India : Enforceability of Employee Restrictive Covenants

A recent judgement in the Delhi High Court has re-confirmed the established principle that an agreement that restrains anyone from carrying on a lawful trade, business or profession is unenforceable unless they come within limited exceptions, such as following a sale of goodwill. [Varun Tyagi v Daffodil Software Private Company Limited].

The court held that reasonableness and the extent of the restraint is irrelevant if the contractual term amounts to a restraint of trade forbidden by law [Section 27 India Contract Act 1872].

Restraints that are narrowly focussed to protect confidential information or genuine proprietary interests, may be enforceable provided they do not amount to a general prohibition on future employment.

Employer Action:

The case reminds us that great care is needed when drafting post termination restrictive covenants in Indian employment contracts.

Strictly speaking these may need to be limited to the protection of confidential information only.

This is a high-level general update only. Legal advice should be obtained on specific circumstances.