Non-compete clause for IT freshers in India unenforceable: Experts

Experts have stated that non-compete obligations are valid only during employment and cannot hinder an employee from joining a competitor post-employment

Indian IT giants like TCS, Infosys, Wipro, HCLTech, and Tech Mahindra include non-compete clauses in contracts for junior employees, ranging from 6 to 12 months. However, legal experts assert that these clauses are generally unenforceable and often amount to nothing more than serving a legal notice, according to report by The Times of India (TOI).

A non-compete clause refers to a legally binding agreement in employment contracts that prevents current and/or former employees from revealing any trade secrets learnt during their time with a corporation. It is usually binding for the time of employment and a specific period post-employment. They can also prevent an employee from working with a competitor or in a specific geographic location or market for a specified duration.

While these clauses may restrict freshers from joining competitors or customers for a specified duration, experts emphasise that, under the Indian Contract Act, any agreement that restrains trade beyond the employment term is void and unenforceable. Experts also clarified that non-compete obligations are valid only during employment and cannot hinder an employee from joining a competitor post-employment.

Last year, Infosys introduced a non-compete clause preventing employees from working on the same customer’s projects across five competitors for six months after leaving the firm. Wipro also incorporates a similar clause in its employment contracts.

Nasscom indicates a subdued hiring environment in the Indian IT sector, with an expected addition of 250,000-270,000 freshers in the 2023-24 financial year, compared to 370,000-380,000 in the previous financial year. The contractual non-compete clauses are viewed as attempts to curb attrition by deterring employees from joining competitors.

Employers are exploring novel approaches, such as staggered conditional payments, to incentivise compliance with post-employment non-compete agreements. This is especially important after the IT sector experienced high layoffs and hiring freeze over the last year.