1. Introduction
It is common for employers to include restrictive covenants in employment contracts such as exclusivity, non-compete and non-solicitation. The intent behind these covenants is to protect employers by preventing employees from releasing sensitive information, misusing business relationships or join competing business while serving the employer. The challenge, however, lies in balancing these covenants with employee’s fundamental right to pursue their profession. Under Section 27 of the Indian Contract Act, 1872 , any agreement that is in restraint of exercising a lawful profession, trade, or business is void except when it reasonably restricts the employee from entering competition to protect the interest of the employer’s business. The sole statutory exception is in the case of the sale of goodwill of a business, where the seller may agree not to compete within specified limits so that the buyer can benefit from the goodwill. Beyond this, Indian courts have developed a body of jurisprudence allowing certain restrictive covenants to be enforced subject to certain conditions.
The validity of restrictive covenants is assessed on case-to-case basis. Courts scrutinize restrictive covenants closely, upholding them by taking into consideration their scope, employee’s role, the tangible business interests being protected and their reasonableness. This newsletter examines how jurisprudence has evolved around restrictive covenants, focusing on their application during and post-employment, and the principles employers should keep in mind while drafting employment agreements.
2. Enforceability of restrictive covenants during employment
Jurisprudence recognizes that an employer can expect fidelity from employee while they remain in service. Accordingly, restrictive covenants imposed during employment are usually upheld provided they are appropriate, proportionate, and necessary to protect legitimate business interests. The assessment involves examining their scope, duration and whether they unduly hinder the employee’s ability to work. Each factor plays a distinct role, and understanding how they interplay is crucial.
(a) Scope: Restrictions must focus on specific activities relevant to the employee’s role and avoid overly broad restrictions that would prevent the employee from working. They should clearly identify the types of work, the clients or markets affected, and, where relevant, the geographic area covered by the restriction. For example, a clause restricting an employee from soliciting certain clients in a defined region is more likely to be enforceable than a country-wide prohibition. In Gujarat Bottling v. Coca-Cola[1], the franchisee was contractually obligated not to manufacture, sell, or deal in beverages of any other brand except Coca-Cola. The restriction was narrowly tailored as it prohibited the bottling company from engaging with other beverage brands but did not bar them from engaging in other forms of business or trade unrelated to Coco-Cola’s operations. When the franchisee attempted to provide services to Pepsi and served Coco-Cola a 90-day termination notice, Coco-Cola obtained an injunction from the Bombay high court which was later upheld by the Supreme Court (“SC”). SC upheld this restriction, emphasizing that it was narrowly drawn to protect Coca-Cola’s distribution network without imposing an undue restriction on the franchisee’s overall ability to trade or engage in other forms of business. The decision illustrates that enforceability depends on whether the covenant pinpoints a defined commercial activity and a concrete business interest, rather than imposing blanket prohibitions that deprive all avenues of work.
(b) Duration: Even for restrictive covenants that apply only during employment, the length of the restriction must be proportionate and reasonable. Covenants that are too long or overly broad that unnecessarily hinder an employee from performing lawful work, while a clearly defined timeframe ensures a safeguard for employer’s legitimate business interests without unduly restricting the employee. In Makhanlal Natta v. Tridib Ghosh,[2] an actor contracted for performances during Durga festival was restricted from working elsewhere for the duration of the show by the producer. The producer had invested a large sum to appoint supporting actors, writers and to advertise the show. When the actor refused to perform, the producer was able to obtain an injunction which prevented the actor from working elsewhere during that period. The Calcutta high court upheld the restriction as reasonable, highlighting that limitations were strictly limited to the duration of the show and necessary to protect the producer’s investment.
(c) Legitimate business interest: This involves identifying when the restrictive covenant is aimed at protecting identifiable business interest that an employer seeks to protect, such as trade secrets, client relationship, recouping costs of specialized training, IP confidentiality, prevention of dual employment. The critical test is whether the employer faces a real and measurable risk if the covenant is not enforced. Restrictions cannot be justified on the basis of vague apprehensions of competition. For example, a junior employee with no exposure to sensitive information or clients would not justify a non-compete, since the likelihood of harm is negligible. By contrast, where an employee has undergone specialized training or acquired confidential technical knowledge, the employer’s vulnerability to misuse of that knowledge is significantly greater, making the restriction necessary.
This was articulated in Niranjan Shankar Golikari v. Century Spinning[3], where the SC dealt with case of supervisor in tyre-cord manufacturing business who had underwent a specialized training for 9 months. During this period, he acquired confidential information and technical know-how about his employer’s business. His employment contract required him to devote his services exclusively to the company, maintain confidentiality of trade secrets and technical processes, and refrain from joining competitors during his 5-year employment term. After completing his training, supervisor resigned and joined a direct competitor. However, he was prevented as the SC held that the was reasonable and directly linked to protecting the employer’s investment in training and protecting confidential knowledge.
Similarly, when employees possess access to proprietary knowledge or client-facing methods, the risk to the employer of their disclosure is concrete. In Embee Software[4], employees who possessed knowledge of proprietary software and unique client servicing methods were restrained from approaching the company’s clients. The Court granted an injunction underscoring that enforceability depends on whether the restriction addresses a real risk to the employer’s legitimate business interests, and not merely a speculative or generalized fear of competition.
A related issue that has gained prominence in the work-from-home era is moonlighting or dual employment. Moonlighting refers to an employee taking up a second job while remaining employed at their primary workplace. Such practices create conflicts of interest, distraction from primary duties, reduced focus and productivity and risks of disclosure of confidential information, directly affecting the employer’s legitimate business interests. Labour laws, including state-specific Shops and Establishments Acts and the Industrial Employment (Standing Orders) Rules prohibit secondary employment as it conflicts with primary responsibilities or adversely affects the employer.
3. Enforceability of covenants post-employment
Restrictive covenants that operate after an employee leaves employment are subject to a stricter standard. This is because they inherently restrict employee’s right to livelihood. Unlike restrictions during employment which are justified by the employer’s right to expect fidelity and diligence, Indian courts therefore approach post-employment restrictions with caution. They are not automatically unenforceable, but are likely to be upheld where the employer can show that the covenant is narrowly tailored and necessary to prevent concrete harm. Merely citing potential competition or making generalized assertions of risk is not sufficient. The employer must establish a clear causal link between the employee’s post-employment activity and a tangible risk of harm such as loss of clients, misappropriation of intellectual property, or erosion of commercial advantage. Where such a link is missing, courts have struck down restrictions as void restraints of trade.
For instance, in Wipro Limited v. Beckman Coulter[5], employees that were leaving Wipro and joining Beckman had extensive access to client databases, product knowledge, and proprietary information. Their potential to solicit clients and use sensitive knowledge posed a real threat to Wipro’s business. The courts in this case granted an injunction enforcing the post-employment restriction of non-solicitation and non-compete. In contrast, in Varun Tyagi v. Daffodil Software[6] employee worked only for a business associate and had no access to Daffodil’s clients or proprietary information. After completing his contract, he joined the same associate. Hence, the Delhi high court held the post-employment restrictions were unenforceable because there was no real risk to the employer.
The same reasoning appears in the recent decision of Vijaya Bank v. Prashant B. Narnaware.[7] Here, an employee who was promoted as Senior Manager, Cost Accountant received specialized training. As part of the promotion, he was required to execute an employment bond. The bond obligated him to serve the bank for at least 3 years in the role or, in case of early resignation, to compensate the bank by paying the bond amount. When he resigned before completing the term, the bank demanded damages under the bond, which he paid but later challenged it citing an unreasonable restraint along with refund of the amount. While he was able to get the relief before the Karnataka high court, the SC, on appeal by the bank, upheld the bond. The SC found the employment bond a reasonable and proportionate measure to protect bank’s legitimate business interests, including costs and disruptions associated with recruitment and training. The bond applied only during the period of employment and did not restrict the employee’s future career, aligning with Section 27. Furthermore, the court recognized that public sector banks follow structured recruitment procedures and early resignation are disruptive and costly. Thus, the bond struck a fair balance between employee freedom and employer protection.
Whereas, in Superintendence Co. of India v. Krishan Murgai[8] the SC struck down a post-employment covenant in which the employee had agreed to a non-compete clause which restricted him from joining a competitor or running a similar business at his last posting place for 2 years after his employment ends. It noted that the employee’s role was limited to inspection and survey work of merchandise and commodities like machinery in which he had prior technical expertise, and received no specialized training from the company. The non-compete clause would restrict his right to earn, while the restriction would not affect the company since he had no client dealings or ability to solicit clients.
The thread running through these cases is clear – enforceability of post-employment covenants hinges on a combination of role, knowledge, and demonstrable risk. Courts do not assess post-employment covenants in isolation instead, they weigh whether the restriction is tailored to address a specific business interest and whether the employee’s position and access make the risk real. This framework underscores that a one-size-fits-all approach is impermissible. Each covenant must be calibrated to the actual exposure and potential harm arising from the employee’s post-employment activities.
4. Conclusion
In India, employment restrictions are not automatically void nor universally enforceable. They occupy a narrow space carved out between the employer’s right to protect its business and the employee’s right to livelihood. Covenants during employment are generally upheld when they are proportionate, role-specific, and demonstrably necessary to safeguard tangible business interests. Post-employment, however, restrictions face a higher standard and are enforced only when they are narrowly tailored to prevent concrete harm, such as misuse of confidential information, client solicitation, or loss of investment in training. For employers, the key takeaway is that restrictive covenants must be drafted as precise, targeted provisions tied to demonstrable risks rather than broad prohibitions. For employees, jurisprudence provides assurance that their fundamental right to pursue a livelihood will be protected from overbroad contractual restrictions. Indian courts consistently emphasize that restrictive covenants are enforceable only as a shield against real harm, not as a tool to unduly limit competition demonstrating how agreements made in the office are tested rigorously in the courtroom.
Author
Ritika Guj
[1] Gujarat Bottling Co. Ltd. v. Coca Cola Co., (1995) 5 SCC 545.
[2] Makhanlal Natta v. Tridib Ghosh, AIR 1993 CAL 289.
[3] Niranjan Shankar Golikari v. Century Spg. and Mfg. Co. Ltd., 1967 SCC OnLine SC 72.
[4] Embee Software Private Limited v. Samir Kumar Shaw 2012 SCC Online Ca l 3094.
[5] Wipro Limited v. Beckman Coulter, ARBLR 118 Delhi, 2006 (2).
[6] Varun Tyagi v. Daffodil Software Pvt. Ltd. 2025 SCC OnLine Del 4589.
[7] Vijaya Bank v. Prashant B Narnaware, 2025 SCC OnLine SC 1107.
[8] Superintendence Co. of India v. Krishan Murgai, (1981) 2 SCC 246.