Non-Compete Agreement

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.

Non-Compete Agreements are most often used in highly competitive industries like Information Technology, Media, Sales, and Marketing.

Common situations requiring the use of Non-Compete Agreements include the following:

• The Employer wants to ensure that the Employee does not use the inside information about the business to start a competing business during or after the termination of the employment.
• A Company terminating its relationship with a Contractor or a Consultant and wants to ensure that the Consultant will not use the business inside information to start a competing business or help its competitors.
• Business Partners terminating their business relationship.
• Merger or Acquisition of two companies.

The agreement can be used at the initial stage or during or at the time of termination of the business relationship.

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.

This Agreement includes the Non-Solicitation Clause, under which the employee will be restricted from poaching the employees and customers of the Company.

How to use this document?

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.

Applicable laws

In India, Non-Compete Agreements are generally barred under Section 27 of Indian Contract Act, 1872. But the Supreme Court of India in the recent judgements has specified that certain types of Non-Compete Agreements can be enforced to protect the genuine interests of the Companies. A Non-Compete Agreement will be enforceable under the Indian Contract Act, 1872.

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