Non-Compete Clauses in Indian Employment Contracts: Enforceability After Termination Under the Contract Act, 1872.
This article is written by Sarthak Bajaj, pursuing BBA.LL.B. (Hons.) from National University of Study and Research in Law (NUSRL), Ranchi.
One of the most debated areas of the Indian law of contracts is the use of non-compete provisions in employment contracts (i.e., preventing employees from joining competitors and/or starting competing businesses after they leave the employment) Non-compete covenants are viewed as void under the Indian Contract Act 1872 (section 27) except to a great degree for certain exceptions found in the same provision as the fee paid or right to buy, and also under the Indian Partnership Act of 1932 (section 26).
The Indian judiciary has rejected almost every instance where a post-employment non-compete agreement ended up in court; nevertheless, employers continue to draft them, employees continue to sign them, and an ever-increasing number of business transactions – especially in the technology area and start-up companies – are being executed on the premise that post-employment non-competes will act as a deterrent to former employees starting or joining competing businesses.
This article will provide a detailed legal analysis of the basis for nonenforceability of post-employment non-compete provisions, note the inconsistencies displayed by the judiciary at the high courts, provide examples of the business distortions that occur as a result of case law interpretations, compare the current legal framework to that of other countries (i.e., England, the United States and Singapore) and position the current law as not reflective of the modern-day marketplace and as such recommend legislative reform to clearly delineate the rights of employees to move freely within the marketplace and protect legitimate business interests of their former (now ex) employers.
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