Employee non-disclosure and non-compete agreements are a type of restrictive covenants. These agreements are negative in nature as they restrain the employees’ actions. Employee confidentiality agreements legally restrain the employees from disseminating any confidential information shared with them during the period of employment. A non-compete or a non-competition agreement restrain the employees from participating in the same trade as the employer for a period of time, after the termination of employment. These agreements are entered to protect the business interest of the employer.
- Validity: A non-disclosure agreement is valid on the post-termination of employment. It is usually executed between parties to keep trade secrets. However, in the case of a non-compete agreement, it is valid only up to the duration of employment. Any agreement restraining trade is void under the Indian Contract Act. Thus, any non-compete agreement entered with the employee, which is to be in effect post-termination of employment is void. Confidential information retained under a Non-disclosure agreement is an exemption to the Indian Contract Act. The employee may not carry on a business which is prejudicial to the employer in a non-compete agreement.
- Statutory implications: In case of confidentiality, the employers can act against the employees on breach for either a civil remedy or initiate criminal action. The Indian Penal Code, Indian Contract Act and Information Technology Act provides for several provisions to protect the employer’s interests.
- Garden leaves clause: Employee non-compete agreements usually consists of garden leaves clause, which ensures payment of salaries to the employees during the period in which they are restrained from competing. The salaries are paid to the employees on post-termination. However, in India, such an agreement is void and is prima facie struck down by the Indian Contract Act.
- Non-Mutual/Unilateral NDA: The employer and the employee enter into non-disclosure or confidentiality agreement which is a type of Non-mutual or a unilateral agreement. In a unilateral agreement, one party shares the confidential information with the other. It imposes a unilateral obligation on the employees. In a bilateral confidentiality agreement, both the parties share confidential information.
- Exception Clause: In every confidentiality agreement, there is an exception clause about when the confidential information about the business shall be disseminated. The exception clause generally includes disclosure due to legal process, the information is known to the employee prior to the period of employment or public information, when a third party, not obliged under the confidentiality agreement, disclose such an information.
- Compensation Clause: Employee confidentiality and non-compete agreement usually have compensation clauses. This clause is inserted in order to reimburse the employer on breach of contract for the damage to the business on disseminating such information.