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Prajith (network engineer)     18 February 2013

Joining the client organization

Dear Sir,

I am currently in the payroll of an MNC IT company and working in the client location (another company). Both the companies are in India. In my current offer letter  there is a clause saying that I should not join the client organisation( where I am working on contract) for a period of 1 year from the date of resignation from the parent company. However I got an offer from the client company to join their organization on their payroll.

Due to that clause in my offer, my parent company can take any legal action against me if I join the client organization ? Is there any chance that I will get punished/fined for breaking the agreement ?

Please advise.

Thanks & Regards,

Prajith M Pillai

 



 8 Replies

Adv k . mahesh (advocate)     18 February 2013

first discuss with your appointing authority before joining the client company and settle amicably because such agreement usually bind you because in some companies they will train the employee about their company skills and expertise and they say that you may disclose the trade secrets and will benefit the client in one or the orther way so to avoid such practice they harass the employee who leaves the organisation and joins in client 

and this would be you mental tension if the previous company harass you mentally

so disclose clearly with the appointing authority after confirmation from you client organisation and if the appointing authority does not relive you discuss with the client organisation and disclose the facts to them and join 

Kumar Doab (FIN)     19 February 2013

---It is felt that you have not entered into any agreement with your company to work for a specific period and you are not leaving before completing this period.

 

Generically speaking the question you have raised is as simple as “can you continue to work in the same segment with another employer after you resign from current employer i.e. post termination of contact of employment.”

The answer as per various publications and court judgments can be a confident Yes.

 

However let a competent and experienced labor consultant/service lawyer well versed with such matters look into the documents and your inputs on the matter and opine finally. Let your lawer evaluate the merits in clauses on the Non-compete/Non-solicitation/Non-disclosure/Protection of Confidential information under Indian IPR laws……etc in your appointment letter/contact of employment and thereafter you may proceed under expert advice of your lawyer labor consultant/service lawyer.

 

Are you privy to your employer’s sensitive, proprietary, confidential information?

Is the works, processes, tasks, assignments, projects …………(what not and whatever) carried out by you on day to day basis or till date patented by employer or invented by your employer or the techniques being used by you are innovation of your employer?

Are you handling any trade secrets, business, secrets, business connections of your employer? Also the clients being handled by you are brought to your company by you or passed on to you by promoters of the company? Are these clients/business connections handled, nurtured, cultivated, converted by you or by promoters of the company?

What loss your company shall face if you leave them and join another company in the same segment?

If you are working with some technology say DOT SPHERE now for current employer and you may work with same DOT SPHERE later for next employer would it amount to divulgence of trade secrets?

 The answer seems to be NO. However you may keep your well thought answers ready; your responses shall be your defense.

 

 

Kindly take precautions and do not share any information in writing which might be termed sensitive, confidential for current employer and it may pounce on the opportunity to trouble you.

 

As per various publications various courts in India and Supreme Court have ruled that:

 

the non-compete covenants used in agreements can be categorized into in term and post term covenants. In an employment contract, the basic interests of the employer which are required to be protected include trade secrets and business connections and other such confidential information. In case of restraints in contracts of employment the nature of business and employment is relevant in assessing the reasonableness of restraints. An employee owes a duty to the employer to not disclose to others or use to his own advantage the trade secrets or confidential information which he had access to during the course of employment and he could be restrained from or sued for divulging or utilizing any such information in his new employment. But once again, he cannot be prevented from taking up the employment. Also, the employer cannot prevent the use of employee’s knowledge, skill or experience even if the same is acquired during the course of employment. Restrictive covenants are different in cases where the restriction is to apply during the period after termination of the contract than in those cases where it is to operate during the period of the contract.

Negative covenants operative during the period of contract of employment when the employee is bound to serve the employer exclusively are generally not regarded as restraint of trade and do not fall under Section 27 of the Indian Contract Act,1872. A negative covenant, one that the employee would not engage himself in a trade or business or would not get employment under any other employer for whom he/she would perform similar or substantially similar duties, is not a restraint of trade unless the contract is unconscionable or excessively harsh or unreasonable or one sided”

 

 

 

the principles embodied in Section 27 of the Act and the individual's fundamental right to earn a living by practicing any trade or profession of his or her choice.”

in the clash between the attempt of employers to protect themselves from competition and the right of employees to seek employment wherever they choose, the right of livelihood of employees must prevail.”

 

“a contract, which had for its object a restraint of trade, was prima facie void…… under Section 27 of the Indian Contract Act, 1872, a service covenant extended beyond the termination of the service was void.”

“employer has right to terminate the contract of employment on the ground of misconduct; hence, it cannot be said that the employee had absolutely no right to resign from the employment on account of better prospects or other personal reasons. It was observed by the court that merely because for some time the employer might face some inconvenience, the employee concerned cannot be forced to come back for the pleasure of the employer or to satisfy the ego of the higher-ups of the contemplated competition in the market.“

a service covenant extended beyond the termination of the service is void. It was held that an employee could not be restrained for all times to come to use his knowledge and experience which he gained during the course of employment either with the employer or with any other employer. It was also held that the principles laid down by the English Courts on common law and equity will not be applicable in view of Section 27 of the Indian Contract Act.

If it is not going to benefit the employer in any legitimate manner, the court would not injunct the employee from exercising his skill, training and knowledge merely because the employee has agreed to it.”

 

Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Company Ltd

V.F.S. Global Services Ltd. v. Mr. Suprit Roy

Superintendence Company of India vs Krishan Murgai

Star India Pvt Ltd. V. Laxmiraj Seetharam Nayak

Sandhya Organic Chemicals P.Ltd v. United Phosphorous

Lalbhai Dalpatbhai and co. v. Chittaranjan Chandulal Pandya

---- Kindly obtain the copy of certified standing orders of your company. This may be available at HR page of intranet, or with concerned HR personnel. Standing Orders are to be displayed at the gate/notice board.If these are not available or circulated submit a written request to the good offices of your appointing authority, MD, Head-HR,   to supply these to you by redg post immediately mentioning that these are not available at HR page, gate and with HR personnel Mr/Ms…… and are not circulated to you till date (and other employees if it is true), It is felt that such a clause may be in violation of the certified standing orders of the company.

Take care of non disclosure principle. Do not disclose salary of employees, manufacturing formulae etc. in writing or on any kind of record.

--- Mr. Mahesh has given valuable advice. Kindly follow it.

This seems to have become a trend in IT companies especially that a relieving letter is demanded and reference check is sought by the prospective/new employer and a clause on the same is mentioned in appointment letter.

It shall be appropriate to inform your next employer in writing even if by email that your current employer is declining to issue acceptance of resignation, service certificate, FNF statement, relieving letter and that you won’t be in a position to provide these and can provide only copy of notice of resignation and final resignation and their proof of dispatch by redg. post and POD ( which you can obtain from PO one internet generated free of cost and other certified copy of run sheet of postman against a fee of Rs.10/), and if willing the company may employ him.

There are threads in LCI mentioning withdrawal of offers once past employer started making complaints to new employer.

Hence protect your interest completely from possible situations.

`


Attached File : 302205710 appointment letter law of negative covenants in employment contract.pdf, 302205710 negative covenants in appointment letter court judgements.zip downloaded: 155 times

Prajith (network engineer)     19 February 2013

Thanks a Lot to both of you Mahesh Sir and Kumar Sir for you kind reply.

I have joined by parent company(XXX) almost 2 year back. However, i have worked in their premises only for 2 days (for joining and induction). All other days, I have been with the client company (AAA). I am having a Senior Engineer position in XXX and not holding any key information related to them other than the common information available in their web portal. Also my client company is aware  that I have clause in my offer with company XXX. Still they are ready to hire me in their payroll. Below is the clause found in my offer letter which is stating that I should not join the client organization for a period of 1 year from the date of my seperaration with XXX.

"The Conflict of Interests Policy also refers to the need on your part, during your employment
and for a period of one year from the cessation of your employment with XXX (irrespective
of the circumstances of, or the reasons for, the cessation) not to solicit, induce or encourage:
1) Any employee of XXX to terminate their employment with XXX or to accept
employment with any competitor, supplier or any customer with whom you have a
connection."

Please let me know, if this can give any trouble to me in future, if I join the client (AAA) immediately after seperation from XXX ?

Kumar Doab (FIN)     19 February 2013

It shall be appropriate to approach consult elders in the family, competent and experienced well wishers, an able labor consultant/service lawyer with copies of all documents and communications, give inputs in person and spend quality time with your lawyer and proceed under expert advice of your lawyer. Let your lawyer structure and draft your representations and build record in your favor, if the need be.

Has the company circulated any communication on provision of "The Conflict of Interests Policy” for its employees and has it ever supplied printed version of policy or kept it in the knowledge domain of employees which can be accessed by employees e.g. HR portal for employees? If yes you may download and keep a copy and show it your lawyer. If no you may apply for a printed version/certified copy from good offices of appointing authority, MD, custodian of policies in HR…..

Also you may use your resources in the company and obtain it with the help of colleagues.

Gossip and rumor cannot b policies. Employer should not behave like a street magician and produce things from thin air.

At the same time employee should transact with employer in writing on record and under acknowledgment. Verbal transactions have no sanctitiy.

As you are contemplating to separate you may obtain copies of all the relevant documents and record now as later company may deny and block access and may not even bring to court of law as it may affect the company adversely then and later.

 You have posted that:

--“also refers to the need on your part, during your employment”

It seems to be fine until “during your employment”: refer to the publications already posted e.g. the non-compete covenants used in agreements can be categorized into in term and post term covenants……………….. An employee owes a duty to the employer to not disclose to others or use to his own advantage the trade secrets or confidential information which he had access to during the course of employment”

--“ and for a period of one year from the cessation of your employment with XXX (irrespective of the circumstances of, or the reasons for, the cessation)”

refer to the publications already posted e.g.  the non-compete covenants used in agreements can be categorized into in term and post term covenants………………..But once again, he cannot be prevented from taking up the employment. Also, the employer cannot prevent the use of employee’s knowledge, skill or experience even if the same is acquired during the course of employment………… A negative covenant, one that the employee would not engage himself in a trade or business or would not get employment under any other employer for whom he/she would perform similar or substantially similar duties, is not a restraint of trade unless the contract is unconscionable or excessively harsh or unreasonable or one sided…………. in the clash between the attempt of employers to protect themselves from competition and the right of employees to seek employment wherever they choose, the right of livelihood of employees must prevail………………….. a service covenant extended beyond the termination of the service is void……………. It was held that an employee could not be restrained for all times to come to use his knowledge and experience which he gained during the course of employment either with the employer or with any other employer……………….

Kindly note that, your lawyer, after analyzing the merits as per documents, records and inputs you produce, shall give final opinion in your case, and shall choose the judgments to be cited if the need be.

Hence you may proceed under the expert advice of your lawyer only.

--“ not to solicit, induce or encourage:

1) Any employee of XXX to terminate their employment with XXX or to accept
employment with any competitor, supplier or any customer with whom you have a
connection."’

What is the intention of your employer: to restrain you from attracting your peers in the company to join your future employer(s) or you and your peers (with your active support) from joining your future employer(s)??

Employers are known to state in writing that the interpretation of the management/company shall be final and binding. Kindly take up with your lawyer and let your lawyer’s pinion be final.

--“ I am having a Senior Engineer position in XXX”

Companies provide fancy and flattering designation to employees and keep them ill, informed on their rights and prefer to subdue the employees to believe that they are not workman. Labor laws applicable to a workman provide protection to employees and limit the choice for employer.

Designation alone does not decide employee is a workman or not.

It is felt that being at Client’s location consistently no one was reporting to you and you did not have any authority to say…… to appoint/terminate/sanction leave of any subordinate staff..

Hope you have the time sheet approved by client for all days of your work till date from your DOJ to establish that you were at client location….

 --“ Please let me know, if this can give any trouble to me in future, if I join the client (AAA) immediately after seperation from XXX ?”

“Also my client company is aware that I have clause in my offer with company XXX. Still they are ready to hire me in their payroll.’

It is for your good that if you write to the client company that …. You have clause in my offer with company XXX your, and current employer is declining to issue acceptance of resignation, service certificate, FNF statement, relieving letter and that you won’t be in a position to provide these and can provide only copy of notice of resignation and final resignation…….and obtain concurrence from this company that you can be employed despite it and understand the conditions imposed by this company.

Tead carefully. Do not rush. Avoid traps.

Avoid a situation: jumping from frying pan into fire…. and you may be out of job….

The principle company may exercise its influence on Client Company.

Employment is not marriage and employers do not marry the employees.

You would need firm support of top management/HR/line management of Client Company, hence take everybody in confidence, and possess some favorable record.

It is as simple as that the client company is poaching employee of Principle Company for its gain, and employee should defend and protect his interest cautiously.

You may ensure that the offer of the client company is not leaked. The principle company may block FNF, proper relieving. You should do your home work how you would handle it?

Valuable advice of learned experts/members is sought.

learnlaw (Student)     16 July 2017

Hi,

This is really good. In similar case, employee has agreement to not to work with client for one year after termination in specific country. Client is opening office in India. Can employee Join? 

Thanks

 

Kumar Doab (FIN)     16 July 2017

Dear LCI Querist @learnlaw Student

Is it same matter:

 

 

https://www.lawyersclubindia.com/forum/Post-resignation-issues-with-employer-151812.asp

 

 

 

Kumar Doab (FIN)     16 July 2017

The contract signed with Indian employer in India and Foreign employer in Foreign lands is different matter...... 

mayur   14 January 2019

Hello, 

I have the same situation.

I joined company AA and this company has client BB, but BB company has chnaged his name to CC. 

I signed contract for 1 year of period, should I join company CC . Is there any legal notice for me. 

Also I got mail from my previous company CC, please make sure you were not join client company, and I send comment that I agreed. 


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