MoonlightingMoonlighting in IT/ITES Sector: Part II – Legal and Ethical Issues

January 17, 20230

The Previous Blog in the Series discussed the concept of Moonlighting and the Legal and Ethical Issues under the IT/ITES Sector. This blog shall discuss the essential clauses in an IT Contract as well as the Moonlighting being the Need of the Hour!


An IT Contract is an Agreement under which one of the parties, acting as the Service Provider, provides an element of, or services relating to, the IT systems, to the other party, i.e., the Purchaser of such services. Therefore, there are certain essential Clauses that must be incorporated in IT Contracts so as to avoid any contractual disputes that may arise in the future.

Common and Essential Clauses in an IT Contract

1. Intellectual Property Rights

In most IT Contracts, the technology deployed by the Service Provider is, in and of itself, an intellectual property that may or may not be directly protected under the law. Such a situation demands the need for a Clause which lists out the restrictions imposed on the Purchaser with respect to using the technology and/or any intellectual property.

2. Limited Liability

A Limited Liability Clause is, perhaps, one of the most essential but also disputed clauses of an IT Contract. This Clause limits the liability of the parties with respect to the extent of the unforeseeable damages that can occur.

3. Force Majeure

A Force Majeure Clause is an extraordinary provision which waives the obligations of the party invoking it. The Clause is available for circumstances which could not have been foreseen such as an Act of God, and which the parties took all possible measures to avoid.

4. Audit and Regulatory Compliance

IT Contracts make use of the Audit and Regulatory Compliance to ensure that the technology deployed and the performance thereof are in alignment with the actual goals of the organization. Inclusion of such a Clause also ensures that adequate and updated security measures are in place to safeguard the data in possession of the organization.

5. Liquidated Damages

A Liquidated Damages Clause in an IT Contract safeguards the Purchaser against the constraints of deadlines by ensuring that the Service Provider is burdened with a period-to-period rate of liquidated damages. Such a Clause can be triggered in cases of inadequate deliverables, defects, major bugs and functionality issues, etc.

6. Indemnity

The Indemnity Clause protects the Service Provider against Third-Party Claims in the event of a breach of the contract. The Purchaser undertakes to indemnify and defend the Service Provider and not hold the Service Provider liable for any breach of the contract.

7. Escrow Provisions

IT Contracts may also make use of an Escrow Clause, which is essentially a three-way agreement, inclusive of an Escrow Agent who is responsible for the code of the software. The main idea behind the inclusion of an Escrow Clause is to safeguard the Purchaser against any breach of or malfunction with respect to the terms and conditions agreed upon between the parties. In the event of such a situation, the Purchaser is given the code to tackle the breach.

8. Confidential Information

Non-Disclosure Agreements (NDAs) and Confidentiality Clauses have always been a significant part of contracts. However, an IT Contract needs more than just an NDA or a Confidentiality Clause.

9. Warranty

Warranty Clauses are also of crucial importance in IT Contracts. Ideally, the Warranty Clause must be a result of precise negotiations between the parties. This Clause relates to the performance of the software and/or technology being deployed by Service Provider as well as the claims made by the Service Provider as to the functions, performance and efficacy of the same. However, since there are a number of factors at play which can potentially affect such performance, this clause is crucial for safeguarding the interests of the Service Provider.

10. Secure Destruction of Consumer Data upon Termination

This Clause, usually included in Cloud Service Contracts, calls for the complete and secure destruction or return of the consumer data that was used by and/or is in possession of the Service Provider. This Clause is an essential part of IT Contracts in order to safeguard the parties against Third-Party Claims and to process personal data in the correct manner.

11. Fees

Another important Clause in a Cloud Computing/Cloud Service Contract is the Fee Clause, which sets out the fee to be charged depending on the storage of data on an hourly basis. This amount must be negotiated upon and prescribed in the contract so as to avoid potential disputes arising with regard to this in the future.

12. Regulatory Law

As most IT Contracts deal with the processing of personal information, the contract must clearly state the legal framework under which such processing must be carried out.


The above mentioned clauses cover the essential elements of an IT Contract. However, after the recent incidents of moonlighting in the Indian IT Sector, it has now become pertinent for the employers to take measures for protecting the company’s interest and ensure that the employees engaged therein provide their full time, energy and efficiency in their regular employment. The Moonlighting Clause has now become the need of the hour.

One such measure can be incorporating the Moonlighting Clause in the Employment Agreement. Moonlighting Clause is a negative covenant that restricts dual or multiple employment for an employee. The Moonlighting Clause thus restricts an employee from taking another job while already employed with an employer.

The Moonlighting Clause should be added to the employment agreement in order to ensure that the employees work efficiently and focus only on their current jobs. However, the Moonlighting Clause must be added and agreed to with free consent of both the Parties i.e. the Employer and the Employee.

The employer should also clearly mention in the Moonlighting Clause that any dual employment of the employee will result into the termination of the employment agreement.

The Part III in the Series shall discuss the Judicial Precedents and the Best Practices to be followed in Moonlighting in IT/ITES Sector.


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