Employers often incorporate a Non-solicitation clause in the employment agreement to prevent an employee or a former employee, during or after his employment, from
- indulging in business with other employees, or
- soliciting customers for his benefits.
Upon a breach of the non-solicit clause, the employer may seek advice on the legal recourse.
Indian Courts have enforced non-solicitation obligations on a case-to-case basis.
Following are some examples of court cases in India for dispute about non-solicitation clause:
Desiccant Rotors International Pvt Ltd v Bappaditya Sarkar & Anr at the Delhi High Court
The Company filed a lawsuit against a former Senior Marketing Manager to restrain him from contacting customers and suppliers.
The Senior Marketing Manager had signed an employment agreement that for two years after termination of his employment:
- He would keep the Company’s maters confidential and refrain from competing with the Company and soliciting customers, suppliers and employees
- He acknowledged that he was dealing with confidential matters of the Company including know-how, trade secrets and list of customers.
After a few years of employment, the Senior Manager resigned and, within three months, joined a direct competitor of the Company as Country Manager for Marketing and started contacting customers and suppliers of the Company.
The High Court allowed an injunction against the Senior Manager prohibiting him from soliciting the Company’s customers and suppliers.
However, the High Court rejected the Company’s claim to enforce the confidentiality obligations on the Senior Manager, reiterating Section 27 of the Contract Act and an individual’s fundamental right to earn a living by practicing any trade or profession of his choice.
FL Smidth Pvt. Ltd. v M/s. Secan Invescast (India) Pvt. Ltd. at the Madras High Court
A leading global OEM for cement plant machinery, the Company (FL Smidth) filed a suit against one of its former Vendors, claiming that the vendor has directly approached most of its customers with price quotations to supply equipment.
The Company had signed a Non-Disclosure Agreement with the Vendor that restricted the Vendor from quoting directly to its customers.
The Vendor contended that post-contract restriction is not legally valid and is against the provisions of Section 27 of the Contract Act because it restrains the right and any restraint could be enforced only during the period of the contract.
The Madras High Court dismissed the suit, holding that:
- The Company should prove that not only the Vendor approached its customers but also, merely on account of such solicitations, those customers placed orders with the vendor. Just establishing that the Vendor contacted customers by showing the Vendor’s quotations to the customers does not amount to a solicitation.
- The Company has to prove that because of such solicitation, a customer placed an order with the Vendor and the Vendor supplied equipment to those customers. If that’s established, the Company can be compensated by awarding damages.