Aditya Nikam (Team leader) 26 July 2013

Legal issues in joining client company

I work for a small IT firm in Hyderabad (India). Out of all resources of the company, our team of 13 resources work on development, testing and support of a outsourced project of a German IT company. We feel happy to work on the projects of this client, all because of our interest in the projects and good professional relations with client. But now none of our team member is happy with the facilities, benefits, salary and appraisals given by company and everyone is now willing to switch the job asap. No doubt, with our good experience in IT, we all can get good jobs in industry with good hike. When client came to know about our unhappiness with current employer, client came up with the proposal of forming its own new branch in Hyderabad and employ team resources in it with good hike in salaries and facilities. Team is interested in this offer and willing to resign and join client's new branch asap. But before we proceed towards this option, we would like to receive your expert advice, mainly from legal aspects. Below is additional useful information for your reference: 1. In the agreement between Client company and our company, there is no clause added which resists client to employ employees from our company. 2. We do not have any kind of bond with current employer but as usual we have signed 'Appointment letter' and 'Employment book' after joining current company. 3.We have checked both letters and found a clause which is related to after employment condition. The clause is given below: ----------------------- "After termination of your employment with our company for whatsoever reason, you shall not not take employment or associate yourself with any organization involved directly or indirectly with software development and/or marketing of products/systems similar to ours, in any part of India, for a minimum period of one year following your last day with our company." "It shall be clearly noted that above clause is a condition precedent to employment in our company, in the view that information gathered by employees of the company during their tenure with us can be used to our detriment by our competitors." ----------------------- In our opinion, we are not violating this clause, as it does not state that we should not work with Client companies; also there are no similarities in the products of Client & our company. Question 1: In your expert view, are we violating this clause? Question 2: Can our current employer sue us or client in any way, if we properly resign and serve complete notice period in professional way? Question 3: We are keeping things deep secrete and do not discuss, chat, mail about in it in office environment to avoid keeping any traces behind. But in case somehow, if our employer comes to know about the plan, what action can be taken against us? Question 4: How much risk is involved in all this and what additional care we should take to avoid any unwanted circumstances? I hope I have clear the scenario. If not please feel free to ask me for more details on this matter. Your expert feedback is very much valuable to all of us (including client) without which we wont be able to proceed further. Hoping for early response. Thanks a lot for your advice and time in advance.

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Kumar Doab (FIN) 26 July 2013

It is heartening to note that employees are consulting to access information beforehand than proceed on their own and fall in legal traps.

Kindly encourage and keep on encouraging as many of your colleagues, companions, friends, fellow employees, citizens, ……………… as much as you can to consult elders in the family, competent and experienced well wishers, lawyer/law firm…………………..and be properly informed………….and to avoid acting on their own and repent later.

In your trade the employers have been crafting agreements to suit their interest and the employees are burdened with fear of suffering from legal injury ………………..etc.

There are threads to suggest that employers have been issuing notices, legal notices and even pulling employees to court of law…………….

The state governments in many states e.g. Karnataka granted waiver from statue like ‘Industrial Employment Standing Orders Act’ to IT/ITeS companies and as per various companies employees have been exploited………………………….

The employees in your trade united and formed associations/unions/forums/guilds……

State of Karnataka has ended the 11 years long/extended waiver and all companies were asked to submit their draft standing orders by Dec2012 for certification within Mar2013……………….

Employees have a huge strength and vote bank and should form unions to defend their interest.

The NASSCHOM created NSR and as various publications suggest it is made some kind of a ‘Private Employment Exchange’ as per specification and priorities of employers in the trade……..

It would be better to be part of a forum of employees from your trade.

This post in this thread is a heartfelt opinion only on limited information posted by you and with limited understanding of the matter.

It shall be appropriate to arrange and show the job advertisement, interview call letter, offer letter, appointment letter, Employment book, confidential information/trade secrets shared by employer with employees, product range as on date (and its descriptttion) of both current and prospective employer ………………..etc to a competent and experienced labor consultant/service lawyer/law firm, specializing in such matters, give inputs in person, understand the merits, and proceed under expert advise of your lawyer………………………..Spend quality time with your lawyer………….and fully understand the nuances of the matter posted by you.

The lawyer that has seen all documents and has analyzed the merits can advise you the best.

The points to ponder are:

Can the employer construct claim, evidence from the matter you have posted and claim legal injury, injunction, damages…………………………….etc

You have posted that:

-------"It shall be clearly noted that above clause is a condition precedent to employment in our company, in the view that information gathered by employees of the company during their tenure with us can be used to our detriment by our competitors."

Have the employees been made privy to confidential/proprietary information/trade secrets………………………Did the employee(s) have access to such trade secrets?

Are you stationed in client’s premises and do you use client’s software/technology/tools for executing your job and is all of this provided by your employer………………and is the software/database being used by you is developed by your employer and can it be called a trade secret etc……..

-----------In the agreement between Client company and our company, there is no clause added which resists client to employ employees from our company.

Thus prospective employer seems to be protected. The employees including you have to re assure for yourselves that you are also protected.

-------Non Compete Clause:

"After termination of your employment with our company for whatsoever reason, you shall not not take employment or associate yourself with any organization involved directly or indirectly with software development and/or marketing of products/systems similar to ours, in any part of India, for a minimum period of one year following your last day with our company."

Article 21 of the Constitution of India guarantees the live to livelihood and since it is a fundamental right it is held to be inviolable. This makes the enforcing of non compete clauses in India even more of a difficult task.

Employee can not be restrained to join any other employer after separation and non compete clause amounts to restraint of lawful profession.

An agreement, which restrains anyone from carrying on a lawful profession, trade or business, is void to that extent. Under section 27 of the Indian Contract Act, 1872 agreements in restraint of trade are void.

Indian courts have consistently refused to enforce post-termination non-compete clauses in employment contracts, viewing them as "restraint of trade" impermissible under Section 27 of the Indian Contract Act, 1872, and as void and against public policy because of their potential to deprive an individual of his or her fundamental right to earn a livelihood.

Post term restrictive covenants have been held invalid …………………an employer is not entitled to protect himself against competition on the part of an employee after the employment has ceased.

The ‘Non Disclosure’, ‘Confidential Information’ may stand as an exception and, its validity may be upheld in post employment period.

-------Protection of Confidential Information/Trade Secrets:

Company may claim copyright in its ‘Database’ and it to be considered as ‘Confidential Information’.

Check with your lawyer if at any point of time Section 72 of the Information Technology Act, 2000 that deals with breach of confidentiality and privacy can be invoked in your case…………?

“software development and/or marketing of products/systems similar to ours, in any part of India,’

Demographically whole of the country ( the distance stated covers not even a town, city, distt., state, but whole country in which employee is domiciled) ) is covered as area…………………………………..implying that the employee has to seek employment in some other nation…………………………………..

This seems to be unreasonable…………………………

‘Database’ may be considered as ‘Confidential Information’.

The period of 1 year may be found reasonable by a court of law if the matter is successfully put up before the court of law …………..

Trade Secrets: the information made available to employees during employment is trade secret or not e.g. software developed by the company……………….if it is not then the employer may not succeed to claim a restraint or reasonable restraint………………….

If the employee was privy to trade secrets and if court of law feels that concerns of employer are genuinely valid, the court may be pleased to grant an injunction, restraining the employee to take up that work………………..

------“ Can our current employer sue us or client in any way, if we properly resign and serve complete notice period in professional way? ‘

The present employer may communicate to next employer that employee has not been properly relieved…………………..

The proper service of notice and properly serving the notice period may not necessarily have to do anything with the clauses mentioned by you in your post.

Even proper relieving by the company may not necessarily have to do something with the clauses mentioned by you in your post.

Although resignation does not require permission and notice, in certain trade and circumstances abrupt termination may result into losses……………………..and probable litigation………………

Employee should serve reasonable notice.

Since your prospective employer is interested in you and would be greatly benefit from your service/association, why don’t you explore the possibilities of this employer making an offer to you in writing……………………… and include that it has gone thru your contract of employment with your current employer and it shall defend you from legal injury if any is caused by present employer and shall bear the cost and advance the amounts required to seek legal consultation , lawyer’s fees, miscellaneous expense ( well defined) and shall not terminate the employment due to legal suit filed by current employer.

Defend your interest in the best possible manner.

Valuable advice of learned experts/members is sought.

Some of the trade unions/employee’s forums are:

https://www.rediff.com/money/2007/feb/01ites.htm

https://www.itecentre.co.in/