Solicitation of Clients and procuring work by former employees has been a huge problem for many Corporations not only in India but across the globe. The same causes irreparable damages, injuries, and losses both monetary and non-monetary to the Corporations. The act of soliciting work by poaching Clients is both illegal and unlawful and has to be dealt with stern legal action against the erring former employee. The most potent way to reduce this threat is to execute a Non-Solicitation Agreement with all the employees, at the time of their appointment and induction.
A Non-Solicitation Agreement stops a former employee or an employee from dealing with the Corporation’s clients and customers and soliciting work from them, against the interests of the Corporation. Employee agrees to not solicit clients or customers for their benefit during the tenure of their employment or anytime thereafter.
Further, Non-Solicitation commitments have to be enforced carefully since certain clauses cannot be considered as restraint of business, profession or trade and cannot be subject to Section 27 of the Indian Contract Act of 1872 as held in Wipro Ltd. vs Beckman International (2006(3) ARBLR 118 Delhi).
Remedies available under the Civil Laws
Solicitation contracts are private in nature, the contract should itself include clauses in case there is a breach, in liquidated penalty or damage under Section 74 of the Indian Contract Act of 1872 and in the absence of such clauses, parties can turn to civil Courts or arbitration for an injunction and damages for breach under Section 73 of the Indian Contract Act of 1872.
In the case of Desiccant Rotors International Pvt. Ltd v Bappaditya Sarkar & Anr. (CS(OS) No.337 of 2008), the Court upheld an injunction against the manager restricting him/her from soliciting customers of Desiccant and its suppliers. Further, in the case of Embee Software Pvt. Ltd. v. Samir Kumar Shaw (Original Side, GA No.2171 of 2012), the Court held that acts of solicitation done by former employees to tempt the customers of the former employer into ending their existing contract and signing a contract with the former employee, or stopping others from signing contracts with the former employer cannot be acceptable.
Provisions under Civil Law to Enforce Non-Solicitation Agreements
- Serving legal notice to the employee.
- Enforcing undertakings or cheque encashment based on terms of the agreement.
- Filing civil suit for injunction under Order 39, Rule 1 and Rule 2 of the Code of Civil Procedure, 1908 or damages as well as specific performance of a contract.
- Initiating suit for declaration that acts of the employee are a tortious intrusion in the business of employer and injunction thereto.
Remedies available under the Criminal Laws
If the former employee solicits customers or employees by using the stolen data that belonged to the former employee, then it would be violating both Section 378 and Section 379 of the Indian Penal Code, 1860 for theft since data is considered a movable property as decided in the case of R.K. Dalmia v. Delhi Administration, (AIR 1962 SC 1821). Here, the Hon’ble Supreme Court held that the term “property” cannot be just movable property but also corporeal property. In such a case, a criminal complaint can be filed and the violator shall face a punishment of imprisonment of either description for a term up to three years, or with fine, or with both. If the former employee uses information that he/she was trusted with, for purpose of solicitation, Section 408 of the Indian Penal Code of 1860, is a legal remedy, that can be used for deterrence, given that the punishment is imprisonment which may extend to seven years along with paying of fine.
Section 2 (o) of the Copyright Act of 1957 protects any database, which comes under the purview of the definition of the term literary work as seen in Burlington Home Shopping Private Limited v. Rajnish Chibber (61 (1995) DLT 6), where the Court prevented an ex-employee from using the company database for the client list. The employer, in this case, can take action under Section 63 of Copyright Act of 1957, which has a punishment of six months imprisonment that can extend up to three years and also fine can be levied of fifty thousand rupees which can extend up to 3 lacs.
Pre-Conditions under the Non-Solicitation Agreement
For Non-Solicitation Agreements to be considered legal, it has to be ensured that such agreement does not outright prohibit lateral hiring of people who are already experts in the required fields. The agreement must allow for lateral hiring by competitors.
Such agreements may include the following:
- the former employee be required to ask for permission from a former and current employee,
- a notice period required if still underemployment,
- a certain amount of compensation to be given to the former employer for loss of talent,
- conditions concerning the execution of non-disclosure agreements,
- non-compete clauses and adherence thereto; etc.
No bar should be placed on employment opportunities for the employee.
In conclusion, discussions regarding Section 27 of the Contract Act of 1872 has clearly pointed to the fact that that solicitation restraints can be enforced on both an employee and a former employee since these restrictions do not restrict a person’s ability to look for another job or partake in any kind of business, it merely restricts the solicitation of clients and customers. Failure to adhere to the Non-Solicitation Agreements can attract penalties under both civil and criminal law and the former employers are well within their rights to exercise such legal action.
This Article is written by Adv. Anant Sharma, Co-Founder My Lawyers Advice and Parinay Gupta, 5th Year Law Student, Amity Law School, Delhi.
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