Post-Employment Non-Compete Clauses: The “Reasonableness” Standard

Introduction

In the competitive economy, businesses generally go to great lengths to protect their intellectual property, clients and specialised internal processes. ‘Non-compete clause’ is the most common tool for this purpose. It is a contractual agreement that prohibits an employee from working for a competitor after leaving their current job. However, in India, these clauses face a unique obstacle, i.e., Section 27 of the Indian Contract Act, 1872. The Act expressly states that any agreement in restraint of a lawful profession, trade or business is “to that extent void”. Though other countries permit lawful restrictions if they are deemed ‘reasonable’, India sees them as a violation of a person’s fundamental right to earn a livelihood.