Negative Covenant Clause in Service Agreement

Now-a-days, it is becoming a popular practice by established companies to insert a negative covenant clause in their service agreement. Such clauses generally mean to restrain the outgoing employees of a company for a certain period from joining other company or practise similar trade themselves or jointly with others.

The Indian law does not recognize such restrictive agreements. As per Section 27 of the Indian Contract Act, 1872, such contracts to that extent are void and against public policy. No employee can be prevented from pursuing similar work if he/she quits the present one, merely on the pretext that it will be detrimental to the previous employer.

Gujarat High Court in this context, in the case of Sandhya Organic Chemicals v. United Phosphorous held that, an employee cannot be prevented from utilizing the knowledge and experience that he has gained while being in employment.

Though, such post termination restraint agreements are void, confidentiality and non-disclosure agreements are valid and effective.