September-2016

For Private Circulation and information purpose only. 


Employers can’t restraint employees from doing trade, business or profession

Delhi High Court recently in M/s Stellar Information Technology Private Ltd. Vs. Rakesh Kumar & Ors case passed a judgment in favour of the former employees who were restrained from carrying on their own business.

In this case Plaintiff is a private company and engaged in the business of Data Recover. The plaintiff provides wide range of data recovery, data migration and data erasure solutions to its clients in India and abroad. The Plaintiff claimed that three of their former employees were stolen the list of their clients including phone numbers and contact details of the concerned persons. Plaintiff claimed that the former employees had also not returned the laptop provided to them during their employment. The plaintiff claimed that the employees had also access to the Plaintiff’s confidential data, trade secrets and know how and they are using the same for securing business from the Plaintiff’s clients for their own company and that it was in breach of the “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement” entered into by the former employees with the plaintiff.

 

The court observed that the name of the customers seeking data recovery services are well-known and in public domain as it is available on the plaintiff company’s website. Further, the employees are also not technically qualified and/or were not involved in the technical operations and hence it would be difficult to accept that the employees would have removed or copied any information relating to any technical process. Therefore the former employees cannot be restrained from approaching the customers only on the allegation that the employees are aware of the names of the Plaintiff’s customer. The employees also could not be prevented from using the experience and knowledge, which is gained by them during the course of employment with the plaintiff.

The court said that the contract that defendants could not be permitted to carry on any competing business is also void (invalid) by virtue of Section 27 of the Indian Contract Act, 1872. The Court said that negative contract between employer and employee pertaining to the period post termination and restricting an employee’s right to seek employment and/or to do the business in the same field as the employer would be in restraint of trade and, therefore, stipulation to this effect would be void.

Based upon the above conclusion the Court dismissed the appeal.