Recently, the
What is a non-compete clause?
A non-compete provision is a contract in which an employee agrees not to compete with his or her employer in any way once the work term ends. Additionally, these agreements prevent the employee from disclosing proprietary, sensitive, or secret information to any other parties during or after employment. This also applies to agreements between independent parties involved in commercial activities, such as dealers and distributors, and similarly situated relationships.
In terms of the Indian perspective, such agreements have been deemed lawful on very narrow grounds. The Indian Contract Act, 1872 (Act) is the principal law in
Pre-Termination Non-Compete Clauses
The pre-termination non-compete provision is only effective throughout the period of the employment contract. On pre-termination violation of a non-compete agreement, the law is established: the enforceability of this condition has been affirmed in several court rulings. In the case of
Post-Termination Non-Compete Clauses
Post-termination non-compete clauses, also known as restrictive covenants, are included in contracts to prohibit employees from engaging in a similar business or profession for a specified period of time or within a specified geographic area in order to protect the employers' business following the termination of employment. Furthermore, it is evident that non-compete provisions benefit employers more and show contempt for the employee's circumstances by restricting his job options. As a result of this circumstance, the workers said that such terms violate Article 19 (1) (g) of the
However, Indian courts have clarified in several instances that negative covenants are enforceable between parties during the duration of employment but cannot be extended beyond that term. Nonetheless, the apex court observed in the case of Niranjan Shankar Golikari that the enforceability of certain post-termination non-compete clauses cannot be completely restricted; it varies by case, and if the intended benefit is not simply unilateral or the clause is not mischievously framed, they can be enforced. There seems to be no agreement among the courts about the applicability of post-termination non-compete clauses, and hence this has remained a moot issue requiring further study.
Furthermore, even the
The enforceability of a pre-termination non-compete provision is well established in Indian law. However, there is no fixed stance in the Indian legal system on post-termination non-compete clauses. After reviewing all of the judicial pronouncements on the enforceability of post-termination non-compete clauses, it can be concluded that not all negative covenants, such as trade secrets and non-disclosure of confidential agreements, result in restraint of trade because they are designed to protect the employer's interests. However, a court of law has never upheld covenants relating to unconscionable, overly severe, unjust, or one-sided work conditions since they jeopardise the employees' interests. Indian courts have never given an injunction to enjoin a violation of a negative provision in a contract for personal services when the result would be to compel the employee to fulfil the contract precisely. It will be interesting to see how the court decides to go forth with the current issue of
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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