Non-Compete & Non-Solicit Clauses: Legal or Not in India
- Legal Amenity
- 5 days ago
- 5 min read
Introduction
In today’s competitive business environment, companies often include non-compete and non-solicit clauses in their employment contracts, partnership deeds, and business agreements. These clauses are designed to protect a company’s trade secrets, client relationships, and workforce stability.
However, in India, their legal enforceability is a contentious issue. While many employers view them as necessary safeguards, Indian contract law has a different perspective — especially when it comes to restricting someone’s right to work or carry on a profession.
In this blog, we’ll break down:
What non-compete and non-solicit clauses mean
The Indian legal position under Section 27 of the Indian Contract Act, 1872
Key court judgments on their enforceability
Practical tips for drafting them
Alternatives to restrictive covenants
1. What is a Non-Compete Clause?
A non-compete clause is a contractual provision where one party (usually an employee or business partner) agrees not to engage in a competing business or work with competitors for a specified period and within a specific geographic area.
Example:If you work for a software company and sign a non-compete agreement, it might prevent you from joining a rival software firm in the same city for six months after leaving your job.
2. What is a Non-Solicit Clause?
A non-solicit clause prohibits an individual from poaching or soliciting the customers, clients, or employees of their former employer or business partner.
Example:If you leave a marketing agency, a non-solicit clause may stop you from approaching the agency’s clients or persuading its employees to join your new company.
3. Legal Framework in India – Section 27 of the Indian Contract Act, 1872
The enforceability of these clauses depends on Section 27 of the Indian Contract Act, 1872, which states:
“Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
In simple terms, any agreement that restrains a person’s right to work or do business is void, unless it falls under certain exceptions.
4. Exceptions Under Section 27
The only statutory exception is for sale of goodwill:If someone sells the goodwill of a business, they may agree with the buyer to refrain from carrying on a similar business within specified local limits, as long as such limits appear reasonable.
5. Enforceability of Non-Compete Clauses
(a) During Employment
Indian courts generally uphold non-compete clauses during the term of employment. The reasoning is that an employee owes a duty of fidelity and good faith to their employer while working for them.
Case Example:
Niranjan Shankar Golikari v. Century Spinning & Manufacturing Co. Ltd. (1967) – The Supreme Court held that a non-compete clause during employment was enforceable as it was necessary to protect the employer’s business interests.
(b) Post-Employment
Non-compete clauses after termination of employment are usually considered void in India, as they restrain trade and violate Section 27.
Case Example:
Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan (2006) – The Supreme Court held that post-employment non-compete clauses are not enforceable because they restrict a person’s fundamental right to livelihood.
6. Enforceability of Non-Solicit Clauses
Non-solicit clauses are treated slightly differently by Indian courts.
If narrowly drafted and aimed at protecting confidential information and trade secrets, they may be upheld.
However, broad restrictions without justification are likely to be struck down.
Case Example:
Wipro Ltd. v. Beckman Coulter International SA (2006) – The Delhi High Court upheld a non-solicit clause, reasoning that it did not restrain trade but only prevented poaching of clients.
7. Key Differences Between Non-Compete and Non-Solicit Under Indian Law
Clause Type | During Employment | Post-Employment |
Non-Compete | Usually enforceable | Generally void under Section 27 |
Non-Solicit | Usually enforceable | Enforceable if reasonable and aimed at protecting legitimate interests |
8. Why Companies Still Include Them
Even though post-employment non-compete clauses are generally void in India, companies still include them because:
They act as a deterrent
Employees may comply voluntarily without challenging legality
Employers want to protect confidential information and business interests
9. Practical Tips for Drafting Non-Compete & Non-Solicit Clauses in India
Limit Scope – Keep restrictions narrow in terms of geography, duration, and type of work.
Focus on Confidentiality – Link clauses to protection of trade secrets rather than blanket restrictions.
Avoid Overly Broad Language – Courts strike down vague and unreasonable terms.
Combine with NDAs – Non-disclosure agreements (NDAs) are more enforceable and effective.
Consider Garden Leave – Keep the employee on payroll during the restriction period, which may strengthen enforceability.
For Non-Solicit Clauses – Specify exactly what constitutes “solicitation” and protect customer lists, pricing data, and internal strategies.
10. Alternatives to Restrictive Covenants
Since post-employment restrictions are often void, companies can use:
NDAs (Non-Disclosure Agreements) – Legally binding protection for confidential information.
Intellectual Property Clauses – To safeguard company innovations and materials.
Fixed-Term Contracts – To ensure employees stay for a set duration.
Garden Leave – To limit an employee’s access to sensitive data before they join a competitor.
11. International vs. Indian Approach
In many countries, reasonable post-employment non-compete clauses are enforceable if they protect legitimate business interests.In contrast, India follows a strict prohibition under Section 27, prioritizing the individual’s right to earn a livelihood over an employer’s interest in restricting competition.
12. Recent Trends and Judicial Interpretations
Courts are increasingly open to narrowly tailored non-solicit clauses that focus on protecting confidential information.
The IT and services sectors are particularly keen on such clauses to prevent client poaching.
However, post-employment non-competes continue to face strong judicial resistance.
Conclusion
In India, the enforceability of non-compete and non-solicit clauses depends largely on their timing, scope, and purpose.
Non-compete: Enforceable during employment, generally void post-employment.
Non-solicit: Can be enforceable even post-employment if reasonable and aimed at protecting legitimate interests.
Employers should draft these clauses carefully, keeping them narrow and linked to the protection of confidential information, rather than imposing blanket restrictions. Employees should be aware of their rights under Section 27 of the Indian Contract Act and seek legal advice before signing such agreements.
FAQs
1. Are non-compete clauses valid in India?
Non-compete clauses are valid only during employment, but they are generally void after employment under Section 27 of the Indian Contract Act, 1872. Courts view post-employment restrictions as a violation of a person’s right to earn a livelihood.
2. Can employers stop ex-employees from joining competitors?
No, employers usually cannot stop ex-employees from joining competitors. Any post-employment restriction on trade or profession is void in India. However, employers can enforce confidentiality clauses and NDAs to protect sensitive information.
3. What is a non-solicit clause?
A non-solicit clause prevents an employee (or ex-employee) from poaching clients, customers, or employees of their employer. It focuses on restricting solicitation rather than blanket competition.
4. Are non-solicit clauses enforceable in India?
Yes, non-solicit clauses can be enforceable, even after employment, if they are reasonable, specific, and aimed at protecting legitimate business interests like client lists, trade secrets, or employee stability.
5. What is the difference between a non-compete and non-solicit clause?
Non-Compete: Stops an employee from working with competitors or starting a competing business.
Non-Solicit: Stops an employee from contacting clients, customers, or employees of their former employer.
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