IT employees, Negative Covenants and Employer Practices : An overview

There has been much debated about the legality of negative covenants. Even though Section 27 of the Indian Contract Act, 1872, which states that any agreement by which a person restrained from exercising a lawful profession or trade or business of any kind is to that extent void, and prohibits an employer from obstructing his employee from joining a competitor.

However negative covenants, can be considered an necessary industry practice due recent occurrences in the corporate world, especially IT & ITES industry. Incidents such as  employees leaving their companies with valuable trade secrets, Intellectual Property etc., or for that matter or other sensitive information, or even moving for better prospects during the tenure of their agreements. On the  flip side  employers placing unfair negative covenants in employment agreements too have become common in today’s corporate ecosystem.

Employers nowadays seek Bank Guarantees, postdated cheques, original certificates etc. of recruits in order to protect their interests against employees quitting unfairly or pilfering trade secrets or company Intellectual Property.

One can conclude that it is as wrong and unfair for employees to quit their jobs in contravention of their employment agreements as it is for employers to make unfair terms of employment. Every employer must bear in mind that trade unions, even among the blue collared are now a reality and that unfair employment terms, unrealistic and draconian restrictions in employment agreements will serve to highly exacerbate the problem. Read about the present position of law on this subject and the things an employer and employee must keep in mind with regard to negative covenants in employment agreements here.