Affirmation Of Non-Enforceability Of Non-Compete Clause.

A non – compete clause in an employee agreement is being used frequently by most of the Employers but there are some uncertainties amongst stakeholders with respect to whether such clauses are enforceable in India or not. Section 27 of the Indian Contract Act explains that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is, to that extent, void.

The only exception provided in the said section is involving the sale of goodwill. The purpose of this exception is to protect the interest of the buyer in an agreement where the buyer has agreed to purchase the seller’s goodwill. In such circumstances, the seller may agree with the buyer from carrying on a similar business within specified local limits. What is important here is that there should be a genuine goodwill which can be sold. In absence of such real and genuine goodwill, all such agreements are likely to held void. In common parlance, the term “goodwill” indicates an intelligible advantage of reputation and trust which have been built by years of hard work by the business or person. Therefore, the restraint section declares all agreements void except in the case specified in the exception.

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