Have a business idea? Check your employee contracts before submitting documents

Khaitan & Co., one of India’s most prominent law firms, recently had to accommodate some unique requirements from its corporate clients. One is to create employee contracts that allow companies to waive notice periods for senior and middle managers who leave their jobs and put them on garden leave – being paid but not having to work.

“This is to ensure that they (executives) are not involved in any key decision-making process or have any strategic knowledge,” said Anshul Prakash, partner, employment, labor and benefits at Khaitan & Co. “It is generally accepted that for advanced orders it will take several quarters to complete the work, and the potential for data breaches and unauthorized transfers remains high in the 5-6 months before bonuses are released.”

An increasing number of companies are approaching law firms requesting changes to their employee contracts and, in particular, exit policies for specific reasons: to protect their data and intellectual property, and to prevent senior managers from leaving for another company, especially a competitor.

There’s another big reason: A senior executive who may have access to sensitive company information quits and launches a startup.

Akhoury Winnie Shekhar, partner at IndusLaw, said: “As more CXOs launch competing ventures, disputes are shifting from non-competition issues to breach of confidentiality, intellectual property and business exclusivity clauses.” 70% of cases occurred in the past year An employer files a lawsuit against an employee who had access to confidential data and is now a founder of the company. “

If employees are found to have transferred confidential data, they could face civil and criminal prosecution, Prakash said. “(The company) is retrieving details of any data transfers within the past 5-6 months from company-assigned devices that need to be handed over by the departing employee before accepting the resignation and beginning the exit process.”

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Lawyers Mint spoke to several examples of companies tightening exit terms for senior executives, which often triggers the clawback of stock or employee stock options.

More than a dozen companies in the information technology services, IT support services and telecommunications industries have reformulated exit clauses and contract policies and introduced strict data ownership rules, one of the people said.

Lawyers declined to name the companies, citing client confidentiality.

Taming employees

Wipro Ltd in July resolved a nine-month dispute with its former chief financial officer Jatin Dalal after his new employer, Cognizant Technology Solutions Corp., agreed to pay him about $500,000 ( $4.2 Crores) as settlement payment and reimbursement of its legal fees.

The IT services company had earlier resolved a separate legal dispute involving its former healthcare and medical devices chief Mohd Ehteshamul Haque, who had joined Cognizant in August 2023, soon after leaving Wipro in June 2023, as Americas head. Regional Chief Commercial Officer.

“Employers’ hitherto silence is increasingly being replaced by proactive enforcement of contract terms,” said Abe Abraham, partner at law firm Cyril Amarchand Mangaldas. “Even courts are willing to award damages once an employer proves Compensation: The person deliberately failed to serve notice of resignation and jumped ship in complete disregard of his contractual obligations.”

Legal chiefs expect lawsuits and damages to rise in India as skills become more specialized. “…This will further disincentivize employees from violating their contracts with impunity,” Abraham said.

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Other companies adopt stricter exit terms with a more fundamental purpose: to curb attrition.

Adil Ladha, partner at Saraf and Partners, said: “We were contacted by a consultancy asking us to review their employment contracts and policies to deal with attrition and employees who resign and are not working (within the notice period). Question. “Cooling-off period for resigning employees and tightening non-compete clauses.

To be sure, Section 27 of the Indian Contract Act, 1872 prohibits any agreement that restricts any person from engaging in a lawful occupation or trade and non-compete clauses in employment contracts are not legally enforceable.

However, lawyers say companies include such clauses in contracts, making it difficult for employees to join rival companies.

Some companies also offer service bonds, which require employees to leave their jobs within a specific period to repay the company’s “training costs.” “The Indian courts have held that the provision is enforceable on the facts available,” Radha said.

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