Non-Compete Clause/Agreement

Introduction:

Normally, a non-compete agreement or clause is a contract entered into by two parties (usually an employer and an employee contract) that restricts one party from working for the competition. Non-compete clause/agreement forms a crucial part the employment these days. With the rising job market, each company wants to retain its employees through various approaches and preserve the IP of various business-related aspects including client details, process methodologies, and costing-related aspects. Hence, companies/businesses use these non-compete clauses/agreements to eliminate ordinary competition, restrict employee mobility.

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A Non-compete also prevents the former employers from soliciting, poaching, or stealing the existing clients. Though the employment contracts are bound by all the requirements of a contract under the Indian Contract Act, 1872, the Act does not clearly define the non-compete clause but is considered to be a restraining clause and hence is considered invalid most of the time.

Whatsoever, the final decision will be based on the misuse of employment, abuse of position to poach clients, divulging of any other information related to intellectual property. Hence, this clause is considered important in employment contracts even though there is widespread criticism of this specific clause.

Benefits of the Non-Compete Clause/Agreement:

Non-Compete Clause/Agreement will reap lots of benefits that will ensure the smooth and effective operation of the businesses.

In terms of the employers:

1. 1. The intellectual property of the companies/businesses (e.g. client details, cost-details, processes, programs, devices, methodologies, techniques, etc.) will be protected for a specific period of time or restricted to a particular geography.
   2. Long-term association of the employees with the employers, which might also lead to higher retention rate, reduction in training and development costs, etc.

1. Prevent the conversion of ex-employees as the new-found competitors.
2. Legally binding on a case-to-case basis.

In terms of the employees:

1. Non-enforceable in most the cases
2. No option for blanket enforcement, because this is considered a violation of the basic rights of a human being.
3. Possibilities of asking for more monetary benefits and employment perks like insurance, accommodation, bonus, leaves, promotions, skill developments, and the like.
4. Job security

Disadvantages of the Non-Compete Clause/Agreement:

1. Limited to a time period or restricted to geography, which should be reasonable. While this should not hinder the employment of the employee for a longer time period, which is a violation of fundamental rights recognized under the constitution of India.
2. Finding employees that accede to sign the non-compete clause/agreement is a daunting task.
3. Most of the time, the potential employees are bound to turn-down the offer.
4. Even though we have the signed agreement, the costs associated with enforcing the clause are huge, which at times are higher than the costs associated with the loss incurred due to competition.

IPLF and Contracts:

Most importantly, the employment contracts with non-compete clauses or non-compete agreements resolve to avoid the confusion and misunderstandings related to the employment and clearly states the non-compete expectations required out of an employee, which is accorded in a written document. Further, well-drafted contracts protect the interests and rights of both parties. Hence, it is highly recommended that perfectly crafted employment contracts with non-compete clauses or non-compete agreements are preferred before hiring any person as an employee.

Further, there are various clauses to be included in these employment contracts based on business obligations, which also require legal prowess to draft a comprehensive agreement. A highly competent, experienced, and a knowledgeable attorney might help in drafting an agreement that benefits your unique business, playing to its particular strengths and helping to overcome its unique challenges.

Our team comprises highly skilled and trained legal professionals to assist in the negotiation and drafting of various types of contracts including employment contracts and non-compete agreements, which are not only mutually beneficial to all the parties involved but also protect your business interests.

Author: Govindhaswamy Srinivasan, a Principal Associate – Patents at IP And Legal Filings. In case of any queries please contact/write back to us at support@ipandlegalfilings.com