Restrictive Covenants and the Departing Employee

Garvit Mathur, Associate, Seth Associates

Every employee who resigns or is dismissed leaves with three things: a head full of knowledge, a set of professional relationships, and, too often, copies of documents that were never theirs to keep. Employers try to control all three through restrictive covenants in the contract of employment: confidentiality, non-compete, and, increasingly, garden leave clauses. Each pulls in a different direction. A non-compete that looks ironclad may be worthless the day employment ends, while a confidentiality obligation can bind for years. Once the relationship is over, what may a departing employee do, and what may they use?

The starting point: freedom to work

Section 27 of the Indian Contract Act, 1872, states the rule plainly: any agreement restraining a person from carrying on a lawful profession, trade, or business is void to that extent. This is stricter than English law, where a post-employment restraint survives if it is reasonable; in India, reasonableness does not save it. As the Delhi High Court restated in 2025, Section 27 draws no line between a partial restraint and a total one: a clause restraining trade after employment ends is void. The right to practice a profession (Article 19(1)(g)) and to a livelihood (read into Article 21 in Olga Tellis v. Bombay Municipal Corporation, 1985). No employee can be made to choose between the old employer and idleness.

Non-compete clauses: enforceable during employment, void after

Indian law splits a non-compete into two halves and treats them oppositely. During employment, the clause is generally valid: an employer may require that, while it pays an employee, that employee serves the employer alone. The Supreme Court held this in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. (1967), enforcing a covenant against a supervisor who left mid-contract for a competitor: a restraint during the term of service is not a restraint of trade, but holds the employee to the bargain.

After employment ends, the clause collapses. The Supreme Court struck down post-service non-competes in Superintendence Company of India v. Krishan Murgai (1980) and, more firmly, in Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan (2006): a covenant beyond the contract’s term is void under Section 27, reasonable or not. The latest confirmation is Varun Tyagi v. Daffodil Software Pvt. Ltd. (2025): an engineer who had served his notice joined the entity that owned the project he had worked on, and the Delhi High Court refused to enforce a three-year bar on working with his former employer’s business associates. Once the agreement ended nothing could restrain him, and limiting the bar to named entities did not save it; any real misuse could be met with damages, not a ban on livelihood.

For the employee the position is clear: do not compete while on the payroll, but once the contract ends the freedom returns in full, to join a competitor, start a rival business, or work for a former client. The narrower survivor is non-solicitation, which guards client and staff relationships rather than shutting a person out of their trade, provided it is not a non-compete in disguise.

Garden leave: a workaround, and its limits

Because a post-employment non-compete is unenforceable, employers borrow a device from England: garden leave. Rather than release an employee on resignation, the employer keeps them on the payroll through a long notice period but tells them to stay home and not join a competitor: kept off the market not by being forbidden to earn, but by being paid to sit out. The idea traces to Evening Standard Co. Ltd. v. Henderson (1987).

It is more defensible in India than a bare non-compete, but only until employment ends. While it operates during the notice period, with the employee still paid and on the rolls, it resembles the during-employment restraint Golikari permits. The difficulty is that many such clauses are drafted to bite after the employee has left. That sank the clause in VFS Global Services Pvt. Ltd. v. Suprit Roy (2008), where the Bombay High Court struck down a three-month restraint that began only after the employee had served notice and left the rolls. The wages paid did not revive the ended employment, so the restraint bit after the relationship was over, contrary to Section 27. To bar a former employee from earning elsewhere, the court said, is not fair or proper.

The lesson is to watch the calendar. A clause that keeps you off the market while you serve notice and draw pay will likely hold; one that sidelines you after your last working day, cheque or no cheque, stands on far weaker ground.

Confidentiality: the obligation that outlives the job

Confidentiality is the one obligation that survives employment, and it is not a restraint of trade. It does not stop a former employee working or competing anywhere; it stops them carrying off and exploiting information that belongs to the employer, and it binds even where the contract is silent.

The crucial line is between memory and material. Following Pollock and Mulla, the courts accept that what an employee carries in their head may be used freely, while material that cannot be reproduced from memory, such as files, client databases and manuals, stays off-limits. The Supreme Court drew the same line in Golikari: general skill and experience travel with the employee, but know-how confided through a position of trust stays protected after the job ends.

Diljeet Titus, Advocate v. Alfred A. Adebare (Delhi High Court, 2006) shows where this bites. When several lawyers left to set up alone, the senior partner found that one had copied gigabytes of legal opinions, due diligence and client data off the firm’s network and emailed it onward. They could use what they honestly remembered; copying the files was another matter. Recollection is one thing, duplication another. The high-water mark is Bombay Dyeing and Manufacturing Co. v. Mehar Karan Singh (2010): a serving whole-time director secretly joined a rival and sent it a confidential software manual the company had spent ₹93 lakh developing, and was held a constructive trustee of information reaching him only through his office. The duty binds directors most strongly, but reaches any employee trusted with real secrets.

What counts as confidential was settled in Bombay Dyeing through a multi-factor test: how widely it is known, the precautions guarding it, its commercial value, and how readily an outsider could reproduce it. A breach then needs information of a confidential quality, shared under an obligation of confidence, and actual or threatened misuse to the employer’s detriment (Beyond Dreams Entertainment Pvt. Ltd. v. Zee Entertainment, 2015). The first two are usually easy; the third, real or imminent misuse, is where most claims stand or fall.

Where the line falls

Pulled together, the law gives a departing employee a workable map. Once the contract ends you may compete; a non-compete cannot keep you out of your trade. You may use your skills, experience, contacts, and what you honestly carry in memory. You may not take the documents: client lists, files, databases, and manuals stay the employer’s, and removing or exploiting them is a breach with or without a clause. Nor may you solicit clients or staff with misappropriated information or assume garden leave ends the day you resign.

When something goes wrong, the employer’s best remedy is usually an injunction against further use or disclosure, since it needs no proof of a loss not yet suffered; damages under Section 73 of the Contract Act require actual loss, while a Section 74 liquidated-damages clause avoids proving the figure. Criminal routes exist (breach of trust under Section 316 BNS, 2023, and unauthorized data copying under the IT Act, 2000) but turn on dishonest intent or actual misuse, which is hard to show. A document forwarded to a personal inbox, without more, often sits in a grey zone: plainly confidential, yet not used in a way the criminal law can grip. Which is why the safer course is the simpler one, the line the law has drawn throughout: what you remember is yours; what you copied never was.

Key authorities

Niranjan Shankar Golikari v. Century Spinning & Mfg. Co. Ltd., AIR 1967 SC 1098.

Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan, (2006) 4 SCC 227.

Varun Tyagi v. Daffodil Software Pvt. Ltd., 2025 SCC OnLine Del 4589.

VFS Global Services Pvt. Ltd. v. Suprit Roy, 2008 (2) Bom CR 446.

Diljeet Titus, Advocate v. Alfred A. Adebare, 2006 SCC OnLine Del 551.

Bombay Dyeing & Mfg. Co. Ltd. v. Mehar Karan Singh (Bombay High Court, 24 August 2010).

Statutes: Contract Act 1872, ss. 27, 73, 74; Constitution, arts. 19(1)(g), 21; BNS 2023, s. 316; IT Act 2000, ss. 43, 66, 72, 72A.