In India, there is a fair amount of debate regarding the enforceability of non-compete agreements given Section 27 of the Contract Act that invalidates contracts in restraint of trade. Recent developments in California may throw some further light on the issue.
Oracle’s appointment of former HP-CEO Mark Hurd has given rise to litigation by HP. This report in the Wall Street Journal notes that while Hurd entered into a confidentiality agreement with HP, he was not bound by any non-compete obligation:
One sticking point in Mr. Hurd’s move could be the terms of his severance package from H-P. That package, which could be worth more than $35 million depending on H-P’s stock price, doesn’t contain a noncompete clause as those are typically difficult to enforce in California. However, Mr. Hurd did agree to a 24-month confidentiality agreement, which prevents him from disclosing sensitive information related to H-P.
The question then is whether the confidentiality clause may be enforced by preventing an employee from working for a competitor such that it would effectively operate as a non-compete. Professor Bainbridge outlines his view of the legal position:
Count me a skeptic. Courts are often reluctant to let trade secret law impose prior restraints on free movement of labor. If HP had wanted to put restraints on Hurd’s post-HP employment, it could have done so in the employment agreement. Given that courts construe those agreements narrowly so as to prevent unreasonable restraint of trade, moreover, HP should not get by a legal back door what it did [n]ot bargain for in the first instance. If Hurd reveals trad[e] secrets or other protected information, HP can always sue him ex post.
At a broad level, this seems similar to the position under Indian law.