Non Compete Agreement

Saptaparni Raha
Oct 2, 2022
2 min read

Written by Saptaparni Raha, Lawyer

Introduction:

A Non-Compete Agreement is an agreement that prohibits an employee from entering into any competition with an employer after the employment period is over. The employee is also prohibited from revealing proprietary information or secrets to any other parties during or after employment.

Purpose of a Non-Compete Agreement:

It prohibits the employee from engaging in any direct or indirect competition with their employers.
This agreement legally binds a former employee of any organisation from competing with an employer for some duration after the employment period is over.
Employers would not reveal any trade secrets to the employee during the employment period.
This agreement legally binds an employee prohibiting him from working with any competitor, geographical location, or market for a certain time period.
Prevents an employee from getting a job in his field after leaving the position.

Enforceability:

Indian Contract Act in its Section 27 says that any agreement restricting any individual from exercising any lawful profession, trade, or business of any kind is void.

An exception to this section explains that any seller of the goodwill of a business may agree with a buyer to refrain from carrying a similar business within specified local limits so long as the buyer or any individual deriving title to the goodwill from him carries a business, provided that such limit appears to be reasonable by the court.

Clauses of the Agreement:

The first clause of the agreement introduces the parties.
The second clause is the duration or time clause which specifies the days of the agreement for which it would be enforceable.
Non-compete clauses shall include:
- Work: It would specify works that employees are not allowed to do.
- Damages: In case the employer breaches the contract.
- Dispute resolution: Whether the dispute shall be resolved through arbitration or court.

4. Signature of both parties.

Conclusion:

The enforcement of the Non-Compete Agreement varies by jurisdiction, and the former employer may continue paying the ex-employee a base salary during the non-compete period.

References:

Adam Hayes. 2022. What is a Non-Compete Agreement. retrieved from What Is a Non-Compete Agreement? (investopedia.com)
Suchandra Mukherjee. 2021. All you need to know about the non-compete agreements. retrieved from All you need to know about non-compete agreements - iPleaders