Restrictive Covenants In India: Evolving Trends In Employment Law

Restrictive covenants remain central to Indian employment law debates, given the country's persistently high attrition rate, 17.4% in 2024, marginally improved yet still a significant concern for businesses and corporations.¹ Beyond the statistics, high attrition leads to the loss of valuable talent and may harm an organisation's external reputation.

In response, many organisations have increasingly begun incorporating such clauses into their agreements to address the rising challenges of employee turnover, moonlighting as well as the loss of expertise, creativity and investment in employee training.

While potentially useful, such clauses are counterproductive if not inadequately worded, considering that their enforceability is subject to judicial scrutiny under Section 27 of the of the Indian Contract Act 1872 ("ICA"), which voids agreements in restraint of trade except in the sale of goodwill.