Want assistance creating a Non-Compete Agreement? Contact Fincrat now! In India, Non-Compete Agreements are generally barred under Section 27 of Indian Contract Act, 1872. It is a legal contract between an employer and an employee (or a business and an independent contractor) in which the employee or contractor agrees not to engage in certain competitive activities that could potentially harm the employer's business interests.non-compete agreements can be a complex legal issue and can vary depending on the jurisdiction and the specific circumstances.
The Non-Compete Agreement is a legal document under which the "Restricted Party" (the party agreeing to not compete with the other party) agrees to not enter into the competition of any kind during and for such duration after the termination of the business relationship with the "Protected Party" (the party who wants to protect their business secrets).
Non-Compete Agreements can be used by a business to retain valuable employees, protect its confidential information and customers, and prevent unfair competition.
This Agreement ensures that the Restricted Party will not use the information or skills learned during the term of the business relationship to start a business and compete with the Protected Party in the Relevant Market (where the Protected Party does business or such geographical area specified under this Agreement), during or once the business relationship is over.In exchange for entering into this Agreement (restrictions), the Restricted Party must receive some form of compensation, known as Consideration, to be enforceable under the law. Compensation can be an offer of employment/project, compensation in terms of money or any other form of remuneration.
This Agreement also prohibits the Restricted Party from revealing any proprietary information or secrets to any other parties during or after the business relationship. Thus, the protection envisaged under this Agreement exists even after the termination of the business relationship. Agreement includes the Non-Solicitation Clause, under which the employee will be restricted from poaching the employees and customers of the Company.
Non-Compete Agreements are most often used in highly competitive industries like Information Technology, Media, Sales, and Marketing.
The Non-Compete Agreement has specific clauses stating the length of time the Restricted Party is bound to the non-compete agreement (Restricted Period). Under Indian laws, the Restricted Period has to be reasonable and not harsh to be valid and enforceable.
The Protected Party can also specify the geographical area for which this Agreement will be applicable and any special restrictions. The geographical area has to be limited and reasonable to be enforceable under the law. The geographic restrictions vary from business to business.
This agreement can be used for the existing as well as for the upcoming Employees/Consultants of the Protected Party. This agreement can be used as a Supplementary Agreement to the existing Employment Agreement or Service Agreement.
The Company can include a Confidential Clause or Non-Disclosure Clause in this agreement as per the requirement. This is used to protect the confidential information of the company. If the Parties want to fix more complete provisions concerning the confidentiality obligation (for instance: what should and should not be considered confidential information, for how long should they be kept confidential, etc.), they can sign a separate Non-Disclosure Agreement.
The Company can also include the Arbitration Clause in this agreement. Under the Arbitration, any dispute that arises between the parties will be referred to a third neutral person ("Arbitrator") appointed mutually by both the parties. The Arbitrator will hear both the parties and decide the case on its merits. The decision of the Arbitrator will be final and binding on both the parties.
To be a valid contract, both the Restricted Party and Protected Party along with two Witnesses must duly sign this agreement and execute on a valid stamp paper as specified under the respective state laws.
Non-compete agreements offer several benefits to businesses, employers, and stakeholders, depending on the industry and specific circumstances. Here are some of the benefits of preparing a non-compete agreements:
Protection of Intellectual Property: Non-compete agreements can prevent departing employees from using a company's intellectual property, trade secrets, proprietary procedures, and other important knowledge to the detriment of rival businesses.
Confidentiality: Non-compete clauses can strengthen confidentiality responsibilities by preventing departing employees from divulging confidential information to rival businesses or using it against their previous employer.
Preservation of Client Relationships: In sectors where maintaining client relationships is essential, non-compete clauses can stop employees from taking clients with them when they quit, preserving the client base and revenue sources.
Enhanced Business Value: Non-compete clauses can increase a company's worth, particularly in the course of mergers, purchases, or sales. If prospective purchasers or investors are aware that important staff are subject to non-compete agreements, they can be more motivated to invest.
Support for Growth and Expansion: By lowering the immediate fear of competition from departing employees, non-compete agreements can offer a certain level of stability for businesses looking to grow or diversify.