Non-Compete Agreement = Known its Importance and Restrictions

A lot of cases have been heard where an employee left his job and took all the important information of the office with him and after a few days Employer found out that his ex-Employee has started his own business. Going forward, employer realizes that his employee has turned his clients towards himself (Employee).
Now, you may be wondering why the employer is not taking action against his employee for act done by him? I have a counter question against your question that if you want to take action against an employee, on what basis you will take action? Do you have any strong evidence which will help to take action against the employee?
Did you have any agreement with the employee when you appoint him at your workplace? Even if you had made agreement with the employee at the time of his appointment, was there a non-competitive clause in it? Or was there any separate agreement which is called as “Non-Compete Agreement”
Let’s Understand the Non-Compete Agreement concept and why it is important as any other agreement which is required while dealing with business activities.
The Non-Complete Agreement are that agreement where the Employees are enter into a contract with an employer may agree to neither compete with the employer nor join a competitor during their term of the employment and/or a period after and also agree for will not share the secrets, Know-How and other confidential information of the organisation with the rival company during the employment or after the employment period over.
Most of the time we have seen that the employees were took a specific training in the some organisation after joining the organisation and resigned the said job before the employment period has over and join the rival organisation only for getting the higher salary. We have also seen that employee use the technics and share the confidential information of ex-organisation with the rival organisation. Therefore the Ex-Organisation may suffer huge loss in the market. Hence, to avoid the consequences in the future the employer should have to make the Non-Compete Agreement with the employee at the time of joining the organisation by the employee.
Now the question arise about is it valid in the eyes of law? Because Non-Compete Agreements are seems like it is against Public interest and it is violet the right of the person who want to start his individual business after he/she resigned the organisation or want to join rival organisation.
Yes I agree. It is violet the rights of the individual who want to start his business or want to join the rival business but at the same time we also have to consider the situation of employment, fairness to both parties and Protection of employer and right of employee.
Section 27 of the Contract Act, 1872 states 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. But further also restraint the person from doing the business only when it meet the conditions to be considered as an exceptions to the section 27 of the Indian contract Act, 1872. Courts are also taking into consideration and assess the various cases of the Non-Compete Agreement on the basis of their reasonableness, nature and relation of the parties in the organisation.
The legal position of the Non-Compete Agreement in India in accordance with the Indian Contract Act, 1872, is that the provisions of restriction imposed on employees during employment are reasonable but restriction imposed after employment period over is void. Hence, Non-Compete Agreements are always useful and in favor of the employer when the employee resigned the job before the completion of tenure of the employment. In the case of Niranjan Shankar Golikari v. The Century Spinning And Mfg. Company in the 1976, it was held by the court that non-compete clauses are not to be considered as ‘restraint of trade’ if they operate during the time period of employment. This was largely due to the apprehension of the employer of the possibility of the employee disclosing confidential information throughout the time of employment. It was held to be valid.
Points should be cover to validate the Non-Compete Agreements
The following point must be cover to validate the Non-Compete Agreement or to impose restriction on the employee:
A. Time period: Means while making the Non-Compete Agreement the employer have to specified time period. During that time period the employee cannot start the same business after his resignation from the organisation. The time period may be for the one period or which is decided between employer and employee.
B. Confidential information or secrets: the employee cannot share the confidential information or trade secrets with the rival organisation or any other person during the employment or after the employment period has over.
C. Distance: if the Employee wants to start the business after his resignation from the ex-organisation then he cannot start the business within specified territory which is decided by the employer to protect his business/ organisation.
D. Work With rival Organisation: Once the Employee give his resignation from the organisation he is free to join any other organisation but what happened if the employee join the rival organisation, there is chances of reveal the secrets of the Ex-organisation and leak confidential information of the Ex-Organisation and ex-organisation can suffer the huge lose so to prevent the same or to protect the goodwill, the employer can restrict the employee from joining of the rival organisation.
Importance of the Non-Compete Agreement
  • Protect the confidential information and secret data of the company
  • Protect the unfair competition
  • Protect the Good will of the organisation
  • Prevent from the huge lose which can suffer by the employer due to employee.
  • It can also help to retain the employee if you put the clause of employee cannot join the rival organisation. Employee may be think hat it is better not to leave the organisation.
  • Helps to take legal action against the employee if the employer has suffered any loss due to any wrong action taken by the employee.
We will always recommend to the company./organisation take a best advice and draft the Non-Compete agreement from the lawyer who are dealing with the matter of business. So in future you will not face any problems regarding the Non-compete Agreement. It is necessary to draft the Non-Compete Agreement after considering the all fact which is related to public interest, protection of right of employee and employee in the employment.