Employee Free to Work Elsewhere After Termination, Non-Compete Not Enforceable

In a relief to employees bound by non-compete clauses, the Delhi High Court has ruled that employment contract provisions restricting an individual’s right to seek new employment after leaving a job are void.

Citing Section 27 of the Indian Contracts Act, Justice Tajas Karia delivered the verdict on June 25.

While hearing a case involving a software developer whose former employer attempted to enforce a non-compete clause to prevent him from joining a client organization, the court observed: “An employee cannot be confronted with a situation where he has to either work for the previous employer or remain idle. In employer-employee contracts, restrictive or negative covenants are viewed strictly, as the employer holds an advantage over the employee. It is often the case that the employee must sign a standard-form contract or risk not being employed at all.”

The court added that any terms of employment that are contrary to Section 27 of the Indian Contracts Act — and impose a restriction on an employee’s right to seek employment after the termination of a contract — shall be considered void.

What is Section 27 of the Indian Contracts Act?

As per Section 27 of the Indian Contracts Act, all agreements that restrain any person from practising a lawful trade, profession, or business are void.

“Agreement in restraint of trade, void — Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void,” reads Section 27.