BENGALURU: Many Indian IT C-suite executives are joining direct competitors without any cool-off period. HR consultants say most would have non-compete clauses in their employment contracts, but that does not seem to bother them. Because such clauses are not enforceable in courts. There was a time when executives’ contracts had 6-12 months of non-compete obligations.
Ravi Kumar joined Cognizant as CEO in January, less than three months after he quit Infosys as president. Another Infosys president, Mohit Joshi, joined Tech Mahindra soon after leaving the former. Jatin Dalal, who quit Wipro as CFO a few days ago, is likely to join Cognizant as CFO early next year. At least a dozen other senior executives have similarly crossed over to competitors.
These leaders are privy to sensitive deal pricing, client milestones, financial obligations, post-acquisition integration, penalty clauses and market-moving competitive business intelligence. That’s the reason why companies have non-compete clauses.
According to Law firm Nishith Desai Associates says courts in India frown upon any form of post-employment restraint, as such restraints are considered to limit the economic mobility of the employees, thereby limiting their personal freedom of choice of work/livelihood.
Pooja Ramchandani, partner for employment, labour, and benefits in law firm Shardul Amarchand Mangaldas, says the obligation of non-compete cannot extend beyond the term of employment. “This is because the Indian Contract Act 1872 prohibits any agreement which is in restraint of trade. Therefore, any obligation of non-competition which extends beyond the term of employment is void ab initio and not enforceable. This principle has been upheld in a plethora of judgments. Even in cases where there is a monetary consideration for non-compete, an employee cannot be restrained from joining a competitor and the only relief that may be claimed is damages if there is a loss. That said, non-compete provisions still found place in employment contracts especially of senior level employees. The provisions usually acted as a deterrent factor when conjoined with non-disclosure and non-solicitation obligations,” she says. A non-solicitation clause prevents former employees from indulging in business with the company’s employees or customers against the interest of the company.
Ramchandani says parties to a contract are aware of the legal tenability of the restrictions pertaining to non-compete and non-solicitation. “As a result, these obligations have seen a change in its applicability and enforcement,” she says.
Page Source : TOI
