With time, there has been a great deal of development in the industrial field which has

called for the formulation of a coherent and approachable understanding of industrial

relations. The industrial disputes are no more only subject to two classes- labour and
employer but has evolved into a new class as ‘White Collar Employees’ who perform
managerial, professional and administrative tasks as compared to ‘Blue Collar’ who
are involved in manual labour.

Employment Contracts

The employer-employee relationship has always been a topic of legal discussion. It

has constantly been evolved and witnessed many changes in the recent past and
present. Several laws have been enacted to strike a balance in the relationship between
employer and employee. These laws have broad ambit and include within their scope
in all areas of the employer- employee relationship and are not merely restricted to
contractual issues or workplace discrimination. Thus, the present Article intends to
bring into light the various aspects of Employment Contracts in India.

What are employment contracts

A contract of employment is a bilateral agreement for the exchange of service and

remuneration over a period of time. Employment contract is that form of contract for
personal service which the courts recognize as expressing the social relationship of
employer and employee, as opposed to the other relationships

Like any other contract in India, an employment contract also consists of the
following essential features- offer, acceptance, consideration, competent parties, legal
object and free consent.

Peculiar Aspects of Employment Contracts: restrictive of covenants in India

Incorporation and subsequent enforcement of restrictive covenants in employment

contract such as non-disclosure of information, non-solicitation agreement, non-
competition agreements, etc has always been contentious issues in India as they are in
conflict with the provisions of section 27[4] of the Indian Contract Act, 1872.

Non-Competition restrictions[5]– An agreement in restraint of trade has been

defined as one in which a party agrees with any other party to restrict his liberty in
future to carry on trade with other persons who are not parties to contract in such
manner as he chooses.

Employers often tend to incorporate restrictive covenants in the agreement to protect

their confidential information and trade secrets as well as their growing business. For
any restrictive covenant to fall within the ambit of Section 27 of the Contract Act, the
agreement has to be in restraint of trade. To determine whether a restrictive covenant
in employment contract would be reasonable and valid or not, the courts have paid
due regard to bargaining power of each party, reasonableness of restrictions set out in
the covenant, time, place and manner of restriction etc.

Section 27 of the Contract Act has been applied in the context of (1) employer –
employee contracts, (2) contracts with partners, (3) dealer contracts and (4)
miscellaneous cases.

Non- solicitation of employees and customers[6]– A non-solicitation clause

prevents an employee or a former employee from indulging in business with the
company’s employees or customers against the interest of the company. For example,
an employee agrees not to solicit the employees or clients of the company for his own
benefit during or after his employment.

In Desiccant Rotors International Pvt. Ltd v.Bappaditya Sarkar& Anr,[7] the

Delhi High Court allowed an injunction against the manager prohibiting him from
soliciting Desiccant’s customers and suppliers to stand in effect. It is pertinent to note,
however, that the Delhi High Court held that a marketing manager could not be
deemed to possess confidential information and that his written declaration to that
effect in his employment agreement was meaningless and thus rejected Desiccant’s
claim to enforce the confidentiality obligations on the manager.

Non- disclosure of confidential information– The employee is required to take

necessary steps to not disclose any confidential information till the time it is not
necessary to do so under any law in force. He shall also comply to not disclose the
confidential information with any other organization or company unrelated to its
company.
Non- poaching agreements– This class of restrictive agreement is carried between
two employers. This type of agreement essentially considers the case wherein two
organizations/companies agree not to solicit or ‘poach’ the employees of their direct
competitors. Non-poaching agreement per se does not contravene section 27 of the
Contract Act as it does not restraint an employee from seeking and/or applying for
any job/employment. What this class of agreement does instead is, it simply mandates
that one competitor should seek the consent of the other before hiring that other
competitors’ employee/s.[8]

Section 3 of the Competition Act, 2000, states that agreements which are anti-
competitive in nature are banned. Thus, any non- poaching agreement which is anti-
competitive in nature would be unlawful.

Possible ways to enforce restrictive covenants[9]

1. Serve the employee with a legal notice.

2. Seek enforcement of undertaking or encashment of cheque based on
clauses of the agreement
3. Initiate civil suit seeking injunction/specific
4. Performance of contract as well as damages.

Conclusion

The employment contracts have come a long way in the modern industrial era. Any
agreement which is anti-competitive or any agreement which restrains the prospective
employee from practicing the profession of his choice or carrying out any trade
activity is unlawful as well as immoral. Reasonable restrictions in employment
contracts are valid and generally do not lead to any legal consequences. Thus, the
presence of employment contracts ensures that all the terms and conditions of
employment are specifically laid down and properly understood by both employer and
employee.