating a new contract, when you are thinking of moving on, or upon the termination of your employment.
In assessing whether a clause is enforceable, the Court will consider the following:
Is the restriction reasonably limited in time?
Is the clause reasonably limited in geography?
Does the clause go further than is necessary to protect a legitimate business interest, i.e. trade secrets, customer relationships or protecting the workforce?