Dear Sir, I worked as an 'Area Sales Manager'. An insignificant 'Non-Compete' clause existed in my 'Letter of Appointment'. Got an opportunity with another Co in my industry. Thus I resigned. During Exit Interview, innocently, I disclosed where I was joining. They wrote next day reminding me of that 'NC' clause saying that for 1 year I could not join any CO in competitive space. Are Non-Compete clauses valid?
- R.Lohani
Dear Lohani, Companies protect their secrets, knowledge & special processes from Competitors, using pre-dominant position to make all employees sign Appointment letters with such clauses . In India, enforceability of such restrictive contracts is limited. It is valid only during the period of employment. Extended beyond the period of employment, violates provisions of Sec 27 of the Indian Contract Act, 1872 and therby such clauses become 'Restrictive'. Indian courts view it more as a matter of Equity rather than that of a Contract. 3 conditions make a non-compete, valid : 👉Co to be a direct competitor 👉 apply only to 'Key Managers' who have secret knowledge 👉full compensation during the reasonable cooling period. Blind extension of Non Compete clauses beyond the period of employment prima facie, makes the contract Void.
Validity of service bonds are valid provided such a clause imposes partial and reasonable restraint ,prohibiting employee from performing services in the same area of business as that of employer during stipulated period of the agreement .The Supreme Court ruling in Niranjan shankar vs Century spinning mills case reinforces this view.
Good insight Adil... Please let us know your views on validity on service bonds signed by employees?