We live in a competitive world where we face competition in everything, be it education, employment or business etc. Even if we step out to buy simple products like toothpastes, ketchups and refreshments, it is not easy for us to make a simple and quick choice because of various options from brands that are easily available and also the luring advertisements that brands come up with to attract customers. In such a dynamic market customers are of tremendous value to businesses. Entities have to keep their foot on the gas not only to attract new customers but also to protect the existing ones. Further, is it possible to create a customer base without talented and faithful employees?[1]
It's safe to say that an entity will only achieve success if it has trustworthy employees and adequate amount of customer base. In this rush of retaining customers and employees, entities usually include restrictive covenants like noncompetition and non-solicitation in their agreements. We shall understand the legal aspects of non-solicitation clause in this article.
What is the meaning of Solicitation in law -
The word 'solicit' in the context of law means luring someone with the specific intent of inducing that person to do certain act. Non-Solicitation clause is a restrictive clause and is generally adopted in business engagements or employee agreements.
Dual aspects of non-Solicitation –
Non solicitation agreement or clause is commonly included under two relationships:
The scope of the non-solicitation is to be defined by the parties specifically as per their specific requirement. It should be noted that broad restrictions on employees or business entities to carry on their business or profession are generally frowned upon by the Courts. Simply including a broad non solicitation restriction is unlikely to help the parties as enforceability of non -solicitation clause is always subject to the satisfaction of requirements under Article 192 of the Constitution of India and Section 273 of the Indian Contract Act, 1872.
Non solicitation clause in employee engagements
An employer generally shares a lot of confidential information and trade secrets which includes its customer details, customer contacts, marketing and financial information etc. with certain employees. Therefore, employers wish to have non solicitation restriction with its employee which is likely to restrict the employee during the tenure and after the tenure of employment to solicit any existing customers or employees of employer or misuse the critical information (like employer's customer data base or trade secrets etc.) after joining competitor. While the employer shall endeavour to enforce the non-solicitation clause that restricts the employee from misusing contacts developed in the previous company, enforceability of these restrictions is critically examined by courts in every case to ensure that unnecessary restrictions are not placed on employees.
Now from the above example it is clear that in case there is a non-solicitation clause in the agreement signed by employer and employee, as per the contractual obligation employee is restricted to do two things, soliciting other existing employees to join the new organisation and to poach customers/suppliers/clients of existing company. However, whether such non-solicitation clause is enforceable or not is determined by Courts on case-to-case basis.
Embee Software Private Ltd. vs. Samir Kumar Shaw and Ors.4
In this case, Embee Software Private Ltd. ("Plaintiff") had a business of rendering services in the field of information technology. While rendering such services files, programmes, know how, formula were prepared by the Plaintiff to suit the need of specific clients. It was important for the Plaintiff to exclusively know the source code to operate the programmes and to update them. Samir Kumar Shaw ("Employee") was the employee of the Plaintiff, and had knowledge of the source code thereby being in a position to approach the clients of the Plaintiff with the proposal that instead of the Plaintiff, Employee will render them the necessary services and this would deprive the Plaintiff's business.
The Calcutta High Court has held that "Employee cannot be prevented from carrying on the business subject to an important condition that the Employee will not be allowed to solicit the customers of the Plaintiff by the use of the copyrighted source code which the Plaintiff owns. Violation of such a condition shall be considered as contempt of Court and the respondents shall have to bear severe consequences such as damages and/or injunction because of solicitation."
The case law of Desiccant Rotors International Pvt. Ltd v Bappaditya Sarkar & Anr 2009[5] is worth noting.
Bappaditya Sarkar ("Employee") was an employee of Desiccant Rotors Pvt. Ltd. ("Desiccant"). According to Desiccant, the Employee joined Desiccant as Area Sales Manager in 1998. In year 2000, it signed the confidentiality obligation with Desiccant. On 18th July 2007, Employee resigned from Desiccant and executed an Obligation Agreement which provided that "for two years after the termination he would not interfere with the relationship of Desiccant with its customers, suppliers, and employees".
Within three months of leaving Desiccant, Employee joined another competitive company ("Defendant No. 2") as its Country Manager and became in charge of marketing its products which were in direct competition with Desiccant Company's products. Desiccant alleged that Exemployee had:
- made a backup of supplier and customer lists contained in his laptop, taking the said backup with him when he left Desiccant; and
- that Employee had even contacted the suppliers and customers of Desiccant on behalf of his new employer Defendant No. 2.
Desiccant prayed for mandatory injunction and for delivery up and rendition of accounts. Employee contended that the restriction on the Employee from approaching Desiccant's suppliers and customers for soliciting business virtually grants a monopoly to Desiccant in its area of work and the restriction imposed is contrary to Section 27 of the Indian Contract Act, 1872 and therefore ought to be set aside.
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Footnotes
1. This article reflects the general work of the authors and the views expressed are personal. No reader should act on any statement contained herein without seeking detailed professional advice.
2. Article 19 ( 1) (g) of Constitution of India provides Right to practice any profession or to carry on any occupation, trade or business to all citizens subject to Art. 19 (6) which enumerates the nature of restriction that can be imposed by the state upon the above right of the citizens.
3. Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
