Can your employer stop you from joining a rival firm? Know the law on non-compete clauses

If your employment contract includes a non-compete clause, it means that after you quit, you can’t work for a competitor for a defined period of time. Usually employees working in sensitive roles are made to sign such employment contracts with non-compete clauses.

Prof. Paramjeet Singh, Associate Professor of Practice, BITS Law School, said to ET Wealth Online that an employer can get a court order preventing an employee from joining a competitor during the notice period as the employment contract is still legally valid.

Singh says: “However, post-employment ‘non-compete’ clauses are not enforceable in India in order to protect the fundamental ‘right to livelihood’. Section 27 of the Contract Act prohibits agreements in restraint of trade.”


Sweta Sinha, Assistant Professor - OB and HR, IMI Kolkata, explained to ET Wealth Online that under Section 27 of the Indian Contract Act, 1872, any agreements that restraint trade (like non-compete clauses) are treated as void, except in very few circumstances.

According to Sinha the Supreme Court of India in the Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan case (2006) reasserted that post-employment non-compete clauses are not enforceable in India.

Sinha says: "Therefore, an employer cannot legally prevent a former employee from joining a competing organization."

Also read: Non-compete clauses: Unenforceable under law, but companies love them

However, Sinha cautions that if the employee is caught disclosing confidential information, trade secrets, soliciting clients or employees, or breaching confidentiality obligations that survive termination of employment, “then the employer can seek judicial restraint, provided these acts can be proved in court.”

Courts are also cautious about enforcing non-compete clauses

Singh says that courts are cautious in granting injunctions of such nature post-employment, as such an order amounts to a restraint on profession/trade.

Also read:IT freshers beware! Non-compete clauses woven into contracts are unenforceable in India, experts say

Therefore, the employee must wait for the notice period to end before joining the new employer.

Sometimes, the employer includes a ‘garden leave’ clause in the employment contract, under which employees are sent on leave with pay during the notice period to address the confidentiality concerns. However, the employee is prohibited from taking up double employment during this notice period.

Singh says: “Other terms such as ‘confidentiality’ or ‘non-solicitation’ may survive the employment contract and can be enforced, but not a broad order upholding the non-compete clause depriving the employee of job opportunities.”