About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


12 Int'l. In-House Counsel J. 1 (2019)

handle is hein.journals/iihcj12 and id is 1 raw text is: International In-house Counsel Journal Vol.12, No. 46, Winter 2019, 1 Cutting the Gordian Knot - Restrictive Covenants in Employment Contracts DIVYA KUMAT Executive Vice President, Chief Legal Officer & Company Secretary, Datamatics Global Services Limited, India In India, in order to protect trade secrets, confidential information and human resources, it is common for companies and organizations to include 'restrictive covenants' in employment contracts. As a general counsel, I always kept a keen eye on these restrictive covenants, their applicability and how it impacts the employer-employee relationship in various geographies specially in India, the United Kingdom and the United States. While on one hand, it is wise to say that any such restraint on the freedom of an individual is against public policy and constitutional rights, on the other hand it is equally unreasonable for employers to suffer the misuse of these liberties by the employees. The departing employees often take the help of advance technology tools, delete the vital information from the machines after copying them and then blatantly misuse the copied information which may be in the form of trade secrets, list of customers, pricing and similar such information. These ex-employees then approach the same customer, give them much discounted price and thus play an important role in taking away the customers of the former employer. They also persuade directly or indirectly, other team members to join the competitor company. Hence, it is common for the employers to essentially place restrictions and limitations on an employee to deal, solicit or engage with employees and customers as well as on the usage of information that they become privy to during the course of their employment. These are primarily to protect the interest of the employer from competition. In this attempt by the employers to protect themselves from competition, there is a clash with the right of the employees to freely seek employment wherever they choose. The courts have traditionally been hostile to restrictive covenants because they regard them as (i) deprivations of employees' ability to earn a living, (ii) anti-competitive, (iii) the result of unequal bargaining power between employers and employees, and (iv) contrary to general principle of promoting free labor. Let us first understand in brief the legal position in India. The Indian Contract Act, 1872 (Contract Act), which provides framework of rules and regulations, governing the formation and performance of a contract and deals with the legality of such restrictive covenants. It stipulates that an agreement, which restrains anyone from carrying on a lawful profession, trade or business, is void to that extent. Under section 27 of the Contract Act, agreements in restraint of trade are void. Further, Article 19(1) (g) of the constitution of India, grants every citizen the right to practice any profession, carry on any trade, occupation or business. However, the right to carry on a profession, trade or business is not unrestricted and it can be restricted and regulated by the authority of law and such restrictions have to be reasonable and in public interest. The restrictive covenants in the employment agreements primarily include non-compete, non-solicitation, confidentiality of information and trade secrets. Till now, the conservative view of Indian courts of holding these restrictive covenants as void, has ISSN 1754-0607 print/ISSN 1754-0607 online International In-house Counsel Journal