Employee Cannot Be Restrained From Joining Rival After Resignation; Trade Secrets Protectable: Calcutta High Court

The Calcutta High Court has reiterated that a post-employment non-compete clause restraining an employee from joining a competitor after resignation is prima facie void under Section 27 of the Indian Contract Act, but clarified that confidentiality obligations and non-solicitation covenants aimed at protecting trade secrets and business interests remain enforceable.

Holding that an employer cannot curb an individual's right to livelihood by imposing blanket restrictions on future employment, the Court refused to injunct a former employee from joining a rival company. However, it granted limited protection to the employer by restraining the misuse of confidential information and solicitation of staff and clients.

Justices Sabyasachi Bhattacharya and Supratim Bhattacharya passed the order while considering an application seeking interim injunctions to enforce restrictive covenants contained in an employment contract.

The Court observed that Section 27 renders void any agreement in restraint of trade, except in narrowly recognised circumstances. A post-termination non-compete, which effectively prevents an employee from seeking employment elsewhere, directly offends this statutory mandate.

It noted that such clauses cannot be enforced merely because they are contractually agreed to, as “freedom of employment and livelihood cannot be contractually fettered beyond the tenure of service.”

At the same time, the Bench distinguished between restraint of trade and protection of proprietary interests, observing that an employer is legitimately entitled to safeguard confidential information, trade secrets, customer data, and its trained workforce.

The Court held that: “While a covenant restraining an employee from joining a competitor after cessation of employment is hit by Section 27, clauses protecting confidentiality and preventing solicitation stand on a different footing and are capable of enforcement.”

Accordingly, the Court declined the prayer to restrain the employee from taking up employment with a rival concern. However, it restrained the employee from:

- disclosing or utilising confidential or proprietary information of the employer,

- soliciting the employer's customers, and

- inducing existing employees to leave service.

The Court found that these restrictions were reasonable and necessary to protect legitimate business interests, and did not amount to a blanket prohibition on employment.

The injunction application was thus partly allowed, with protection limited to confidentiality and non-solicitation, while the prayer to restrain employment with a competitor was refused.

Case: Parraj Automobiles Private Limited – Versus – Mr. Samiran Sinha

Case No: FMAT No. 460 of 2025

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