Employment LawNon-Poaching Agreements and Their Relevance in Employment Laws

April 22, 20220


The economic policy in India witnessed a sudden change in 1991 whereby the Government of India shifted the focus of the policy from regulation to liberalization. The new liberalized market flourished on healthy competition between market players and marked the advent of an age of competition.

Companies, organizations, and firms grabbed every opportunity to establish its foot in the market and strived to expand and flourish. To thrive in the competitive environment, an entity had to have an edge or advantage over its competitors.

This edge or advantage can be the result of the entities’ innovative ideas, internal mechanisms, proprietary information, and most importantly, its human asset or resource, especially in industries which primarily run on skilled talent.

In this constantly evolving competitive environment, human asset serves as the backbone of any entity and is capable of uplifting or disintegrating any business. Since the significance of human asset and information is undoubtedly considerable, it is in the interest of the entity to protect and secure these competitive advantages from potential misuse by its employees or competitors.

In a highly competitive market, securing one’s assets is the priority. The dynamics of employees constantly looking for better opportunities to move to an upper echelon, entities availing every means or tactic to overtake its competitors makes it rather impossible for entities to secure its assets. This is where restrictive covenants such as non-poaching agreements (NPA) come into play.

The legal maxim “nemo locupletari potest aliena iactura or nemo locupletari debet cum aliena iactura” meaning “no one should be benefited at another’s expense” forms the basis of NPAs.


The necessity to protect trade secrets, confidential information and human resources makes way for restrictive agreements such as NPAs in the employment sector. While absolute restrictions on employees or rival employers would severely impair their rights, some restrictions weighed on the criteria of reasonability and fairness are allowed if their sole purpose is the protection of the entities’ own rights to carry on its business peacefully and prevent something which would be detrimental to its business.

Some of the most common restrictive agreements used by employers are: non-solicitation agreement, non-compete agreement, and NPA. Whilst non-compete, non-solicitation and non-disclosure agreements deal with the employer-employee relationship, a fourth class of restrictive agreement which are often signed by the parties is the NPA which is executed between two employers engaged in the same kind of business or market.

The absence of any legal framework for these types of agreements gives way to the stakeholders to misuse the agreements and abuse their position to gain unjust enrichment, curtail other’s rights, and escape liability. While these agreements serve the purpose of protecting the interests of the employers, a clear contrast could be drawn with their effects on the employees’ constitutional and statutory rights. This friction between the interests of different stakeholders may give rise to an array of disputes.

As a general practice in many specialised sectors involving specific skills, the employer invests a vast amount of money to train fresh recruits, to make them fit for the job and to secure a talent pool. In order to avoid this cost, many employers poach experienced and trained employees from other’s talent pools. Employees too, are quick to leave their existing employment to utilize newer opportunities or for better compensation.

Due to the abovementioned factors, any employer who undertakes to invest in such employee’s training finds himself in an insecure position over the loss of his investment and human asset and the unjust enrichment by his rivals.

The need of an NPA to protect an employer’s interests can be seen in the case, Fitzee Ltd. v. Brilliant Tutorials (P) Ltd. [ILR (2011) VI DELHI 8] wherein the Delhi High Court refused to take any action against the Defendant due to absence of any agreement against poaching.

The parties to an NPA agree to not poach each other’s employees and adhere to certain parameters in case of lateral hiring. Such an agreement confers fair protection upon the parties against poaching of its human assets.

Typically, an NPA does not place any restrain on an employee from exercising a lawful profession or joining its competitor or carrying out the same profession. It simply lists out certain guidelines to be followed by the signatories in cases of lateral hiring like taking permission of the company before hiring its employee.


Before the enforcement of the Competition Act, 2002, the validity of NPAs was ascertained under Indian Contracts Act, 1872 (the Contract Act). Section 27 prescribes ‘agreement in restraint of trade’. It states that “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”

Every restrictive covenant which is in ‘restraint of trade’ would fall within the ambit of Section 27 of the Contract. The Contract Act is fairly rigid when it comes to restrictive agreements in the employment sector.

However, unlike other restrictive covenants which are present in employment contracts, an NPA is signed between two employers and it does not restraint an employee from seeking or applying for any other employment. It simply obligates the parties to seek the consent of the other before hiring that other competitors’ employee. Therefore, Section 27 does not affect the validity of NPA.

Indian Courts have repeatedly prioritized the rights of the employees to hold restrictive covenants post-termination of employment contract to be void. Some of the cases which discuss the scope and application of section 27 of the Contract Act, rights of employees and validity of restrictive covenants including NPAs are discussed hereunder:

In the case of Gujarat Bottling v. Coca Cola Company [1995 AIR 2372], the Supreme Court held that “a man is entitled to exercise any lawful trade or calling as and where he wills, as long as it is not against public policy or interest”.

In Pepsi Foods Ltd. and Others v. Bharat Coca-Cola Holdings Pvt. Ltd. & Others [1999 VAD Delhi 93], the Delhi High Court reiterated that post-termination restraint on employees violate Section 27 of the Contract Act and are unenforceable, void and against the public policy.

The Delhi High Court went on to highlight the priority of employee’s rights and held that it is within the employee’s rights to seek better employment opportunities which cannot be restricted. Further, the Delhi High Court observed the phrase Once a Pepsi employee, always a Pepsi employee’ to explain how such an agreement/ restriction on employee’s rights would amount to ‘bonded labour’ and ‘economic terrorism’.

In this case, post-employment restrictions were held to be invalid and violative of Article 19(1)(g) of the Constitution. This ruling prioritizes the interests of the employees and protection of their rights.

In the case of Desiccant Rotors International Pvt. Ltd. v. Bappaditya Sarkar & Anr [MANU/DE/0385/2005], the Delhi High Court explicitly stated that “these agreements which are entered into by companies to shield themselves from competition are in conflict with the rights of the employees to seek employment of their choice and as the latter affects livelihood, it must prevail”.

However, contrarily, in the case of Wipro Limited v. Beckman Coulter International [2006 (2) CTLJ 57 Del], the parties mutually agreed not to solicit each other’s employees under a contract. The Delhi High Court upheld the validity of such a provision and considered it outside the preview of Section 27 of the Contract Act.

The reasoning was based on the consideration that the restrictions were solely placed on the parties to stop them from poaching other’s employees and not upon the employees. The Delhi High Court viewed the restriction more liberally than a restriction in an employer-employee contract.

Thus, NPAs which solely prescribe conditions/ guidelines for lateral hiring and no absolute prohibition on lateral hiring are outside the ambit of Section 27 of the Contract Act as they would not amount to an ‘agreements in restraint of trade’.

Therefore, in India, the validity of NPAs under the Contract Act is well settled. However, the issue of NPAs now also comes within the ambit of the Competition Act, 2002 (the Competition Act) but there have been no cases which could clarify the legal stance yet.

Section 3 of the Competition Act expressly prohibits “agreements which are anti-competitive in nature and restricts enterprises, association of enterprises or persons from entering into agreements which cause or may cause adverse effect on competition within India.”  Such agreements which contravene this provision are considered void ab initio.

In specialised skill-based sectors like high technology sector, there is a strong demand for employees with advanced or specialized skills. This demand leads to competition between companies and such form of competition, when unrestrained, results in better career opportunities.


The necessity of NPAs is felt only by the employers and while assessing their validity under the Contract Act, the Courts have segregated the NPAs from the other restrictive agreements like non-solicitation, non-compete, non-disclosure, etc.

The rights of employees are always prioritized and the Courts have weighed the necessity of the restrictive agreements against the interests of the employees. While other restrictive agreements which pose post-employment restrictions on employees have been clearly held to be void in various judgments, NPAs are generally valid until they absolutely prohibit lateral hiring.

Validity of NPAs under the Contract Act is established and settled however it has to be evaluated under the Competition Act as well. As we can observe hereinabove, Section 3 of the Competition Act does not expressly prohibit NPAs but this does not conclusively establish their validity. Since the Competition Act applies to all kinds of agreements, there is a scope of bringing actions against NPAs under the Competition Act.

In the recent past, the stringent approach in the United States against NPAs has developed a new jurisprudence regarding the validity of such agreements. What remains to be seen is whether Indian Antitrust framework continues to follow the stance taken by Courts under the Contracts Act or develop a new jurisprudence such as in the United States.

-Team AMLEGALS assisted by Ms. Kirti Dhoke (Intern)

For any queries or feedback, please feel free to get in touch with chaitali.sadayet@amlegals.com or mridusha.guha@amlegals.com.

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