Employment Contracts in India - Nishith Desai

1 MUMBA I S I L IC O N VAL L E Y BA N G A LO RE SI N G A P O RE M U M BA I B KC NE W DELH I MUNIC H NE W YORK. Employment Contracts in India Enforceability of Restrictive Covenants February 2018. Copyright 2018 Nishith Desai Associates Employment Contracts in India Enforceability of Restrictive Covenants February 2018. Nishith Desai Associates 2018. Provided upon request only Nishith Desai Associates 2018. Employment Contracts in India Enforceability of Restrictive Covenants Contents 1. INTRODUCTION 01. 2. RISE OF A NEW BREED' OF Employment . RELATED DISPUTES IN India 03. I. Pre-Hire 03. II. During Employment 04. III. Termination 04. IV. Post- Termination 05. 3. THE STATUS OF RESTRICTIVE COVENANTS IN India 06. I. Non-Competition Restriction 06. II. Non-Solicitation of Employees and Customers 08. III. Non-Disclosure of Confidential Information and Trade Secrets 10.

2 IV. Difference between Trade Secrets and Confidential Information 12. V. Training Bonds 13. VI. Non-Poaching Agreements 14. 4. POSSIBLE WAYS TO ENFORCE RESTRICTIVE COVENANTS 15. 5. EMERGING TRENDS 16. 6. INDEX OF CASES 17. Nishith Desai Associates 2018. Provided upon request only Nishith Desai Associates 2018. Employment Contracts in India Enforceability of Restrictive Covenants 1. Introduction The employer-employee relationship is, and trade secrets and confidential information has always been, in a constant state of evolution. manifest themselves in the use of restrictive'. As the nature of this relationship evolves and agreements between employers and employees, changes, so does the nature of disputes that which place limitations and restrictions on the arise as a result of diverging interests, which the latter pertaining to the manner in which the employer and employee seek to protect in their employees are allowed to use and disseminate interaction with each other and the society in the information they become privy to solely, general.

3 Several laws and legislations have been as a consequence of being in the service of the drafted to create an appropriate framework to employer. address these concerns with an objective to When contrasted with the employees'. reasonably balance the interests of employers constitutional and statutory rights to and employees. Such Employment laws have pursue occupations of their choice and a broad ambit and include within their scope earn a livelihood, by using the full array of all areas of the employer-employee relationship knowledge and skill at their disposal, the and are not merely restricted to contractual diverging interests sought to be advanced issues and/or workplace discrimination. by employers (for protection of confidential Globalization coupled with easy accessibility information to retain the competitive edge').

4 Of advanced technology has had a phenomenal promise to form a fertile ground for contentious impact on the employer-employee relationship disputes between the employers and employees in India . The new economic policy announced in the near future. This research publication in 1991had signaled a decisive shift in economic focuses on the analysis of the legal framework policies of the government from regulation to existing in India to address such emerging liberalization. Further the advent of various concerns in the relationship between employers multinational companies has substantially and employees along with developments changed the relationship between employers through various case laws. and employees and the nature of disputes The legislations governing several aspects arising between them. While an increasingly of the employer-employee relationship liberalized market has promoted healthy existing both at National and State level competition between businesses, it has are so numerous, complex and ambiguous, also resulted in accordance of significant that they tend to promote litigation rather importance to protection of innovative ideas, than providing easy solutions to potential proprietary information, internal workings and problems.

5 However, concerns of employers mechanisms which lend firms the competitive and employees relating to protection of edge' to thrive in the present economic confidential information, non-disclosure and environment. The objective to protect the non-solicitation have not yet been addressed competitive advantage' has in turn resulted through legislation in India , thus warranting in concerns of potential misuse of confidential recourse to judicial interpretation and common and proprietary information of employers by law. There is profound inconsistency within employees, especially before hiring, during, the judiciary itself when it comes to developing and post termination of, their Employment . appropriate standards of review for addressing With a distinctive cross border flavor in these emerging contentious Employment contemporary transactions, instances of related issues relating to confidentiality and organizations attempting to protect their non-solicitation.

6 Nishith Desai Associates 2018 1. Provided upon request only This paper seeks to provide an overview of such concerns. Further, this paper also assesses the scenarios in which such disputes may the validity of various restrictive covenants arise between employers and employees, which are increasingly being incorporated in and highlights the need for formulation of Employment Contracts . a coherent legal framework in order to address 2 Nishith Desai Associates 2018. Employment Contracts in India Enforceability of Restrictive Covenants 2. Rise of a New Breed' of Employment Related Disputes in India As we are moving towards a knowledge-based I. Pre-Hire economy, the quest for formulation of a coherent and appropriate understanding It is possible that dispute may arise even of the ever-evolving concept of industrial before a person is hired as an employee of relations has become one of the most delicate a company.

7 Cases where a new recruit has joined and complex challenges. The disputes in the Employment without duly terminating his present context are not just applicable to the agreement with the previous employer may pose two classes that are the employees (labour) and risk of potential disputes, both for the employee the employer (management/owners), but also and the new employer. The employers take to a new work force - the White Collar , a third great effort in creating intellectual property and class that has emerged as a result of adoption of proprietary information, and in protecting its a liberalized economic regime. The term white- confidential information. Such situations are also collar' worker refers to a person who performs possible in today's age, when a prospective professional, managerial, or administrative or a newly hired employee has a post-termination work which is in contrast to a blue-collar obligation (which include non-disclosure worker, whose job requires manual labour.)

8 Of confidential information, non-solicitation, non-compete etc.) with an erstwhile employer The emergence of this new class has made which he or she might have breached. Typically, the system more complex. In the past, the such disputes would arise between the erstwhile majority of the disputes arose between the employer and employee. However, there have workers/ labourers or the unions comprising been instances where the prospective employer the working class and the employers, which has also been dragged into litigation, by taking the were sought to be addressed through various position that the new employer is encouraging enacted laws to protect the interests of the and assisting the employee to breach his weak. These laws also envisioned resolution obligations towards the previous employer. of disputes between the trade unions and the management for their rights, which Further, many companies have a pre- Employment were perpetrated either through strikes, screening policy, with an objective of gaining bandhs or hartals.

9 A degree of certainty that the potential employee does not have a criminal record involving However, as the complexities in the work dishonesty, or breach of trust involving field increased, the White Collar' workers his/her fiduciary or official capacity, often found themselves engaged in various or has not misused his/her official or fiduciary matters related to breach of fiduciary position to engage in a wrongful act including responsibilities, corporate defamation, and money laundering, fraud, corruption etc. corporate law non-compliance. They are also Such a screening policy may raise concerns of engaged in issues regarding payment terms, violation of the right to privacy of the persons termination of service, breach of confidentiality, being subjected to such screening, as the mode non-compete or non-solicitation clauses adding and manner of gathering such information a new domain to the concept of industrial may violate rights of individuals guaranteed relations.

10 The legal framework addressing the under Article 21 of the Indian latter is still at a nascent stage in India . This Part discusses the situations where such disputes may arise between employers and employees at 1. Vikram Shroff & Neha Sinha, Background Checks in India , various stages of their relationship. Society for Human Resource Management (2012) available at http:// Nishith Desai Associates 2018 3. Provided upon request only The Nine Judge Bench of the Supreme Court in A. Employment Related Disputes Justice Puttaswamy (Retd.) v. Union of India Misconduct or indiscipline of an employee, and recently held that the right to privacy insider trading, indulging in criminal activities, is protected as an intrinsic part of the right to under-performance, breach of the terms of the life and personal liberty under Article 21 and Employment contract or HR policies/code of as a part of the freedoms guaranteed by Part III.