Many employment contracts contain restrictions on what an employee may do during and after the job. These are called negative covenants. Courts judge each one by reasonableness and by section 27 of the Indian Contract Act, which makes agreements in restraint of trade void.
1. Non-compete during employment
During the job, a clause stopping you from working for a competitor is usually valid. Courts accept this because you owe loyalty to your current employer (*Niranjan Shankar Golikari v. Century Spinning*, 1967).
2. Non-compete after leaving
A clause that says “you cannot work with a competitor for 1 or 2 years after leaving” is generally not enforceable in India, however it is worded. Courts treat the right to earn a living as important. Employers usually have better luck relying on confidentiality and trade-secret law.
3. Confidentiality
You cannot use or reveal the employer’s confidential information, such as client lists with pricing, source code, formulas or strategies. This protection exists even without a written clause and continues after leaving. Misuse can lead to an injunction and damages.
4. Non-solicitation of customers and employees
- Customers: Courts apply the same test as for non-competes. A bare ban on dealing with customers after leaving is often held void, unless it is protecting confidential information.
- Employees: Courts have taken different views. Clauses preventing you from poaching colleagues are sometimes enforced for a short, reasonable period, but are not guaranteed.
5. Notice period
You must serve the notice period in your contract, or pay in lieu if allowed. The employer may recover reasonable amounts for breach, and can ask for a relieving letter to be withheld only if the contract permits it. Disputes over experience letters and full-and-final dues are common.
6. Service bonds and training costs
A minimum service period with a payment if you leave early is often upheld if the amount is reasonable and linked to a real investment (such as training). The Supreme Court in 2025 (*Vijaya Bank v. Prashant B. Narnaware*) accepted such a bond in a public sector case. A very large or unrelated penalty can be reduced under section 74.
New labour codes
The four Labour Codes came into force on 21 November 2025. They tighten rules on final settlement of dues (payment within two working days of exit) and appointment letters, so check your contract and settlement papers.
Tips for employees
- Read the covenant clauses before signing
- Do not take company files or emails when you leave
- Serve your notice and get written confirmation
- If you get a legal notice, reply through a lawyer
Tips for employers
- Draft narrow clauses protecting real confidential information
- Use specific confidentiality and IP assignment terms
- Keep clear records of what is confidential
Frequently asked questions
Can my employer stop me from joining a competitor?
Mostly not after you leave, unless you misuse confidential information or break a valid term. During the job, yes.
Can the employer hold my salary or documents?
Not unlawfully. Dues must be settled as per law and contract. Labour codes require settlement within two working days of exit.
Is a bond of two years enforceable?
It can be if reasonable and for a genuine cost, but can be reduced if excessive.
What if my employer sues me?
Get the contract and documents reviewed quickly and respond through a lawyer. Time to reply is usually short.
Tell us briefly what has happened and we will guide you on the next step. Hemanth & Associates, Malleshwaram, Bengaluru.
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Last reviewed: October 2026. This article is for general information only. It is not legal advice and does not create an advocate-client relationship. Laws, fees and procedures change, and every case depends on its own facts, so please consult a qualified advocate before acting. In line with Bar Council of India rules, this page is not an advertisement or solicitation.
