Exits can be riddled with argumentative clauses
Employers can enforce certain restrictions, but they cannot prevent an employee from joining a competitor or sign bonds perennially
Quitting a company can be challenging at
times. To safeguard their business interests, employers make employees sign
contracts that put restrictions on joining the competition. Then, there are
certain bonds that disallow an employee from leaving the company for a certain
number of years. The question is, how many of them are legally tenable?
Recently, Trigo Quality
Production Services went to a civil court in Pune against its former employee
Kaushik Pal Chaudhary. He had signed a contract that had a non-compete clause.
This prevented him from taking up employment with any competitor for a year
after leaving his job. But the court ruled in favour of Chaudhary. “Section 27
of the Indian Contracts Act prevents employers from restraining any employee
from joining another company even if it’s a competitor,” says Nalin Bhat,
Chaudhary’s lawyer and founder of Law Beacons.
On their part, employers
have a reason to worry. Many times, employees do have access to clients,
confidential data, and so on. So, they try to safeguard their business as much
as possible from leakage of data and vital information through bonds and
clauses. But these clauses can also be used to prevent employees from leaving
their jobs or harassing him/her unnecessarily. Bonds can be tricky: The legal
sanctity of a bond depends on its content. If it’s used to ensure that the
employee never leaves, then it is plain and simple illegal. A human resource
(HR) consultant points out the case of an employee of a Mumbai-based software
company who wanted to quit after serving the notice period but the employer
played hardball. This company makes all employees sign a bond every year. It
states that on leaving the company within one year, they need to pay a
compensation of ~1 lakh for the training and resources spent. The mid-tier
software firm also takes a signed cheque of the said amount. The employee sent
a legal notice as the company asked for additional ~1 lakh in compensation. The
employer backtracked after the notice.
But lawyers say that
when a company actually spends money on training employees, bonds are legally
tenable. “While a company cannot prevent an employee from joining another
employer, it can always seek compensation for the incurred costs. Usually,
bonds have a pre-estimated amount mentioned, which is also known as ‘liquidated
damage’. When an employee signs the contract, it means he has agreed to it,”
says Pooja Ramchandani, partner and head employment law at Shardul Amarchand
Mangaldas.
But if your employer
continues to renew it year after year to be in a dominating position, without
actually spending on training, then it can be challenged. “An employer will
need to prove with documents the money actually spent on training. The court
will examine whether the company actually enrolled the employee in a programme
to enhance the skill. Onthe-job learning is not considered as training,” says
Bhat. Relevance of contract clauses: Say, an individual is working in the
research and development department of a company. He joins a competitor on a
similar project. The former employer can drag the individual to court for
leaking the company’s secrets and sue for damages. Lawyers say there have been
court orders in the past that favoured the company in such cases. “But such
clauses are for a limited time only. They can’t be perennial,”
Regards
Pralhad Jadhav
Senior Manager @ Knowledge
Repository
Khaitan & Co
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