|A non competition agreement is a promise by an employee not to compete with the employer in the same line of business within the same territory during employment or for a specified period of time, even after the cessation of employment. Non compete agreement may feature as a clause in an employment agreement or as a stand alone independent employment contract by itself. The agreement must be supported by consideration and must be of mutual benefit to the contracting parties. The Courts particularly check whether there is commensurate benefit to the concerned employee to make good the loss to him due to the restriction or negative covenant.
Even if signed before employment, non competition agreements may continue to binding and effective after cessation of employer employee relationship up to a certain point of time, depending on the facts of the specific situation.
Non competition agreements are designed for protecting the legitimate business interests of the employer, which may include technical know how, customer relations, client list, confidential information, trade secrets and so on, within the access of the employee. Information or superior knowledge power that gives the employer competitive advantage over others can be the subject matter of protection of a non competition agreement. That is why a non competition agreement is also a non disclosure agreement.
For example, where an employer gives the employee client contacts or customer list, the employer can enforce a negative covenant that the concerned employee shall not be able to contact them on behalf of a rival or competitor. Similarly in case an employer has spent substantial amount on the training or up gradation of his employee, he can prevent his employee from taking away the knowledge or skills acquired on the job elsewhere for competing against him.
Restrictions imposed upon the employee must be as narrow as possible in scope and duration and must not be greater than that necessary to protect the employer’s business interests. Where the non compete agreement is meant for protection of technical know how, trade secrets or confidential information; the tenure of the contract must not extend beyond the period for which those information command value. The territory covered by the agreement will depend on the area or particular customer base covered by the concerned employee.
Courts refuse to enforce non competition agreements that are harsh, burdensome and oppressive to the employee. A non compete agreement must be reasonable in scope and tenure so that it does not stand in the way of livelihood of the employee. The employer and employee must balance and reconcile their legitimate interests.
In case of breach or contravention of the agreement, the Court at the instance of the aggrieved employer can restrain the non compliant employee from violating the negative covenant, particularly, where compensation in money alone would not be adequate relief. The Court can also impose damages on the errant employee to make good the loss suffered by the employer.