Your employee joined a competitor firm. What can you do?

Your employee X suddenly goes missing from work and despite multiple correspondences, does not respond to your Human Resource Department. A week later, you get to know that he has joined a company which is in direct competition to your line of work. Do you have any recourse?

Most certainlyyes, subject to the employment agreement entered into with the Employee.

Employment agreements fall in the domain of Contractual Law governed by the Indian Contract Act, 1872. A well-drafted Employment Agreement, amongst safeguarding other rights, shall provide for a non-compete Clause. A non-compete Clause can be defined as a clause which provides that an Employee shall not own, manage, operate, consult or be employed with a client of a company, competitors, customers or in a business which is substantially similar to, or competitive with the present business of the Company or such other business activity in which the Company may substantially engage during the term of its employment. Such a Clause is provided primarily to safeguard sensitive information since the Employee can be reasonably expected to be in possession of such confidential information. As remedial measures the Company must at the foremost, send a legal notice to the erring Employee which lays down all contractual breaches and mandates the Employee to terminate his employment with the competitor.

In the event that the Employee does not terminate his employment, you can:

• Deduct the amount owed by you to the Employee as his full and final settlement if he hasn’t served his contractually mandated notice period;
• Calculate and demand the amount of damages for the breach of the Employee’s contractual obligations which have the potential of causing future losses to the Company;
• Obtain injunctive relief against the employee and hold the Employee liable for all legal costs incurred;
• Record breach of all contractual obligations in the relieving letter issued to the Employee;

If the Employee does not pay the damages, you can approach a civil court praying for such relief.

It is pertinent to mention that Non-competeclause is a controversial subject in Indiaand its legality is incumbent on determining whether it is a post-termination non compete clause or a pre-termination non compete clause.

The law is well-settled with respect to pre-termination non compete clauses. The enforceability of such a clause which imposes a restrain during the subsistence of the employment contract has been upheld in various judicial decisions. However, post-termination non compete clauses do not enjoy such a blanket protection. Section 27 of the Contract Act states that “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void” which would prima-facie make all post-termination non compete clauses illegal. However, the Hon’ble Supreme Court of India in the case of Niranjan Shankar Golikariobserved that the enforceability of certain post-termination non-compete clauses cannot be restricted entirely and that it varies from case to caseand in certain circumstances they can be put into force. The Delhi High Court too in the case of Wipro Ltd v. Beckman International S.A. held that non-disclosure of confidential information can be protected despite the fact that the employment term has ended. This question cannot be said to have gained finality as different High Courts have expressed different views. However, if the ultimate aim is to safeguard the interests of your Company, then a Court may favorably, based on the specific facts of the case and as enunciated by the Supreme Court in Niranjan’s case, grant injunctive relief and damages.

Our firm specialises in drafting solution-centeredcontracts and agreements and providing legal advice on commercial agreements. You can get in touch with us at contactus@amcpro.in or at +91-9988888919.