A non-compete agreement (NCA), also known as a restrictive covenant, is a legal contract between an employer and an employee that prohibits the employee from working for a competitor or starting their own business in competition with the employer after the employment relationship
ends. In India, NCAs are governed by the Indian Contract Act, of 1872.NCAs are typically used to protect an employer's legitimate business interests such as confidential information, trade secrets, customer relationships, and other proprietary information. In India, NCAs are generally enforceable if they are reasonable in scope and duration, and do not impose an undue hardship on the employee.
The NCA typically includes the following elements:
- Identification of the parties involved: The NCA should identify the employer and the employee who is bound by the agreement.
- Description of the confidential information: The NCA should specify the confidential information that the employee is prohibited from disclosing or using after the employment relationship ends.
- Restrictions on the competition: The NCA should state the specific restrictions on competition that the employee is subject to after the employment relationship ends. This could include a prohibition on working for a competitor, starting a competing business, or soliciting the employer's customers or clients.
- Duration of the restrictions: The NCA should specify the duration of the restrictions on competition, which should be reasonable concerning the legitimate business interests being protected.
- The geographic scope of the restrictions: The NCA should specify the geographic area in which the restrictions on competition apply.
- Consideration for the NCA: The NCA should state the consideration for the agreement, which could be the employee's continued employment, a severance package, or some other form of compensation.
- Enforcement provisions: The NCA should include provisions for enforcement, such as arbitration, mediation, or a requirement that disputes be resolved in a specific court.
- Signatures: The NCA should be signed by both the employer and the employee to confirm that they have read and understood the terms of the agreement and agree to be bound by them.
It's important to note that in India, the NCA's are not registered with any government body and it is a private contract between parties. Additionally, the NCA's are subject to the Indian Contract act and need to be reasonable in terms of their duration and geographical scope and must not be overly restrictive.For an NCA to be valid in India, it must be in writing, and it must be signed by both the employer and the employee. Additionally, the NCA should be reasonable in terms of its duration and geographical scope, and should not be overly restrictive.
It's worth noting that, in India, the courts have the power to modify the terms of the NCA if it is found to be too restrictive and impose an undue hardship on the employee. Additionally, the court may also refuse to enforce the NCA if it is found to be against the public interest or if the employer has not taken reasonable steps to protect their confidential information.