Protection of Employer's Secrets and The Employee's Right to Work
- Adv. Shreya Jadhav
- Jul 28
- 5 min read
Updated: Jul 31
VKC 2026 | Vol.1 | LA | Issue 01 | 28 Jul 2026 | Author: Adv. Shreya Jadhav, Editor: Adv: Siddhi Nadgir, Reviewer: Adv. Harish Kumbhar
Can an Employee be restricted from joining a rival company?
...the law strongly protects every citizen’s freedom to earn a livelihood, but that freedom does not extend to taking an employer's confidential business information.
Can an Employee be restricted from joining a rival company?
It is a common fear for every business that a key employee will resign and join a competitor, thereby, creating prejudice to the previous employer. Therefore, falling prey to this fear, the employers instinctively try to restrict the employee via various employee undertakings and employee agreements, which is generally referred to as the ‘non-compete clause’.
However, this is neither a viable solution nor the answer to the age-old question “Can an Employee be restricted from joining a rival company?.
Time and again, the Indian judiciary through various verdicts has reiterated and clarified the legal position – the Employer cannot restrict any employee after completion of his employment or post termination of his employment from joining any competitor.
This judicial position is derived from the codified statute itself. Section 271of the Indian Contract Act, 1872 is squarely applicable in this scenario.
"27. Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."
Indian Judiciary on the scope of Section 27
The Hon'ble Supreme Court in Superintendence Company of India (P) Ltd. v. Sh. Krishan Murgai, [(1981) 2 SCC 246]2, held that the bar under Section 27 is not limited to an absolute restriction. It also covers partial restrictions, such as a restraint limited by time or place. The Court held that a restrictive covenant preventing an employee from engaging in a business similar to or competitive with the employer's business after termination of employment is void.
Recently, the Calcutta High Court in Parraj Automobiles Private Limited v. Samiran Sinha3, dealt with a case where an employer sought to restrain a former employee from joining a competing business situated, quite literally, next door. It was held that once the employee had genuinely ceased to be in service, the non-competition clause in his appointment letter was, prima facie, void under Section 27 and could not be enforced merely because the employee's new role happened to be with a rival.
Are there any safeguards to the Employers?
The Indian Courts, however, have recognised one exception to the aforesaid rule and that is the protection of the ‘confidential data’ of the employer.
For example; the seller may validly agree not to carry on a similar business within reasonable local limits, for as long as the buyer carries on a like business, or the employee will not disclose the integral trade secrets, business information, future changes, etc.
Apart from this narrow, commercially specific exception, any agreement restraining a lawful trade or profession is void to that extent. Employment relationships do not fall within this exception, however skilled or senior the employee may be.
It is very difficult to determine what amounts to confidential data and what does not. Confidential data is decided by the employer, and the courts cannot contemplate what amounts to confidential data, however, the courts have tackled this problem by relying upon a much-discussed term “negative covenant”.
In Niranjan Shankar Golikari v. The Century Spinning and Mfg. Co. Ltd., [AIR 1967 SC 1098]4, the Hon'ble Supreme Court upheld an injunction restraining a former employee from disclosing information and knowledge gained during employment, holding that such knowledge was distinct from the general skill and experience an employee is always free to carry with him. It is also the duty of the court, in each case, to determine what comprises confidential data and trade secrets, as opposed to the employee's own accumulated skill and know-how.
In American Express Bank Ltd. v. Priya Puri5, the Hon’ble Delhi High Court held that ordinary knowledge acquired during routine employment cannot automatically be classified as a trade secret. Courts will examine the nature of the information and the employer's efforts to maintain confidentiality.
Therefore, the only safeguard available to the Employer is the protection of his Goodwill and Confidential Data.
Conclusion
The decision passed by the Hon’ble Supreme Court in Vijaya Bank and Another v. Prashant B Narnaware, [2025 SCC OnLine SC 1107]6 confirms that restrictions operating while the employee is still in service are treated very differently from restrictions that attempt to bind a person after they have left.
Further, the decision of the Hon’ble High Court of Calcutta in Parraj Automobiles v. Samiran Sinha7 neatly illustrates the modern approach.
While the Court refused to restrain competitive employment, it granted protection to confidentiality and non-solicitation obligations, recognising that disclosure of trade secrets may cause irreparable harm.
Thus, establishing the current Indian position that an employer cannot lock a former employee out of an industry, however, an employer can protect its trade secrets through confidentiality clauses, non-disclosure agreements and non-solicitation covenants.
The Constitution of India rests on the principles of justice, liberty and equality. Among the Fundamental Rights guaranteed under Part III, Article 19(1)(g) every citizen is entitled to the right to practise any profession, or to carry on any lawful occupation, trade or business within India.
Thus, neither the State nor a private party, including an employer, can put an absolute restriction on a person's ability to pursue their lawful occupation, trade or profession. An employee who has left a company is, in the eyes of the law, simply a citizen exercising the freedom to work.
One must always bear in mind that the law strongly protects every citizen’s freedom to earn a livelihood, but that freedom does not extend to taking an employer's confidential business information.
The decision passed by the Hon’ble Supreme Court in Vijaya Bank and Another v. Prashant B Narnaware, [2025 SCC OnLine SC 1107] confirms that restrictions operating while the employee is still in service are treated very differently from restrictions that attempt to bind a person after they have left.
Further, the decision of the Hon’ble High Court of Calcutta in Parraj Automobiles v. Samiran Sinha neatly illustrates the modern approach. While the Court refused to restrain competitive employment, it granted protection to confidentiality and non-solicitation obligations, recognising that disclosure of trade secrets may cause irreparable harm.
Thus, establishing the current Indian position that an employer cannot lock a former employee out of an industry, however, an employer can protect its trade secrets through confidentiality clauses, non-disclosure agreements and non-solicitation covenants. The Constitution of India rests on the principles of justice, liberty and equality.
Among the Fundamental Rights guaranteed under Part III, Article 19(1)(g) every citizen is entitled to the right to practise any profession, or to carry on any lawful occupation, trade or business within India. Thus, neither the State nor a private party, including an employer, can put an absolute restriction on a person's ability to pursue their lawful occupation, trade or profession.
An employee who has left a company is, in the eyes of the law, simply a citizen exercising the freedom to work. One must always bear in mind that the law strongly protects every citizen’s freedom to earn a livelihood, but that freedom does not extend to taking an employer's confidential business information.