Switching jobs? Delhi High Court makes big observation on non-compete clause - ‘Freedom of changing employment…'

Mint

6 hours ago

The Delhi High Court has held that employers cannot bar former employees from accepting new jobs, including those with their clients or associates. The court declared that any clause that compels them to choose between returning to their previous employer or remaining unemployed is not permitted under Indian law.
'An employee cannot be confronted with the situation where he has to either work for the previous employer or remain idle,' a Hindustan Times report quoted Justice Tejas Karia. 'Freedom of changing employment for improving service conditions is a vital and important right of an employee," he added.
The court also pointed out that post-employment non-compete clauses, which are common in contracts in various sectors, are 'void' under Section 27 of the Indian Contract Act, making any agreement that restrains someone from pursuing a lawful profession, trade, or business invalid.
The court also criticised such contracts that prevents employees from switching jobs. 'An employer-employee contracts, the restrictive or negative covenant are viewed strictly as the employer has an advantage over the employee and it is quite often the case that the employee has to sign standard form contract or not be employed at all," it said.
The case is regarding a software engineer who worked for the POSHAN Tracker project by the government while being employed at Daffodil Software. The project is owned by the Digital India Corporation (DIC). Following his notice period in April 2025, Tyagi joined DIC, the HT report said.
Following this, Daffodil Software filed a case against him, citing a contract clause preventing him from joining any 'business associate' for three years after departure. The district court prohibited Tyagi from working with DIC, leading him to seek relief from the high court.
However, the high court overturned the district court's order and permitted Tyagi to work at DIC and made key observations on employment rights.
The court stated that Daffodil had no grounds to stop Tyagi from joining DIC, as he was not involved in any proprietary software or confidential intellectual property. The court observed that all rights to the POSHAN Tracker project belonged to the government, not the private company.
The court clarified that companies cannot rely on broad clauses to restrict former employees from taking other jobs, particularly when those employees were not involved in creating any proprietary technology.
'Freedom of employment cannot be restricted merely because someone worked on a sensitive project, particularly when that project was not owned by the employer,' the court said. The freedom also applies to those employees who have once worked on sensitive projects, it added.
Additionally, the court reiterated that the Indian law does not enforce any agreement that prevents anybody from doing their job, unless it is about selling the goodwill of a business, an exception in Section 27.
The court also dismissed the argument that these clauses were justified as a means to prevent misuse of confidential information.
If the employer feels that there has been a breach of the contract, they can seek monetary compensation, but cannot prevent somebody from working, the court stated.