Dear All, This is regarding one of my close friend, he worked with a multinational company for 8 years and got 3 promotions. He left the company on July 31st, 2024, and joined a startup in the same segment. Now his ex-company has added a non-compete clause of 5 lacs in his FNF. He should be getting 2.1 lacs after all adjustments but after the 5 lacs clause they are demanding 3 lacs. So, we will need your advice, and if we go through a legal case, it will take longer.
Please note: While others, Juniors and Seniors who left and joined my friend, got FNF and the relieving letter, and in the appointment letter, one non-compete clause was there for everyone.
Regards,
Rakhi
From India, Bhubaneswar
Please note: While others, Juniors and Seniors who left and joined my friend, got FNF and the relieving letter, and in the appointment letter, one non-compete clause was there for everyone.
Regards,
Rakhi
From India, Bhubaneswar
A non-compete agreement is a legal agreement or clause in a contract specifying that an employee must not enter into competition with an employer after the employment period is over. This is depend on agreement between Employee and Employer. If agreement period is not completed, then employer should demand the same.
From India, Mumbai
From India, Mumbai
Hi,
I would suggest your Friend to consult a Labour Advocate as the demand amount is huge and not realistic.
Legality of non-compete clause in employment contracts
According to Section 27 of the Indian Contract Act 1872, an agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to an extent, void. This means that non-compete clauses are not legally enforceable in India, as they are considered to be in restraint of trade and against Section 27 of the Indian Contract Act. However, there are some exceptions and circumstances where a non-compete clause may be valid and enforceable, such as:
During the term of employment, you may restrict the employee from engaging in any activity that is directly or indirectly in competition with the employer’s legitimate interests.
After the termination of employment, an employee may be restrained from using or disclosing any trade secrets, confidential information, or proprietary data of the employer, as long as the duration, scope, and geographical area of the restraint are reasonable and do not impose a question of livelihood on the employee.
The doctrine of “the rule of reasonableness” is applied by court to decide whether the restrictions are valid or not.
A non-compete clause may also be valid and enforceable if it is part of a sale of goodwill or a partnership agreement where the seller or the outgoing partner agrees not to carry on a similar business within a specified area and time in order to protect the buyer or the remaining partners from unfair competition.
The courts have the discretion to examine each case on its own merits and decide whether a non-compete clause is reasonable and necessary to protect the legitimate interests of the parties involved.
Source : https://blog.ipleaders.in/legality-of-non-compete-clause-in-employment-contracts/#:~:text=This%20means%20that%20non%2Dcompete,of%20 the%20Indian%20Contract%20Act.
From India, Madras
942I would suggest your Friend to consult a Labour Advocate as the demand amount is huge and not realistic.
Legality of non-compete clause in employment contracts
According to Section 27 of the Indian Contract Act 1872, an agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to an extent, void. This means that non-compete clauses are not legally enforceable in India, as they are considered to be in restraint of trade and against Section 27 of the Indian Contract Act. However, there are some exceptions and circumstances where a non-compete clause may be valid and enforceable, such as:
During the term of employment, you may restrict the employee from engaging in any activity that is directly or indirectly in competition with the employer’s legitimate interests.
After the termination of employment, an employee may be restrained from using or disclosing any trade secrets, confidential information, or proprietary data of the employer, as long as the duration, scope, and geographical area of the restraint are reasonable and do not impose a question of livelihood on the employee.
The doctrine of “the rule of reasonableness” is applied by court to decide whether the restrictions are valid or not.
A non-compete clause may also be valid and enforceable if it is part of a sale of goodwill or a partnership agreement where the seller or the outgoing partner agrees not to carry on a similar business within a specified area and time in order to protect the buyer or the remaining partners from unfair competition.
The courts have the discretion to examine each case on its own merits and decide whether a non-compete clause is reasonable and necessary to protect the legitimate interests of the parties involved.
Source : https://blog.ipleaders.in/legality-of-non-compete-clause-in-employment-contracts/#:~:text=This%20means%20that%20non%2Dcompete,of%20 the%20Indian%20Contract%20Act.
From India, Madras
Non-compete clauses are not legally enforceable in India. The Indian Contract Act states that any agreement that restricts trade beyond the term of employment is void and unenforceable.
Further, any clause or condition inserted later date are illegal. This much can be opined in absence of your appointment letter. It is better to consult a lawyer.
From India, Mumbai
Further, any clause or condition inserted later date are illegal. This much can be opined in absence of your appointment letter. It is better to consult a lawyer.
From India, Mumbai
Dear Rakhi
Your question is not clear to me.
What is this 2.1 lakhs and 5 lakhs?
Are they offering to give 3 lakhs more to him if he accepts the Non-Compete clause?
Please clarify the matter so we can understand what they are asking
From India, Mumbai
Your question is not clear to me.
What is this 2.1 lakhs and 5 lakhs?
Are they offering to give 3 lakhs more to him if he accepts the Non-Compete clause?
Please clarify the matter so we can understand what they are asking
From India, Mumbai
Mr. Laxmi Narayan
Sec 27 specifies the terms under which a non compete is allowed. It is only where there is a sale of goodwill by the person who is going to compete with the company. In all other cases, the courts are going to deny enforcement.
The exception that you have tried to explain is not a non-compete, but a protection of trade secrets, which was under a Non-Disclosure Agreement (actual or implied). Just last week, Delhi HC gave an injunction stopping a former director from approaching the customers of his previous company or poaching he employees as it would amount to misuse of trade secrets.
So the former company can ask him not to use trade secrets (mostly information about customers, etc), but again can not stop the employee from using his knowledge, even if acquired during his work in the previous company. So if he learned how to (eg. repair a certain machine) he can continue to do work on that by using his knowledge. It would not be allowed of course, to violate a patent of the previous company due to his knowledge.
From India, Mumbai
Sec 27 specifies the terms under which a non compete is allowed. It is only where there is a sale of goodwill by the person who is going to compete with the company. In all other cases, the courts are going to deny enforcement.
The exception that you have tried to explain is not a non-compete, but a protection of trade secrets, which was under a Non-Disclosure Agreement (actual or implied). Just last week, Delhi HC gave an injunction stopping a former director from approaching the customers of his previous company or poaching he employees as it would amount to misuse of trade secrets.
So the former company can ask him not to use trade secrets (mostly information about customers, etc), but again can not stop the employee from using his knowledge, even if acquired during his work in the previous company. So if he learned how to (eg. repair a certain machine) he can continue to do work on that by using his knowledge. It would not be allowed of course, to violate a patent of the previous company due to his knowledge.
From India, Mumbai
It is pitiable conditions for the members providing insights on case related issue, because the poster never described his case well or provide the lines/copy of the appointment or any agreement signed. Therefore no concrete suggestions are being offered by the elite members.
Just below case citation inserted for reference:::
Similarly, while deciding a contractual issue, the Hon’ble Supreme Court in Superintendence Company of India (P) Ltd. v. Krishan Murgai ,the bench was to considera claim for injunction post cessation of employment. The Hon’ble Apex Court while holding that a contract which has an object restraining trade is prima facie void. It was also observed that even if the restrictive covenant was to include cessation of employment at the volition of the employee, there could be no post-employment restriction under Section 27 of the Act. In the year 2006, a two Judge Bench of the Supreme Court in Percept D'Mark (India) (P) Ltd. v. Zaheer Khan &Ors refused enforcement of a post-employment restriction on the grounds of the same being barred by Section 27 of the Act.
Therefore, the judicial pronouncements lead to the conclusion that reasonable restraint depends upon various factors, and the restraint in order to prevent divulgence of trade secrets or business connections has to be reasonable in the interest of the parties to ensure adequate protection.
From India, Mumbai
Just below case citation inserted for reference:::
Similarly, while deciding a contractual issue, the Hon’ble Supreme Court in Superintendence Company of India (P) Ltd. v. Krishan Murgai ,the bench was to considera claim for injunction post cessation of employment. The Hon’ble Apex Court while holding that a contract which has an object restraining trade is prima facie void. It was also observed that even if the restrictive covenant was to include cessation of employment at the volition of the employee, there could be no post-employment restriction under Section 27 of the Act. In the year 2006, a two Judge Bench of the Supreme Court in Percept D'Mark (India) (P) Ltd. v. Zaheer Khan &Ors refused enforcement of a post-employment restriction on the grounds of the same being barred by Section 27 of the Act.
Therefore, the judicial pronouncements lead to the conclusion that reasonable restraint depends upon various factors, and the restraint in order to prevent divulgence of trade secrets or business connections has to be reasonable in the interest of the parties to ensure adequate protection.
From India, Mumbai
Prabhat-ji I think we use the forum to increase our own knowledge, and in this case, we are discussing how far can a Non-Complete Agreement go and still be valid in law. Thank you for your inputs.
From India, Mumbai
From India, Mumbai
I think he should go for negotiation with the company if the term / clause has been injected in his contract only while others already got their FNF so this is discriminatory in nature and unfair, so this is suggested to go for negotiation by highlighting these all and with this way this could be resolve without going to the court.
From India, Noida
From India, Noida
Dear All,
A small clarification to make the matter clear :-
After all adjustments my friend was to get 2.1 lacs FNF excluding gratuity. Now they have put in a competition clause of 5 lacs and after deduction of 2.1 lacs and asking for the balance 2.9 lacs for settlement. Also the company he has joined was not even in formation when he had joined 8 years back and is sought of a startup. It is some sought of vindictiveness as the company wanted to retain him and he did not stay.
"There was clause in the appointment letter and no other signed documents which says :-
Non compete clause - You shall not carry on or to be engaged or intersected in carrying on the trade or business similar to the trade or business of the company during your service with company and for a period of 2 years subsequent to the termination of the contract within India or abroad including joining of any competing organization from similar trade.
You shall be liable for any breach of the obligations arising from the aforesaid non competition clause and shall indemnify and hold harmless the company against any loss incurred by the company as a result of breach of these obligations by you."
From India, Bhubaneswar
A small clarification to make the matter clear :-
After all adjustments my friend was to get 2.1 lacs FNF excluding gratuity. Now they have put in a competition clause of 5 lacs and after deduction of 2.1 lacs and asking for the balance 2.9 lacs for settlement. Also the company he has joined was not even in formation when he had joined 8 years back and is sought of a startup. It is some sought of vindictiveness as the company wanted to retain him and he did not stay.
"There was clause in the appointment letter and no other signed documents which says :-
Non compete clause - You shall not carry on or to be engaged or intersected in carrying on the trade or business similar to the trade or business of the company during your service with company and for a period of 2 years subsequent to the termination of the contract within India or abroad including joining of any competing organization from similar trade.
You shall be liable for any breach of the obligations arising from the aforesaid non competition clause and shall indemnify and hold harmless the company against any loss incurred by the company as a result of breach of these obligations by you."
From India, Bhubaneswar
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