If you are considering restrictive alliances in your employment contracts, the devil is in the details and you need to show the necessary diligence and attention to know whether or not they are in a legitimate commercial interest. It is important that you get good legal advice when dealing with restrictive alliances, as the law is complex and applicability depends on the actions of your own company, the market sector and the structure. If an employer seeks a financial remedy or compensation for breach of a restrictive contract in an employment contract, the employer must justify some loss resulting from the infringement. These are usually losses for contracts or sales opportunities diverted by the employee. Section 27 Indian Contract Act and Restrictive Covenants finds the greatest confluence in terms of terms of payment, termination of service, breach of confidentiality, non-competition clauses or non-invitation clauses that give rise to disputes between employers and workers. A restrictive agreement is generally a clause in a contract prohibiting a worker from competing with his former employer for a certain period after the worker`s departure, or from preventing the former employee from using or using clients of the company by taking advantage of the knowledge of clients he acquired during his previous employment. A non-invitation clause is used to prevent a worker from acquiring clients from his employer (i.e. acquiring clients) or from asking other workers to leave their current jobs. Although there are laws in India that protect the owner of intellectual property rights, Indian companies still rely heavily on watertight employment contracts to protect their intellectual property and confidential information. Restrictive agreements can be used in employment contracts; However, it is essential that any employer who wishes to protect his business through these measures ensures that such restrictions are appropriate to be enforceable in court. Howard Robson, a partner in our labour law team, is investigating a recent court case in which an employer was able to do just that and successfully implemented the restrictions. The main points to bear in mind is that the applicability of restrictive alliances depends on state law and that the law varies by state. Many states have passed laws that provide courts in their jurisdictions with a framework they can follow, or assumptions about when such restrictions can be enforced.
However, the majority of states assess restrictive alliances on the basis of a “common sense test.” This is a factual test based on the common law. It provides that a restrictive pact is appropriate and therefore applicable if (1) its conditions are not greater than what is necessary to protect the legitimate commercial interest of the employer; 2. it does not impose unreasonable harshness on the former worker; and (3) it is not harmful to the public.