One of the most crucial challenges for organisations today is employees joining competitors and soliciting other employees, clients, vendors too as well as disclosing trade secrets.
Post-employment restraint agreements are becoming popular. Such restraints are resorted to by employers for seeking injunction against and monetary claims from employees who join competitors pursuant to termination, or when the employers are distraught at seeing former employees solicit other employees, their business, contacts, or when they fear leakage of trade secrets.
Employment contracts are nowadays increasingly including the restrictive covenants such as non-compete, non-solicitation and non-disclosure. The ambit of non-disclosure now includes information written/oral, relating to the business, financial affairs, employee records, trade secrets, technology, contacts, etc.
The clauses for not joining a competitor pursuant to termination are not yet practically enforceable in India; however, compensation and damages can be claimed. Though some Supreme Court judgments have held that during the term of contract, negative covenant of not joining the competitor to an extent may be enforced. For example, if a contract expects an employee to work for a required number of years but he leaves prior to the said period, he can be stopped from joining the competitor till the end of the stipulated period. If the employee violates the clause and joins the competitor, this to an extent can be restrained by the court. The reason given by the courts is that during such period, the employee is expected to serve the employer and if not stopped, it would be against the company’s interests unless the contract is too harsh. Such an estoppel, however, would not be applicable in case the employer terminates the employee. In such a case, the parties may be entitled only to monetary benefits—commensurate with the damages caused. Furthermore, while considering an injunction or granting of monetary reliefs, courts take into account the reasonableness of the clause as well as circumstances such as position of employee, options available, extent of loss, damage etc.
A restraint on the use of trade secrets during or after the cessation of employment has also in certain circumstances been held not to tantamount to a “restraint on trade” and, therefore, enforceable under certain circumstances. While framing clauses of non-compete, non-solicitation, companies should ensure certain aspects. The clauses should have limited geographic applicability; time limit for the clause to remain operative should be reasonable. It is better to have the damages specified. Further, clauses of non-solicitation and non-disclosure should be exhaustive, specifically indicating the prohibitions, areas, records, information, etc.
Restrictive covenants imposing an unreasonable hardship on employees are generally not enforced by courts.
Employees leaving jobs without serving contract period or notice period is another challenge faced by companies today. This too under the Indian law cannot be specifically enforced, and only damages or monetary compensation can be sought. For companies facing such issues, it is advisable to serve legal notices on violating employees in certain cases to create deterrent for other employees.
Making employees bound to their employers with unreasonable clauses is certainly inappropriate. Employers, however, too need to prevent insiders from taking trade secrets, business relationships or data to competing firms when they leave. Also, with the changing nature of economy, with time being the essence of contracts and time lines becoming shorter, loss caused due to employees leaving in between projects, contracts, etc too needs to be checked. Provisions requiring employees to duly serve the reasonable notice period should be made enforceable, especially for white collar jobs. There is an urgent need to cover such grey areas, thereby giving a protective shield to businesses.
raavibirbal@gmail.com
Birbal is an advocate specialising in labour, civil,litigation and corporate laws
