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Non-Compete Agreement

Last revision Last revision 4 days ago
Formats FormatsWord and PDF
Size Size5 to 7 pages
Fill out the template

Last revisionLast revision: 4 days ago

FormatsAvailable formats: Word and PDF

SizeSize: 5 to 7 pages

Fill out the template

What is a Non-Compete Agreement?

The Non-Compete Agreement is a legal document under which the one party ("Restricted Party") agrees to not enter into the competition of any kind during and for such duration after the termination of the business relationship with the other party ("Protected Party"). Non-Compete Agreement can be used by a business to retain valuable employees, protect its confidential information and customers, and prevent unfair competition.

The Non-Compete Agreement ensures that the Restricted Party will not use the information or skills learned during the term of the business relationship to start a business and compete with the Protected Party in the Relevant Market (where the Protected Party does business or such geographical area specified under this Agreement), during or once the business relationship is over.


What are the different types of Non-Compete Agreements?

The Non-Compete Agreements are generally divided into the following two categories:

  • Non-Compete Agreement between employer and employee: under this agreement, the employer restricts the employee from competing with the employer during the employment period, and for a certain period thereafter to protect the business of the employer.
  • Non-Compete Agreement between two businesses: businesses often share confidential information and trade secrets with other businesses while engaging in a business transaction. Often the business is required to protect its business by stopping the other party from engaging in or starting a similar business for a certain period.


What is the difference between a Non-Compete Agreement and a Non-Disclosure Agreement?

A Non-Compete Agreement specifically restricts competition or starting a similar business for a particular period in a particular location. On the other hand, a Non-Disclosure Agreement focuses solely on preventing the disclosure of confidential information or secret information of the party disclosing it to the other party.


Is it mandatory to have a Non-Compete Agreement?

No, it is not mandatory. However, having written a Non-Compete Agreement will help in protecting the business interest and prevent unfair competition.


Who can enter into a Non-Compete Agreement?

Any individual above the age of 18 years or entities registered in India can enter into a Non-Compete Agreement.


What can be the duration of a Non-Compete Agreement?

The duration of a Non-Compete Agreement can vary, typically ranging from 6 months to 2 years. It depends on the nature of the business, industry standards and the role of the concerned employee.


What has to be done once a Non-Compete Agreement is ready?

The Non-Compete Agreement would need to be printed on non-judicial stamp paper or e-stamp paper, which is available in certain states. The value of the stamp paper would depend on the state in which it is executed. Each state in India has provisions in respect of the amount of stamp duty payable on the Non-Compete Agreement. Information regarding the stamp duty payable can be found on the State government websites.

After printing the document on stamp paper or e-stamp paper, as applicable, both parties should sign the lease deed and each party should keep a copy of the Non-Compete Agreement.


What must a Non-Compete Agreement contain?

A Non-Compete Agreement must include the following clauses:

  • Parties involved: The name and address of the parties.
  • Scope of restriction: Detailed description of the activities that are restricted.
  • Duration: The time period during which the restriction applies.
  • Geographical limitations: The area in which the restrictions apply.
  • Consideration: What the employee or party receives in return for agreeing to non-compete. The Restricted Party must receive compensation, known as Consideration, in exchange for entering into this Agreement, for it to be enforceable under the law. Compensation can take the form of an offer of employment/project, money, or any other form of remuneration.
  • Consequences of breach: Penalties or legal actions in case of violations.


What laws are applicable to a Non-Compete Agreement?

In India, Non-Compete Agreements are generally barred under Section 27 of Indian Contract Act, 1872. But the Supreme Court of India in the recent judgements has specified that certain types of Non-Compete Agreements can be enforced to protect the genuine interests of the Companies. A Non-Compete Agreement will be enforceable under the Indian Contract Act, 1872.

The duration and geographical area of duration must be reasonable and protect the interest of the party to be enforceable under the law.


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