Non-compete Clauses in India

A common issue that I am usually engaged for, and see a lot of confusion amongst employees and companies, is with regard to non-compete clauses in employment contracts. Often employees are scared to sign non-competes as they feel a future move to a bigger or better employer is compromised, whereas employers want to ensure that their employees, possibly equipped with inside information of their companies, do not go and reveal or use such information to a competitor. Both parties, i.e., employees and their employers, have valid concerns. The first thing that an employee should be aware about is that in India, a non-compete clause is considered to only be valid for the period that the employee is employed with their employer. That means that while you’re employed to your employer, you will be barred from working for other companies or competitors of your employer. This is because of Section 27 of the Indian Contract Act,1872, which provides that “every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void”. Courts across the country have consistently held that enforcement of post termination non-compete clauses are restraint of trade and against the public policy of the country. Therefore, once you have resigned or left the job with an employer, the non-compete clause cannot be enforced. While this is quite an employee centric approach, it should be kept in mind that most of these judgments and rulings did not come at a time when a lot of companies are creating high value Intellectual Property Rights, especially in technology. So, there is always a possibility that for highly technical jobs, where employees are developing such Intellectual Property, court rulings may change. It is also likely that for highly important positions, such as that of a CEO, employers may pursue enforcement of non-competes due to the insider knowledge that such positions come with. Employees should also realize