Non-Compete Clause Post Termination Not Enforceable, Rules Delhi High Court

In a recent decision in Varun Tyagi v. Daffodil Software Pvt. Ltd. [Neutral Citation: 2025:DHC:5015], the Delhi High Court reaffirmed that post-employment non-compete clauses are unenforceable under Indian law.

Varun Tyagi, a software engineer, resigned from Daffodil Software after serving his notice period and joined Digital India Corporation (DIC), a client under the government’s POSHAN Tracker project.

Daffodil obtained an interim injunction from the trial court to restrain Tyagi from working with DIC, citing a non-compete clause in his employment contract.

Justice Tejas Karia overturned the injunction, holding that such restrictive clauses applicable after termination of employment are void under Section 27 of the Indian Contract Act. The Court emphasized that no confidential or proprietary information belonging to Daffodil was being misused, as the project IP was owned by DIC.

The ruling underscores that employees cannot be barred from pursuing career opportunities post-resignation unless there is a clear and justifiable basis, such as protection of trade secrets or client data.

Permissible Grounds for Enforcing Post-Termination Clauses

While Section 27 of the Indian Contract Act generally renders post-employment non-compete clauses void, Indian courts have recognized limited scenarios where injunctive relief may be granted:

1. Protection of Trade Secrets or Confidential Information

If an employee has access to proprietary algorithms, product roadmaps, client databases, or sensitive business strategies, and there is a demonstrable risk of disclosure or misuse, courts may enforce a narrowly tailored restraint to protect such information.

2. Non-Solicitation of Clients or Employees

Clauses that prevent an ex-employee from poaching clients or employees especially within a limited time and geographic scope may be upheld if they protect a legitimate business interest without unduly restricting livelihood.

3. Breach of Fiduciary Duties

Senior employees, directors, or those in fiduciary roles may face injunctions if they exploit their position to gain a competitive advantage or divert business unfairly, even after their exit.

4. Garden Leave Clauses

Where employees are paid during their notice period and contractually required to stay away from competing work (commonly referred to as "garden leave"), courts have shown greater willingness to uphold such clauses, provided they are reasonable in duration and scope.

Final Thoughts

In essence, Indian courts apply a reasonableness test balancing the employer’s right to protect its business with the employee’s right to earn a livelihood. Blanket prohibitions on employment post-termination, especially without substantiated risk, are unlikely to be enforced.