Need your valuable inputs on this....

Just to ask the forum a question on the legality of non-competing clause. In some employment letters, the company has a clause that prevents an employee from joining competition for a period of one year from separation from the company. Is this legally tenable & enforceable ...and how can the company ensure such things do not happen.

What action can be taken if such a situation arises wherein a valuable resource joins the competition...

Bill..

I have heard of NO POACHING agreement between two competitor  companies....but have not seen any non-competing clause in any  employment contract. Further, there is no legal binding that stops  one person from joining competitor/rival (Please correct me, if I  am wrong). Usually, the employees go the the industry of similar  domain. E.g. An HR Consultant of Deloitte can join HR Consultancy  in E Y. An employee of P G may join HLL. So, this is something  that can't be avoided. Usuallly, this matters much when, the  employee is of top management and knows the trade secrets of the  organization.

Further, when the training expenditure (especially  IT sector, Consulting sector) of functional skills are important,  this is of great significance.  But to answer your query, atlest, I haven't seen any non-competing clause. In stead of trying to stop employee form  joining the competition, one can think of retaining him by creating the company a better workplace than the competitor.

Regards,

Prof Tandon

Dear Professionals,

Actually, this is a real case-study... let me put it forward without taking names...for the benefit of understanding.

My friend is having such a sticky situation.

He joined an  IT company wherein the employment letter has a non-compete clause for a restricted period of 1 year from the date of separation from the company. Now he has got a offer (more than twice the compensation) and more importantly, from a prestigious company based in **** (and in the same domain/activity) and he is in a dilemma. He is currently handling a region and the future assignment is handling th entire country. He does not see a future for himself in the present company and therfore was on lookout. In a way, the present company is modelling its business on the lines of the **** based company so it can be termed as competittion.

He wants to know the repurcussions if he joins and the extent of approach the current company can take. The company has the wherewithal and the legal dept to take up the case though there has been no precedence or such legal route earlier.

He is of the opinion that such clauses cannot be held tenable but i argued that he can be pulled up or forced to comply thru legal measures, just playing the devil's advocate.

HR folks...your thoughts based on experience and knowledge...

Regards,

David

I would say your friend is in a real binder. However, the legal aspects can be better guaged by what the non-competing clause specifically states in his employment letter. As you rightly pointed out, there are no legal precedents set for such cases, however, I would say that your friend might be on firm ground if he has a chat with his HR people and know how they would be reacting to such things if he joins the other company. Knowing from the people who might proceed against him would make him better prepared for any eventuality and also get to know the stand of the company in this case.

Regards,

Hrushikesh

Here are some of my views. I do not know what you mean by "same domain activity". I assume that you do not mean same activity.

My views are as follows:

Employment contract are differenct from commercial contract. In commercial contract there is "specific performance" and agrieved party can compel other party to do his part of contract.

However, arena of Employment contract fall in different category. Here one can question compelling clauses of the contract on the grounds of "restriction on freedom" which is a fundamental right. The clause, therefore, becomes voidable at the instance of employee.

The clause amounts to "bonded labour" principles which are not valid in our country.

Parties to the contract here are never on same footing. Employer is always at advantage vis-a-vis other party to contract employee. The balance of equity or fairness always tilts towards employee.

These clauses could be valid only to "R & D employees" where trade secrets can be a defence for objecting employer.

However, to prove this one has to prove that the employee had access to most secret papers exclusively. Exclusivity is most important here. If a group of employees were working on the project and each member of the project had free access to the information then it is difficult to prove exclusivity. Moreover, it is also necessary that the work at current company and future company are one and the same - not the same business. One more point would be

With these issues following questions emerge:

1. Will current employer give guarantee of job and retention?
2. Is he ready to pay him what he has got as an offer?
3. How he will compensate for lost opportunity??

As an abundant precaution your friend should discuss this point with new employer, take some kind of guarantee and understanding that they will stand by in case of legal action and should take a calculated risk. (In clauses of "three months notice or salary in lieu" - new employer pays to the old employer the cost of "salary in lieu" on behalf of the candidate. You may ask why notices are valid. Because clause always ends with "on either side" thus both parties are kept on par for the provision of the clause. In my opinion there is safe scope for calculated risk. He can also file a "cavet in a Chennai court as well as Delhi court" as an abuundant caution, if he so wishes, if at all he receives a notice from the current employer.

Whole logic here is with "hire and fire" being used by IT employers without any inhibition why not an employee also show same attitude towards employer?

I hope this helps.

With regards,
John