Employee Non-compete Agreement

The Non-compete Agreement is a contract to limit certains freedom of the employees. This agreement provides for the acceptance by the employee of the conditions set by his employer in which he undertakes not to be a direct competitor or to work for a competitor in the form and nature of the employment he will perform during his employment contract.

Under Indian law, the contract may provide for non-solicitation of information by the employee to a competitor or on its behalf during the period of the employment contract, and even beyond in certain cases. The non-competition clause was designed to avoid this type of situation and to anticipate hiring from a competitor. However, in order to be valid, the Non-competition Agreement must comply with the conditions laid down by case law, i.e. by decisions rendered by the Indian courts.

In today’s highly competitive world, it is critical that every employer seek to take preventive or protective measures against the threat. Nevertheless, the major competitive risk usually comes from the employees.

With Themis Partner, get your non-compete agreement to secure your company’s interests. Our document includes the following clauses:

According to article 27 of the law on contracts, a non-competition clause is null and void insofar as it deprives the right to trade, business and profession. Nevertheless, case law in this area has held that a clause containing a prohibition of non-disclosure and/or non-solicitation can be retained as an exception to the above-mentioned rule of law if it remains reasonable and in accordance with the public interest.

Therefore, in order for the clause to be valid and enforceable, it is important to ensure that the restriction imposed by the employer is reasonable and not overly restrictive to employees.

For a non-competition clause to be enforceable in India, it must meet a few cumulative conditions determining its validity. The following are the points that determine the validity of a non-competition clause or agreement:

1. The non-competition clause between employees must be signed by both parties to the contract, i.e. the employee and the the employee and the employer;

2. The non-competition clause is only applicable to the extent that it protects the interests of the company;

3. The non-competition clause must neither prevent the employee from finding a new job nor excessively restrict his or her right to trade and profession;

4. The non-competition clause is limited in time. To this effect, the non-competition, non-solicitation and non-disclosure clauses may be extended beyond this period for a reasonable period of time, the nature of which differs from one case to another. In other words, the prohibition must not be excessive. In general, non-competition clauses are considered legitimate for a period of up to three years;

5. The non-competition clause is limited in space. A specific geographic area must be specified;

6. The non-competition clause must be limited to specific functions of the employee. A specific activity must be targeted, i.e. a precise sector or position.

7. A compensatory indemnity must accompany the non-competition clause, which the employer pays in return.

A non-competition clause applies from the date of signature of the contract but also at the date of the end of the contract or of the Employment Termination Letter for non-solicitation and non-disclosure clauses.

The compensatory indemnity is due as soon as the non-competition clause is applied, even in the event of dismissal for serious misconduct (Employee Warning Letter) or Resignation Letter. It must be paid only after the termination of the employment contract.

It is also important to note that this financial compensation must not be derisory, since it represents a serious and sufficient lack of financial compensation.

For the employee, failure to comply with a non-competition clause removes the right to payment of the financial compensation and his contractual liability may be engaged leading to the payment of damages. For the employer, the financial compensation is no longer due and the non-competition clause is no longer valid.