An employee quit the company after serving notice period and joined competitor’s company. However, the appointment letter had a clause that she couldn’t join competitor company for one year after quitting. The previous company is now threatening to sue her.

Response

It is now standard practice for companies to include ‘non-compete’ provisions in contracts of employment. It restricts an employee from competing with the employer or joining a competitor during the term of the employment and for a period thereafter. While restricing an employee from joining a competitor during the term of employment is a valid clause, after one has served notice period, then it is debatable.

Having such clauses applicable after a person leaves the organisation is against the Indian Contract Act, and, therefore, not enforceable. Section 27 of the said act states that any agreement that restrains anyone from ‘exercising a lawful profession, trade or business’ is void. Courts have interpreted it on the presumption that all employees are alike and will not have the ability to injure the company when furthering a lawful profession. Any restraint on the employee, reasonable or otherwise, is treated as void.

Even the constitution of India in its article 19 (1) (g) provides an individual to practice any profession, or trade of his own choice. Such negative covenant restricting the employee beyond the period of employment are considered to be unreasonable, however, there are certain exceptions to it.

It is therefore advised to hire a lawyer, and if they threaten you, you can give a strong reply mentioning the above Sections and Article and tell them firmly that you will fight with them in Court if they harass you more.

Reference: Section 27
Indian Contract Act, 1882

Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. ÑEvery agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Article 19(1)(g)
Indian Constitution

to practise any profession, or to carry on any occupation, trade or business.

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LAWAYZ-2023-693