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Pradeep (Advocate)     06 July 2010

Non-Compete Clause and Competition Act

What is the status/validity of a non-compete clause in employment contracts, after the competition Act came into force ?


 4 Replies

saquib (Advocate)     06 July 2010

Non - Compete Clause can be inserted in Service Agreements. As per Sec. 3 of Competition Act the Agreement  which causes or is likely to cause an appreciable adverse effect on competition within India are void.

However inrespect of employment Agreements Non -Compete Clause can be inserted with a Time Limit i.e. 1 or 2 years taking in to the consideration the confidential information handeled by employee.  



Pradeep (Advocate)     08 July 2010

This is a logical answer and seems to be based on the interpretations given by the judiciary with regard to 'Agreement In restraint of Trade.

If we look at the plain language of section 3, "...which causes or is likely to cause an appreciable adverse effect on competition within India", would include non-compete clauses too, as they restrict the competition in the market. for instance, Person X is working for a Textile Company Y, and if the company Y restricts him from joining any competing industry, witin 2 years of his termination of employment, intention behind such restriction is to restrict competition, and preventing him from competing with the company he s working wth.

saquib (Advocate)     08 July 2010

Pradeepji then what will be the Remedy for a Company to Stop the Employee from using its Confidential & other Information to help the New Employer against Old Employer.  

Adv. Dhamale (Lawyer)     18 August 2014

Cant agree more with Saquib. Also it is required whereby the so called poaching done by service providers and business partners can be avoided. That is why an equivalent clause also makes its way normally in business contracts...

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