Theme: Employment Contracts

There may be restrictive terms mentioned in your contract. In India, you have a fundamental right to practice any trade, profession or conduct any business. However, this is not an unlimited freedom.

You will find certain clauses or terms in your agreement that in some way restrict you to a certain degree from carrying on a business, trade, or profession either during or after employment. These clauses are commonly known as restrictive clauses. They are:

• Confidentiality or Non-Disclosure Clause
• Non-compete Clause
• Non-Solicitation Clause
• Training Bond/Indemnity Bond

What is Confidentiality?

The organization or company you are employed with has a right to protect its trade secrets and other confidential business dealings. Hence, a clause in your employment contract restricts you from sharing or disclosing any confidential information of the employer to anyone outside the organization. This clause is known as a confidentiality clause. It is sometimes referred to as a non-disclosure clause as well.

Typically, the term ‘confidential information’ is widely defined to cover almost all information that you get from your employer. You should read the definition carefully to make sure that you are not violating the confidentiality clause during or after your employment. Apart from information specifically marked as ‘confidential’ or ‘proprietary’, it is safe to assume that information like technical and business information, intellectual property rights, formulae, software programs or codes, internal reports, trade secrets, inventions, know-how, business strategies, marketing tactics, financial information, information about your employer’s clients and/or customers and other commercially valuable information is meant to be kept confidential.

When does Confidentiality apply to you?

The confidentiality clause applies not only while you are in the company’s employment, but also after. If you share confidential information after your employment has ended, it would be a violation of your contract and your employer may file a case against you.

This does not mean that you cannot be employed by a company doing similar work. Legally, you have the right to work wherever you want to, but you cannot disclose any confidential information from your previous employer in your new employment. For example, if you were working with P&G before and are now offered a job with Unilever, you will not be restricted from taking up the job. But you cannot disclose trade secrets of P&G to Unilever.

No Confidentiality Clause in Agreement

If there is no confidentiality clause in your agreement, you have a duty of fidelity to your ex-employer to not disclose to others or to use for your own profit the trade secrets and confidential information you learned during the course of your employment with them. In some cases, you can be sued for criminal breach of trust also.

A non-compete clause in an employment contract restricts a current employee from competing with their employer in the same or similar area of business as the employer. Typically, this restriction is not limited only to the duration of employment but also for a specified period after the employment is terminated or concluded.

Some examples are:

• If H is in the business of manufacturing air purifiers with a specific technology then its employee Y cannot start a rival business with the same technology.
• Harpeet Singh Bedi is a salesman at AYS Computers, with whom he has a non-compete clause. If Harpeet starts a business, Rocket Sales Corporation, which is similar to AYS, while still in AYS’s employment, he is violating the terms of his contract and may be sued, as the clause specifically forbids him from doing so.

Poaching of Co-Workers

If there is a non-solicitation clause in your agreement, you cannot enlist other employees of the company in a business, trade, or profession that would harm the interest of the company. This restriction applies to you both while in the employment of the company and after you have left.

For example, if Harpreet Bedi leaves AYS Computers to start his own company, he cannot take employees/co-workers from AYS along with him. If he does so, he would be in violation of his contract with AYS and can be sued by them for breach of contract.

Poaching of Clients

Depending on the nature of employment, in some cases, this restriction on solicitation extends to customers of the company you are employed with as well. If you are leaving your current company to join a competing company or to start your own, you cannot take clients of the workplace you are leaving with you. This will affect the business of your ex-employer and you can be sued.

For example, if Lokesh Sharma leaves XYZ Ltd. to start his own company, he cannot take clients from XYZ Ltd. along with him while leaving. If he does so, he would be violating his contract with XYZ Ltd. and can be sued for breach of contract.

What are Training Bonds?

In some cases, an employer may make you sign a training bond. According to the terms of this bond, you will have to work for that company for a specified period of time. You cannot terminate the employment before the required period is over. If you do, you will have to compensate the employer as per the terms of your agreement.

Why are Training Bonds Signed?

This type of bond is usually signed when there is some training involved, the cost of which is borne by the employer. The idea behind it is that if the employer is investing their resources in training you, they should also be able to utilize your talent and reap the outcome of the training. Therefore, training bonds are usually signed to protect the interests of the employer.

For example, Bhanu Rao was offered a job at Centaur Hotels. When he accepted the offer, Bhanu was made to sign a training bond which stated that he would have to work for the company for a minimum period of 2 years, which would also include a 6-month training period, cost of which would be borne by Centaur Hotels. If he were to leave before the expiry of the training period, Bhanu would have to pay to Centaur Hotels the cost of his training. After one and a half years, Bhanu found a higher paying job and quit Centaur Hotels, with 6 months remaining on his bond. Now, Centaur Hotels has a right to recover the cost of training from him.

Amount of Training Bond

It is important to note that the amount given in a training bond should be reasonable and is usually decided depending on the facts and circumstances of each case.