Employment Law

Non-Compete Clause in India: Are They Legal & Enforceable?

Q: What is the difference between non-compete and non-solicitation in India?

A non-compete prevents working for competitors or starting a competing business. A non-solicitation prevents poaching clients or employees. Courts are more likely to enforce non-solicitation post-employment.

February 12, 2026 • 8 min read

"You can't join a competitor for 2 years after leaving." This line appears in millions of employment contracts across India. But here's what most employers don't tell you: post-employment non-compete clauses are largely void under Indian law.

Section 27: The Foundation

Section 27 of the Indian Contract Act 1872 states: "Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."

This is as clear as contract law gets. Any agreement that prevents a person from practicing their profession or trade after leaving employment is void and unenforceable.

Why is India so strict?

Unlike some US states that allow "reasonable" non-competes, the Indian judiciary views the right to livelihood as a fundamental right under Article 21 of the Constitution. Therefore, Section 27 has no "reasonability" test for post-employment restrictions—they are void regardless of how narrow they are.

The Only Exception: Sale of Goodwill

Section 27's sole exception allows non-compete restrictions when selling the goodwill of a business. The buyer can restrict the seller from carrying on a similar business within specified local limits, provided the limits are reasonable.

During Employment vs After Employment

✅ During Employment , Enforceable

Non-compete restrictions during the term of employment are generally valid. An employee owes a duty of fidelity and good faith. Working for a direct competitor while still employed is a breach of this duty. Courts have upheld termination for moonlighting with competitors.

❌ After Employment , Void

Post-employment non-compete clauses are void under Section 27. The Supreme Court has consistently held this position across multiple cases including Superintendence Company of India v. Krishan Murgai (1980) and Pepsi Foods v. Bharat Coca Cola (1999).

What Courts Have Actually Said

Niranjan Shankar Golikari v. Century Spinning (1967): Supreme Court held that restrictions during employment are valid if reasonable and necessary to protect trade secrets
VFS Global v. Mr. Kumar Patel (2008): Bombay High Court struck down a 12-month non-compete clause, ruling it violated Section 27
Wipro v. Beckman Coulter (2006): Delhi High Court held that post-termination non-compete clauses between businesses may be valid if they are reasonable and protect legitimate business interests

Enforceable Alternatives to Non-Compete

Since non-competes are void, smart employers use these enforceable alternatives:

🛡️ Non-Solicitation Clause

Prevents ex-employees from soliciting the company's clients, customers, or employees. More likely to be enforced by courts as it protects specific business relationships without restricting the right to work.

🔒 Confidentiality / NDA

Protects trade secrets, client lists, pricing strategies, and proprietary information. Enforceable indefinitely. Backed by contract law and the Information Technology Act for digital information.

🌿 Garden Leave

Employee serves notice period at home, fully paid, but cannot join a new employer. Since the employee is technically still employed and being paid, the restriction is during employment, making it valid under Section 27.

🏗️ IP Assignment Agreement

Ensures all work product, inventions, and IP belong to the company. Prevents an employee from taking innovations elsewhere. Enforceable under IP laws independent of Section 27.

For Employers: Best Practices

Drop post-employment non-compete clauses , they're unenforceable and create a false sense of security
Use robust NDAs , protect your actual trade secrets
Implement non-solicitation , protect your client and employee relationships
Use garden leave , pay during notice period to prevent immediate competitor join
Create IP assignment agreements , ensure all work belongs to the company

For Employees: Know Your Rights

✅ You can refuse to sign a post-employment non-compete
✅ Even if you signed one. It's void under Section 27
✅ You CAN be restricted during your notice/employment period
✅ You MUST respect genuine confidentiality obligations
✅ You should NOT solicit your employer's clients or employees

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Key Takeaways

✅ Post-employment non-compete clauses are void under Section 27
✅ During-employment restrictions are valid and enforceable
✅ Non-solicitation, NDAs, and garden leave are enforceable alternatives
✅ The sale of goodwill is the only statutory exception to Section 27
✅ Employees must still respect genuine confidentiality obligations

Pro-Tip: If you are a founder, ensure your Founders' Agreement uses non-solicitation and IP assignment rather than just relying on a non-compete clause.

Frequently Asked Questions

Are non-compete clauses legal in India?

Non-compete clauses during employment are enforceable, but post-employment non-compete restrictions are generally void under Section 27 of the Indian Contract Act 1872, which prohibits agreements in restraint of trade. However, courts have allowed reasonable restrictions during employment and garden leave arrangements.

What is the difference between non-compete and non-solicitation in India?

A non-compete prevents an employee from working for competitors or starting a competing business. A non-solicitation prevents an employee from poaching clients or other employees. Indian courts are more likely to enforce non-solicitation clauses post-employment than non-compete clauses.

What is garden leave in India?

Garden leave is a period during the notice period where the employee is asked to stay away from work but continues to receive salary and benefits. Courts have upheld garden leave as a reasonable restriction since the employee is compensated. It effectively extends the non-compete during the paid notice period.

Can non-compete clauses be enforced in business sale agreements?

Yes. Section 27 of the Indian Contract Act has an explicit exception for agreements made in connection with the sale of goodwill of a business. The seller can be restrained from carrying on a similar business within specified local limits for a reasonable period.