Employee Contract Law Case Study

A restrictive covenant or a covenant which restrains an employee to profess a certain profession after the termination of his employment, is a clause used in contracts under which the employee agrees to not pursue a similar profession, trade or business in competition against the employer. It is a clause forming a part of the contractual agreement of employment between an employee and employer. Such covenants restrict the employee, for a pre-determined time period, from using the knowledge acquired during the term of employment in their subsequent businesses. The effect of the clause diminishes the possibility of the employee using the trade secrets, trade connections or confidential information in a competing business after resignation or termination of employment. Apart from the regular employment agreements, such covenants are also at times included in the agreements relating to sale of goodwill of business or professional practice, employment exit and other exclusive dealings and service arrangements. The Indian Contract Act, 1872 provides for such agreements, the validity and enforcement of which has been under constant

The courts view them as "restraint of trade" which is not only impermissible under the governing law i.e. section 27 of the Indian Contract Act, 1872, but also violates the constitutional right under article 19(1)(g). It is considered to be against the public policy since it deprives the individual of his right to earn a livelihood as per their own potentials. The Indian courts have held that restrictive covenants and the clauses that restrain trade are to rendered futile if they prevent the employee from using his developed skills in another business effort or forces them to work outside the contours of their