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OT: Are Non-Competes Legal in India? Mostly, No.


Employers routinely hand out pre-drafted agreements that contain clauses like: You will not be employed in a firm that competes with [Company] for a period of two years after the termination of this agreement.” These clauses are supposed to deter employees from joining competition and taking away years of effort in training and what not.

Some startups are trying to get over this by creating non-compete agreements their employees have to sign.

Not Enforceable?

While this may be legal in some parts of the US, such contracts are almost definitely not enforceable in India. There is an “Indian Contract Act” in which there is a Section 27, which states that you can’t deny a person the right to livelihood. Restricting a person from working, even with a competing firm, for a few years, is a restriction on that right, as many judges have ruled.

You can read these two links to see case history on what other people have tried:

Case history shows how the courts have frowned about restrictions after the termination of a contract. Courts understand that employees have little bargaining power at the time of signing a contract and will sign what they are given, or stand to lose a job. In one case in 2009 where the company said they wanted to protect their trade secrets, the court said:

the High Court ruled that 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.

Employees should resist signing non-competes, but in the choice of that or no-job, might as well sign knowing that the contract is illegal and unenforceable. (And you can say it as much over an email to have it on record)

Yet, I’m not a lawyer. So my opinion should be taken as such.

The Fear Factor

One reason for an employer to offer a non-compete is that employees are afraid they’ll get sued, so they won’t go join competition.

After going through a long civil case recently (eviction of a non-rent-paying tenant) I have realized that much about the fear of the law and courts is overrated. The fear that someone will take you to court is a misguided one.

People, and educated folk, are afraid they will have to spend years going to court, even if they are likely to win. And that it will cost so much money. An understanding of the legal process is probably way off-topic for this blog (and I’m not the right person to explain) but it’s not as bad as it sounds. Even if a company does sue, the cost isn’t much. Lawyer costs at lower courts aren’t too high. Your new employer might even bear it for you! (If you’re worth suing, you’re worth defending)

What about the future?

One fear is that the law can be changed, and such contracts suddenly become enforceable. However, laws don’t generally change to disadvantage people that much – after all, the right to livelihood is a solid argument. At the very least I expect that an employer will have to pay your market salary or more, even in the off-chance that they allow non-competes against employees enforced (highly unlikely in my opinion).

What do startups do?

Don’t bother with non-competes, unless some investor kicks up a fuss. Then do non-competes but tell your employees how it is.

Then how do you protect your company? Answer: keep secrets when you must. People will leave. People you trust. You have to let them go if they will, or make them want to stay.

They will demand obscene salaries. Raise the money. This is why you exist, as an entrepreneur. If you think they deserve the pay – if their obscene demands would have been met if only you had the money – then it’s your job to raise it. I know I will face this problem, because people are motivated by money or by the belief that they are contributing to something that will change the world. If you truly are changing the world, you will easily raise money. Either ways, you need that money.

Secondly, put reasonable redundancy and security. Make sure employees take holidays – that way you know what happens if they’re not around. Put up proxy servers and track traffic, even if you aren’t likely to use it (I once found a massive issue with a couple guys through chat transcripts – they were planning to steal our code and such.) You gotta trust people until someone betrays you, and then you need to have that audit trail to figure out everything that person did!

Finally, work on making people want to stay. At a service company, my ex-boss would do this – everyone gets a one-year salary as a bonus if they stuck around for three years. That way, after two years, when the employee was at his productive best, he wouldn’t leave for another year at least – the prospect of getting a large amount for just another 12 months was too attractive. This may not work for you, but you can do other things – remember though that how you motivate people ensures they will stay or leave. (People usually leave their managers, not their companies)

This is off-topic, but it came to mind today. Back to regular programming after this.


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