INDIA Law and Practice Contributed by: Anshul Prakash, Kruthi N Murthy and Deeksha Malik, Khaitan & Co
2. Restrictive Covenants 2.1 Non-Competes Validity
breach, regardless of whether or not the employer has stipulated a pre-estimate of the loss in the contract. 2.2 Non-Solicits As mentioned in 2.1 Non-Competes , covenants with respect to non-solicitation and non-disclosure of con - fidential information may be enforced post-cessation of employment on a case-by-case basis, depending on the impact of the restriction on the ability of an individual to exercise lawful pursuits. In the case of Desiccant Rotors International Private Limited v Bappaditya Sarkar and Another [CS (OS) Number 337/2008], the Delhi High Court noted the following: “Clearly, in part at least, the obligation agreement sought to restrain defendant number 1 from seeking employment with an employer deal - ing in competitive business with the plaintiff after he had ceased to be an employee of the plaintiff, and that too for a period of two years. Such an act can - not be allowed in view of the crystal-clear law laid on this issue. However, in the impugned order dated 20 February 2008, the injunction restraining defendant number 1 is limited in scope, in the sense that it does not restrain defendant number 1 from working with defendant number 2 or any other person/company, thereby steering clear of impinging the former’s free - dom to choose his own workplace. The injunction only restrains defendant number 1 from approaching the plaintiff’s suppliers and customers for soliciting busi - ness which is in direct competition with the business of the plaintiff. Hence, the injunction which has already been granted by order dated 20 February 2008, is made absolute.” 3. Data Privacy 3.1 Data Privacy Law and Employment At present, the limited provisions on the protection of information are set out under the Information Tech - nology Act 2000 and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the “SPDI Rules”) framed thereunder. The SPDI Rules protect individuals (whether employees or otherwise) from an entity obtaining access or using their sen - sitive personal data or information (SPDI). The term
The Indian Contract Act 1872 stipulates that an agree - ment by which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void. A restrictive covenant, such as a non-compete, extending beyond the term of service is void, irrespective of the reasonability of such restric - tion, except in cases involving the sale of goodwill. There is, however, case law recognising an exception to the rule covering restrictions aimed at protecting the employer’s legitimate business interests, such as its business connections and trade secrets. Therefore, clauses relating to post-employment non-solicitation of employees or customers and the protection of con - fidentiality with respect to trade secrets are not caught by the above restrictions and have been enforced by the courts, albeit on a case-by-case basis. Enforcement For a breach of a restrictive covenant (being a breach of contract), the remedies discussed in the following points are available to an employer in such cases, to the extent the covenant is valid and enforceable. Where a breach has occurred but the employer has not suffered a loss, and the contract provides a pre- estimate of the loss (in the form of liquidated dam - ages) that might be incurred due to breach of contract, the party may claim said amount (to the extent the court determines it to be a genuine pre-estimate of the loss), irrespective of any actual loss arising on this account. However, where the contract does not provide for such pre-estimate and the breach has occurred (as is usually the case with employment contracts), courts would typically grant an injunction restraining the for - mer employee from continuing the breach. Where a breach has occurred and the employer has suffered an actual loss, the employer can claim unliquidated damages for the loss caused to it which the parties knew would be caused as a result of the
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