A non-compete clause is a provision in an employment contract whereby the employee agrees to the fact that he would not enter into any competition with the employer during the term of his employment or even after the employment period is over. Typically, a fixed period of time is agreed upon for restrictions that extend beyond the term of employment. Non-compete clauses are common in IT Departments, Media, Financial Industry, Corporate World.
The non-compete clause in an employment contract is governed by certain provisions of the Indian Contract Act, 1872. Section 27, of the Contracts Act, makes agreements that are in restraint of trade void.
A vast number of judicial decisions have emerged on the question of enforceability of non-compete clauses. These decisions are divergent, and hence, no clear answer to the enforceability of non-competes has emerged till now. We have discussed some of these case laws below:
For fixed-term employment contracts, the restriction can be enforced under specific conditions. If an employee has resigned before the expiry of the term, then the restriction can be enforced for the rest. Non-competes may also be enforced against senior-level employees under certain conditions. If there is suspicion that a senior- level employee possesses proprietary information about the company, such an employee may be prohibited from joining a competing company by enforcing a non-compete clause.
Thus, a non-compete clause in an employment contract is not completely unenforceable and may be enforced in some circumstances. However, it should be drafted carefully and properly.
A non-compete agreement is different from a non-disclosure agreement. In a non-compete clause, an employee promises to not enter into any kind of competition with the employer after leaving the job. Whereas a non-disclosure agreement restricts an employee from revealing any confidential information of his previous employer to the current employer or anyone else in the future. While the enforceability of non-compete clauses is still not a settled issue, non-disclosure agreements may be enforced under the law.
In India, any clause which restricts an employee from practicing any professional activity through a contract or an agreement is considered void under the law. The topic of whether a non-compete clause is harsh and extreme and whether it includes consultant is a debatable topic that will continue. However, whether such a clause imposed on an employee is harsh or not depends upon the circumstances of the situation, and the final call can be taken by the courts.
A fixed-term employment contract is a contract wherein a company or an organization hires a person for a specific period on a contractual basis. Generally, such a contract is of one year; however, it depends on the need and discretion of the company or organization. Under this contract, the payment is fixed prior and cannot be changed or altered before the expiry of the term.
Fixed-term employees have a right to the same amount of wages and working conditions as permanent employees. At the expiry of the fixed-term employment contract, the employer needs not provide any notice. However, if the employee continues to work even after the expiry of the fixed-term employment contract, then there is an implied agreement between the employer and the employee.
The only difference between a fixed-term contract and a permanent contract is the period of time. An employee hired on a fixed-term employment contract is hired for a fixed period of time and cannot be removed except on account of some misconduct. Some of the key elements that need to be included in an employment contract are-:
A fixed-term employment contract should be drafted in such a way so as to avoid any liabilities after its expiration. There should be no words that convey that the contract will be automatically renewed or that a more permanent role would be given to the employee. It is advisable to engage a lawyer while drawing up such a contract.