A

Project Report
On
Contract of Service
And
Restrictive Covenants

GROUP 5
PGP30071 BINAYAK ROY
PGP30072 SALONEE CHITLANGIA
PGP30073 DEVENDRA KUMAR SINGH
PGP30074 RAVI DHOOT
PGP30075 GARIMA ASTHA

ACKNOWLEGDEMENT
The joy and satisfaction that accompany the successful completion of any
task would be incomplete without the mention of those who made it possible. It is our
proud privilege to have Prof. D S Sengar as our mentor for this project
on CONTRACT OF SERVICE AND RESTRICTIVE COVENANTS. He has been
immense help to us since the beginning of the project. He guided us at tough times
and helped us achieve this goal. We are very thankful to him for his help and
support.

Contents:
- Introduction
o Contract
o Contract of Service
o Restrictive Covenant
- Restrictive Covenant in Contract of Service
- Challenges in Restrictive Covenants in Contracts of
Service
- Regulatory Measure adopted
- How ethical issues are created in restrictive
covenants
- Legal Compliance to Contracts of Service and
Restrictive Covenants
- Role of Education in Legal compliance of Restriction
of Covenants
- Effective leadership to motivate employees
- Relevance for Business Managers

Introduction:
Contract:
In common legal systems, a contract is an agreement having a lawful object entered
into voluntarily by two or more parties, each of whom intends to create one or more
legal obligations between them. The elements of a contract are "offer" and
"acceptance" by "competent persons" having legal capacity who exchange
"consideration" to create "mutuality of obligation.
Contract of Service:
A contract of service is any agreement whether in writing or verbal, expressed or
implied, whereby:
One person agrees to employ another as an employee;
The other person agrees to serve the employer as an employee.
An apprenticeship contract or agreement is also considered a contract of service. A
contract of service can be in the form of a letter of appointment/employment. The
employer cannot change the terms and conditions of employment unless the
employee agrees to it. Any terms and conditions of employment, in a contract of
service, that is less favorable than the relevant provision under the Employment Act
is illegal, null and void. The provision in the Act will take precedence over a particular
contractual term that is less favorable.
There is a marked distinction between a contract for service and a contract of
service:
A person who is self-employed or a self-employed person who offers or provides
services in consideration for fees or service charge is said to be under a contract
FOR service. He acts as a freelance vendor not for a single recipient client /
customer but for multiple recipient clients / customers.
Whereas a person who is actively employed by another for a specific salary / wage
in consideration of performing specific job is said to be under a contract OF service.
It developed incumbent upon us to take cognizance of this marked distinction
because of various ensuing rights, entitlements and privileges attributed respectively
to these 2 types of employment contracts. For example this could be in respect of

entitlements to minimum wages, holiday pay, sick leave, fair dismissal, the right to
organize a union, and so on.
CONTRACT OF SERVICE ON TERMINATION
There are so many factors which lead to termination of service. However, to put it
simple, they can be classified as Voluntary termination and involuntary termination.
VOLUNTARY TERMINATION
Voluntary termination can be of following types:a. Retirement of an employee
b. Resignation of an employee
c. Failure to return from leave
d. Failure to report to work without notice, for three consecutive days without notice.

INVOLUNTARY TERMINATION
Involuntary termination can easily be understood when in a certain situation an
employer decides to terminate an employee, it could be done on immediate basis or
its in the discretion of the employer to give a notice to the employee of certain span
before the employment could be terminated.
Involuntary termination can be in form of:a. Lay offs
b. Disciplinary actions
c. Recession
d. Unsatisfactory work of an employee
In addition to the above, an employer can also terminate an employee on the
principle of Termination simpliciter. In a very recent Judgment of Honble Delhi High
Court in Satpal Yadav Vs Cambata Aviation4, High Court has observed that If the
termination is in the terms of contract, then the termination remains to be as
termination simpliciter.
On the contrary if the Dismissal of the employee is on the terms of Disciplinary
actions, then an employer is under an obligation to carry out domestic inquiry in
respect of the same. The Honble Supreme court of India in its numerous judgments

has held the same. In Punjab national bank ltd vs. its workmen5, it was held that
there shall be proper enquiry which has to be held in accordance to the provisions of
the standing orders. In Ritz theatre Pvt. Ltd vs. Its workmen6 it was categorically
held that Employer serve the relevant charge or charges on his employee and holds
a proper and fair enquiry, it would be open to him to act upon the report submitted to
him to act upon the report submitted to him by the enquiry officer and dismiss the
employee concerned. There were certain principles laid down in the workmen of
Firestone Tire And Rubber Co. Of India (Pvt.) Ltd. Vs the Management and Ors7.
The above was the law as laid down by the Honble Supreme Court of India is
applicable to all industrial adjudication arising out of orders of dismissal or discharge.
Industrial Employment (Standing Orders) Act, 1946 applies only to those industrial
establishments which are covered by Section 1(3). But the field of operation of the
Act is much wider and it applies to employers who may have no standing orders at
all.
Restrictive Covenants:
A contract in which a party agrees to be restricted in few regards as to future
conduct. Covenants are agreements or promises of two or more parties that few
thing is done, will be done, or will not be done, and are characterized by the type of
burden they impose: an affirmative covenant calls for the covenanter to perform an
act, while a negative covenant requires the covenanter to refrain from performing
one. Negative covenants that limit the uses that can be made by the owner or
occupier of land are also called restrictive covenants.
RESTRICTIVE COVENANTS CAN BE OF THE FOLLOWING TYPES
Non-compete covenants
These have often been viewed as unreasonable, extreme and, therefore, as difficult
to enforce. A court will ask why sufficient protection to the small and large business
could not be provided by less stringent clauses (eg non-solicitation, non-dealing and
non-poaching covenants or an express confidentiality provision) and will question the
companys right to preclude an individual from joining a competitor.
It may, however, be possible to justify a non-compete provision where:

Company has a very local clientele that may be expected to follow a departing
employee; thus, a hairdresser or estate agent may be justified in preventing

fewone from leaving and setting up in opposition in the same street;

Company can prove that substantial technical or other small and large
business - critical information that is not necessarily client-specific and,
therefore, not necessarily safeguarded by non-solicitation/dealing covenants,
could not be adequately protected through an express confidentiality
provision. A 2007 decision by the Court of Appeal has confirmed that noncompetent restrictions will be enforceable if drafted appropriately (see the
case of Thomas v Farr plc, below.)

As stated above, the length of the restriction will be key. So, too, will its geographical
scope: if a director has been primarily responsible for and had knowledge of a
companys small and large business in the south-east, a clause preventing them
from competing anywhere in the United Kingdom is likely to be held to be too wide,
and the court will not enforce it.
Non-solicitation covenants
The easiest type of covenant to enforce is usually that precluding an ex-director from
soliciting his former employers clients for a span following termination. Provided the
length of the span is reasonable, and the covenant only covers the previous
employers line of small and large business and those clients with whom the director
has had individual dealings or of whom he has individual knowledge, a well-drafted
non-solicitation of clients clause must be enforceable.
Non-dealing covenants
A non-dealing covenant not only precludes active solicitation of the former
employers clients but also acceptance of work from the former employers clients
even when it is they who make the initial contact. Nonetheless, non-dealing
restrictions can be enforceable. This is particularly true if the policing of a nonsolicitation clause is likely to prove difficult.
Where non-solicitation and non-dealing restrictions are part of the same contract,
they must be contained in severable (i.e. separate) sub clauses. This way, the
employer will still be able to call on the non-solicitation clause if the non-dealing
restriction is found to be too wide and, therefore, unenforceable.

In sectors where an employer may need to go through a lengthy tendering process

for a contract or where the company invests heavily in building up contacts with
potential clients, the company may wish to protect those potential leads as well as
existing ones. The scope of non-solicitation and non-dealing covenants may thus
extend beyond established customers.
Non-poaching covenants
The position on clauses to prevent a departing director recruiting former colleagues
was in doubt for few years. Several cases have now made clear that, in the right
circumstances, a UK court will enforce a non-poaching restriction.
The keys to enforceability are to ensure that the covenant:

Is drafted only to cover those who may be expected to have particular

knowledge of/influence with clients or knowledge of a companys confidential

information
Is of reasonable duration where a company is particularly concerned about
the risk of poaching by a departing director it must consider further provisions.

It could, for example:

Expressly specify that

remuneration is confidential;
Place directors and other senior employees under a contractual obligation to

information

about

employees

salaries

and

notify the company if a colleague or former colleague seeks to solicit them.

Non-interference with suppliers covenants
These covenants can be useful where a company is very reliant on relationships with
certain key suppliers. They must be drafted to preclude interference with those
relationships (and to make clear that they do not apply to the suppliers of general
utilities).

Restrictive Covenants in Contract of Service:

Restrictive covenants may sound contrary to Section 27 of the Indian Contract Act,
but such covenants shall be drafted in a manner which protects the confidentiality of
the firm and also does not restrict the Employee to work in his desired profession.
Companies have certain trade secrets which are supposed to be protected, so there

is a need to incorporate the restrictive clause in the service contracts so that the
trade secrets of the firm are well protected.
Section 27 of Indian contract Act, 1972 states that,
"Agreement in restraint of trade, void Every agreement by which any one is
restrained from exercising a lawful profession, trade or small and large business of
any kind, is to that extent void.
Exception 1- Saving of agreement not to carry on small and large business of which
goodwill is sold.-One who sells the goodwill of a small and large business may
agree with the buyer to refrain from carrying on a similar small and large business ,
within specified local limits, so long as the buyer, or any person deriving title to the
goodwill from him, carries on a like small and large business therein, provided that
such limits appear to the Court reasonable, regard being had to the nature of the
small and large business."
It is well-settled that a contract which is in restraint of trade cannot be enforced
unless it is reasonable as between parties and it is consistent with the interest of the
public. These two principles are the sine qua non for a contract which is in restraint
of trade.
The situation with regard to the application of section 27 was further in BLB Institute
case. It was held that under Section 27 of the Contract Act-(a) a restrictive covenant
extending beyond the term of the contract is void and not enforceable, (b) the
doctrine of restraint of trade does not apply during the continuance of the contract for
employment and it applies only when the contract comes to an end, (c) this doctrine
is not confined only to contracts of employment, but is also applicable to all other
contracts.

Challenges in Restrictive Covenants in Contract of

Service:
The drafting of a negative covenant in a contract of employment is often a matter of
great difficulty. It is well settled that employees covenants must be carefully

scrutinised because there is inequality of bargaining power between the parties;

indeed no bargaining power may occur because the employee is presented with a
standard form of contract to accept or reject. At the time of the agreement, the
employee may have given little thought to the restriction because of his eagerness
for a job; such contracts tempt improvident persons, for the sake of present gain, to
deprive themselves of the power to make future acquisitions, and expose them to
imposition and oppression. [Justice A.P. Sen in Superintendence Company of India
(P) Ltd. v. Krishan Murgai1]
In the setting of negative contracts in livelihood contracts, Section 27 of the Indian
Contract Act, 1872 has been the topic of much dialog. Certain agreements in job
contracts have over and over been tried before courts in India on the touchstone of
this procurement whose prime reason for existing is to forestall contracts in
restriction of exchange.

This procurement is focused around open approach and tries to push flexibility of
exchange and calling. Be that as it may, the wide extent of the Section has wanted
much feedback in perspective of the acknowledgment of the way that the need to
secure flexibility of exchange the British India of 1872 must, in cutting edge times,
offer approach to need to ensure opportunity of contracting. Furthermore, this
procurement solidly meddles with the opportunity of two recognizing people from
entering into an agreement of their own volition. In any case, so long as the
procurement stays on the statute book, it must be seen by all contracting gatherings.

Indian courts have trodden with alert while translating the extent of Section 27 in
work contracts. In Niranjan Shankar Golikari, the worker being referred to left his
occupation and joined a contender. The superintendent was, bury alia, occupied with
the little and expansive business of assembling tire string yarn and the worker was
locked in for the said tire line division and was bestowed particular preparing. He had
marked a standard contract of occupation consenting to work solely for the
superintendent for a compass of five years. Further he would not join any contender
or begin his own particular wander in comparable little and huge business for the
remaining compass of term, on the off chance that he quit occupation. An order

focused around the terms of the agreement was tested on the ground of being void
under Section 27. The court held that the stipulation in the agreement of vocation
was not struck by Section 27 as it worked amid the term of livelihood and was
fundamental and sensible for the insurance of the business' investment. The Court
additionally noted that authorizing the negative pledge would none, of these drive the
representative to stillness nor would he be propelled to about-face to the old head
honcho. In Krishan Murgai (supra) a three-judge seat of the Supreme Court of India
was called upon to choose the inquiry of legitimacy of a term in the administration
understanding which limited the worker from joining any contender or carrying on
contending little and vast business "for a compass of two years at the spot of your
(the employee's) last posting after you (the representative) leave the organization."
The worker, after end of his administrations, began a contending little and extensive
business welcoming suit for harms and order. Extent of the saying "leave" in the said
procurement was inspected and the court held that the procurement would apply just
if the representative had willfully left the administration of the business, and not when
his administrations were ended by the management. Subsequently, easing was
denied to the business. Sen, J., in his agreeing judgment, analyzed the legitimacy of
the said negative pledge in the light of Section 27. He held that it was not right to
import the regular law test of sensibility to maintain a fractional restriction. Citing the
perceptions of Sir Richard Couch, C.j., in Madhub Chunder [[1874] Beng L.r. 76] he
held that under Section 27, an administration contract broadened past the end of
administration is void. To the discord that the said procurement was old, Sen, J.
reacted: "A law does not stop to be agent on the grounds that it is a chronological
error or in light of the fact that it is out of date or in light of the fact that the motivation
behind why it initially turned into the law, would be no explanation behind the
presentation of such a law at the present time. None, of these the test of sensibility
nor the rule of that the restriction being incomplete was sensible are relevant to a
case legislated by Section 27 of the Contract Act, unless it falls inside Exception 1."

In the Zaheer Khan case [air 2006 SC 3426], the Supreme Court of India needed to
choose the legitimacy of post-contractual pledge in an assention giving right of first
refusal to the VIP support and administration organization. The court dismisses the
conflict that the right was just administrative in nature and not a limitation hit by

Section 2. It reaffirmed the 'predictable, constant and totally settled' legitimate

position as to post-contractual agreements that test of sensibility or the rule of
restriction being fractional were not pertinent, with the exception of in cases falling
under the special case engrafted in Section 27. The court noted the accompanying
peculiarities of the procurement:

"Under Section 27 of the Contract Act (an) a prohibitive agreement enlarging past the
term of the agreement is void and not enforceable. (b) The tenet of limitation of
exchange does not matter amid the continuation of the agreement for job and it
connected just when the agreement arrives at an end. (c) As held by this Court in
Gujarat Bottling vs. Coca Cola (supra), this convention is not kept just to contracts of
work, however is likewise pertinent to all different contracts."

The Bombay High Court in V.f.s. Worldwide Services Ltd. [2008 (2) Bomcr 446]
inspected the legitimacy of a Garden Leave provision in a vocation contract. The
work contract stipulated that the worker would not take part in contending little and
extensive business for a compass of three months after end of or renunciation from
his administrations. In lieu thereof, the representative was qualified for get payment
equivalent to three months' compensation last drawn. The High Court held that the
said Garden Leave statement was, at first sight, in restriction of exchange and was
subsequently hit by Section 27. The silver covering for the management came as
distinguishment by the court of the business' true blue enthusiasm toward protecting
its secret data. The court noted that a condition forbidding a representative from
revealing business or competitive advantages is not in restriction of exchange. The
impact of such a condition
International Approach
In Canada, endeavoring to limit the capacity of a previous key worker (in this article,
any representative who has trustee obligations) to rival the superintendent or to
request its clients, suppliers or representatives might be unreliable. The law
concerning these sorts of prohibitive pledges has been the subject of significant legal
modification, refinement and conflict in the last a few years.

Against this foundation, the article:

summarises the routes in which the normal law ensures little and huge

organizations from unreasonable treatment by withdrawing key workers.

provides a review of the law identifying with non-rivalry and non-requesting

assentions.

analyses the legal patterns concerning implementation.

provides functional tips for drafting an enforceable prohibitive agreement.

reviews the circumstances in which executives in Canada's biggest territory,

Ontario, may utilize non-rivalry understandings without needing to make that the
agreement is a "sensible" restriction of exchange.
Takes a gander at the remarkable common law approach in the Province of Qubec.
In doing in this way, the article will make a few examinations between the Canadian
legitimate position and the US (non-state particular) approach.
Canadian courts by and large consider non-rivalry pledges in vocation contracts to
be "in limitation of exchange" and consequently unenforceable. Canadian courts, in
the same way as other US state courts, won't authorize assentions that anticipate
rivalry by a previous key representative, unless a head honcho can build that the
agreement is sensible, that is, it:

goes no more remote than is important to secure the management's true blue

little and huge business engages in light of the fact that it is sensible in:
o

duration

geographic degree; and

all different viewpoints, (for example, extent of action secured).

does not unduly limit the key worker from making utilization of their abilities

and ability.

is not as opposed to the general population interest.

As it were, the business is not qualified for utilize a non-rivalry proviso to secure its
aggressive position. It can just utilize such a provision to secure its exclusive

investment that, the situation being what it is, sensibly require insurance. The degree
of the assurance to which an executive is entitled will fluctuate relying upon the way
of its little and substantial business and the part of the key representative. Likewise,
the Ontario Court of Appeal has held that courts won't authorize non-rivalry
statements unless the head honcho can show that a non-requesting proviso is
deficient to ensure the superintendent's exclusive investment (H L Staebler
Company Limited v Allan (2008), 92 OR (3d) 107 (CA)).
Due to the courts' hatred towards prohibitive contracts in job contracts, it is trying to
draft a non-rivalry proviso that both is sensible in the courts' perspective and in the
meantime offers sufficient insurance to the head honcho. Not at all like in few US
state courts, the courts in Canada won't revise an unenforceable provision to make it
adequate, yet rather will strike all or piece of the culpable condition (see underneath,
Judicial patterns: Traditional methodology: strike down or blue pencil severance).
Thus, executives regularly trade off by drafting a non-rivalry provision in dialect that
is not as prohibitive as it might want to enhance the probability of enforceability.
Non-rivalry conditions in understandings for the buy and offer of a little and extensive
business are more inclined to be enforceable in light of the fact that the courts
consider that the two gatherings are more prone to revel in generally equivalent
bartering force, and on the grounds that the proviso may be important to guarantee
the purchaser's recently gained little and huge business is not subverted by the past
holders, few of whom may be administrators and executives. As a general matter,
non-rivalry provisos identifying with a little and vast business deal begin running with
the end of the deal.

Canadian case law recommends that, while courts are truly antagonistic to nonrivalry provisos, they are more slanted to implement non-sales statements.
Nonetheless, before the courts will authorize a non-requesting contract, the
management must demonstrate that the agreement is essential in the connection of
the way of the little and expansive business carried on and the sort of work did by
the representative.

The key worker must be few one who has not only procured learning of the
executive's clients however, also, has gained impact over them through the key
representative's little and extensive business dealings with them. The level of
dependence may shift, be that as it may, with the refinement of the customer.

As a rule including non-official deals delegates, a non-requesting statement must be

confined to clients of the business with whom the key worker managed and should
exclude different clients of the manager (for instance, clients with whom the key
representative did not bargain or of which he had no information).

QUBEC APPROACH
Remarkable among Canadian areas, Qubec courts depend on the Qubec Civil
(Code) and not the basic law tenets relevant in whatever is left of Canada. The
general thought under the Code concerning worker prohibitive agreements is like the
normal law necessities: the manager must secure that prohibitive pledges are
sensible "as to time, place and kind of business" (segment 2089, Code). Then again,
there are few particular methodologies to prohibitive agreements in Qubec:
Because a head honcho can't depend on a vocation contract which it has broken
(area 2095, Code), the Qubec courts may not implement a prohibitive agreement
after the business has ended the representative's job without reason. In practice,
Qubec executives may oblige the rejected key representative to sign a new
prohibitive pledge as a state of any severance bundle.

Regulatory Measure adopted:

Employers often choose to include restrictions within employment contracts. Workers
who sign up to the restrictive covenants are agreeing not to do certain things once
their employment is over.
These restrictions work to protect employers by preventing their previous employees
from using the knowledge and information gained at the workplace for the benefit of
their new jobs.

Restrictive covenants can few times not be imposed. Therefore, we would

recommend that you check that the restrictions included in your contracts are legally
compliant and enforceable, so that your small and large business interests can
remain fully protected.
Under Indian Law, few remedies are provided in case of infringement upon
confidentiality. These are:
A. Injunction preventing the third party from using trade secrets. Preventive
injunction is an injunction commanding a party to refrain from doing an act. In
general, injunction is a preventive remedy. However, if necessary, to meet the
exigencies of a particular situation, the injunctive decree may be both preventive and
mandatory.
B. Return of confidential information. The Return or Destruction of Confidential
Information clause commonly appears in confidentiality agreements and other
transactions involving sharing proprietary information. The clause typically contains
requirements to either return or destroy of such information and certify of
compliance.
Most of the sample clauses appear to be written for tangible materials and rarely
adequately address electronic media. However, given the ease of propagation of
electronic files and the difficultly to irretrievably destroy electronic data, it may be
impossible to draft a provision that ensures destruction without imposing
unreasonable burdens. In the end, the courts are likely to impose a reasonableness
standard, looking to the destruction policies applied to sensitive information. (e.g.
University of Pennsylvania, Guidelines for the Destruction of Confidential Records).
C. Compensation for damages. Compensatory damages provide a plaintiff with the
monetary amount necessary to replace what was lost, and nothing more. They differ
from Punitive Damages, which punish a defendant for his or her conduct as a
deterrent to the future commission of such acts. In order to be awarded
compensatory damages, the plaintiff must prove that he or she has suffered a legally
recognizable harm that is compensable by a certain amount of money that can be
objectively determined by a judge or jury.

In addition to this, Section 72 of the Information Technology Act, 2000 any breach of
confidentiality and privacy is also penalized.

Legal Compliance to Contracts of Service and Restrictive

Covenants:
Biggest Challenge to enforcement of restrictive covenants:
Process of reasoning-Many a times restrictive covenants are considered as restraint
of trade if they lack proper reasons to apply the clauses of restrictive covenants.
Restrictive covenants are part of restraint of trade which should have a proper
substantiating material to enforce it. They are enforceable only if they are in view of
interests of parties or of general public.
Consider the below case:
Capgemini India Private Ltd v Krishnan (2014 EWHC 1092 QBD)
In the above case Krishna and his two colleagues were employed by two
subsidiaries of Capegemini group. As the contract signed between the company and
the persons they are not allowed to deal for six months after they left the job with the
any existing customers with whom they have been dealing in the last six months or
with whom they were having sensitive information within the last six months of their
employment.
The contract asked for an undertaking from them that they will honor the covenants
and in case of breach of contract, the company would seek an injunction to enforce
them. The employees, after due consideration to legal aspects, gave Capgemini this
undertaking.
In the usual approach the court would seek the company to prove the reasons to
protect legitimate interest of the company. But in the above case the court
considered that the case has been reversed and in the new scene its the
responsibility of the employee to prove why they set aside the contractual norms of
restrictive covenants.

In the above case the court noted that the company doesnt have real prospect of
recovering the lost contract or subsequent business no matter whether it was
granted injunction or not. As per the courts decision although the employees had
breached their agreement, damages proved to be better remedy than an injunction
enforcing their agreement to observe the covenants.
The unpredictable nature of verdict: The verdict given by the court was so
unpredictable that the vast majority do not make it to court. Even though the court
put the burden on the employees to establish that these contractual clauses should
be set aside, it still refused to grant the employer its injunction.
Main objective of restrictive covenants is to protect the interests of the company and
the copyrights, designs of the company in case an employee leaves the job but
these are not always enforceable. To draft the service contracts it has to be taken
care of that they should be legally compliant.
What interests are considered genuine business interests?

Trade connections (including the relationship between the businesss

customers and its workforce)

Trade secrets and confidential information

Restrictive covenants too are required to be confined to make them enforceable in

terms of following

For a limited period of time

Within the limited geographical area

So while drafting following points are to be taken utmost care

Accurately define the roles and responsibilities of each employee

Circumstances of business, its true interests

Define the limits of the restrictive covenants

While defining the period of enforcement of restrictive covenants following factors

are to necessarily considered:

The amount of time it would take the employers successor to gain influence
over the business contacts

Employees seniority within the business

Extent of the employees role in securing new business

Loyality of the cutomers in the existing market

Potential Customers: Clauses of restrictive covenants can never be considered

enforceable in case of potential customers unless there is utmost certainty of the
same.
Remedies that can sought against breach of contract under restrictive covenants:
Injunctive Relief- the company can seek a permanent injunction to prevent the
offender from violating or continuing to violate the terms of the restrictive covenant.
In order to seek a permanent injunction, the company must prove that: it possesses
a clear, protectable interest, there is no adequate remedy at law and irreparable
harm will result if the relief is not granted.
Monetary Relief- this is in addition to injunctive relief, the company may also seek
money damages for a violation of a terms restrictive covenant. Generally, money
damages are sought as a remedy for the former employers breach of its
employment contract covenant. The amount of damage is determined by the figure
which would have put company in satisfactory position had the contract been
performed.
Punitive Damages- Generally punitive damages are difficult to claim under violation
of terms of restrictive covenants. However in case the violating person has caused
aggravating situations for the defendant in such cases punitive damages can be
sought.
However while enforcement following issues should be taken care of:
Extender Clauses extender clauses are the clause that extends the period of the
restrictive covenants for the span under which the person has violated the terms of
restrictive covenants
Termination Without Cause- for this clause to enforce the person must have broken
th e terms of contract on his own accord.

Assignment of Restrictive Covenants- this deals with whether the a successor

corporation can enforce the restrictive covenant obligations that were made with the
predecessor corporation and assigned to the successor when company has been
sold following acquisitions. As a general rule, courts recognize the parties ability to
freely assign rights and duties under a restrictive covenants and post-employment
restraints. In those few cases addressing this issue, courts have generally permitted
assignment of restrictive covenants even in the absence of an assignment provision
in the employment agreement.
Clawback
Forfeiture or clawback provisions require an employee to pay back compensation or
other benefits received during the time when he or she violates restrictive covenant.
Courts have enforced forfeiture provisions when the provisions were reasonable and
necessary to protect the employers legitimate business interests.
Many a time restrictive covenants are considered in contrast with competition law.
Competition law prohibits and makes void any anti-competitive agreement that in
respect of production, supply, acquisition and control of services, which causes or
likely to cause an appreciable adverse effect on competition in India. Contract of
service and restrictive covenants are that way considered against healthy
competition.
Negative and Positive covenants: In contracts containing negative obligations
Because a covenant is a promise, the distinguishing factor between a positive
(affirmative) covenant, and a negative (restrictive) covenant, is whether someone
has promised to perform an act, or instead promised to refrain from performing an
act.
Role of technology in enforcements of restrictive covenants:
A company has many subsidiaries around the world. Some are overseas branches
whereas some are domestic. Since laws for different countries are different and
hence same restrictive covenants cannot be applicable to every branch around the
world.

However to enforce or ensure that there is strict and regular compliance of these
contracts it becomes almost impossible owning the vastness of the operations of
these branches.
To meet such requirement technology plays very important role. Mayer Brown group
has developed a mobile guides that compiles insights regarding post termination
rules across 45 nations including India.
This app renders a law topic accessible on mobile devices. To get an idea on
restrictive covenants in a particular country we are required to just type in the country
name. Apart from that in case of seeking advice a comprehensive list of lawyers and
counselors are also available on the apps.
Restrictive Covenants and Cross border employees:
In USA: Post employment restrictive covenants are very common in US but outside
USA the clauses and agreements of restrictive covenants are quite different.
Employers use these restrictive covenants for various reasons but generally they
consider it to be a tool for protecting their talent, design. They also consider it to
reinforce key client relationships following the loss of an important employee. In the
U.S., state laws pertaining to restrictive covenants are quite employer-friendly, and
takes into account that employers have protectable interests following the departure
of an employee. In many states, employees must accept a post-employment
restrictive covenant as a condition of employment, and employers are not required to
provide additional consideration to ensure the restriction is enforceable.
In European countries:
European countries permit post-employment restrictive covenants. In Europe its
quite pertinent of part of company to pay a percentage of salary to the employee for
the non-competition period. In Germany, post-employment restrictions are
enforceable do not exceed 2 years in duration, and they must provide the employee
compensation of at least 50 percent of his or her salary for the duration of the
restricted period, inclusive of bonuses. In contrast, Romania requires that employees
subject to post-employment restrictions paid monthly benefit during the term of their
employment as part of the employees regular compensation, compensating them in
advance for the restricted period.

How ethical issues are created in restrictive covenants:

Presently we will see in what way pledges can make moral issues at working
environments. Prohibitive agreements in occupation are contractual procurements
that breaking point a few types of rivalry, especially after the influenced
representatives or executors no more work for the superintendents or principals with
whom the contracts may have been arranged. The courts stay away from their
implementation as open arrangement supports open rivalry in the commercial center
which prompts dishearten the court to support these. Yet these contracts must be
attracted up effectively to make the effect.
In this column, we will to focus our attention of legal and ethical issues in these
provisions, and offer some generalized guidance as to how we must approach
them.Guideline G3.2 of the Code of Professional Ethics of the American Institute for
CPCU (AICPCU) addresses this subject as follows:A CPCU must not, to the
detriment of the insuring public, engage in any business practice or activity designed
to restrict fair competition. However, this Guideline does not prohibit a CPCUs
participation in a legally enforceable covenant not to compete.
Canon 3 of the same Code provides as follows:
CPCUs must obey all laws and regulations, and must avoid any conduct or activity
which would cause unjust harm to others.
Obviously, contracts not to contend may cause some damage to the gatherings
bound by them. The inquiry, for our reasons for existing, is whether we can promptly
observe when that damage is unfair. As noted regarding the long ago cited rule,
there is a recommendation that if the contract not to contend is not lawfully
enforceable, then there may be some room to contend that forcing the agreement on
others may constitute a moral infringement. Specifically, there may be a
recommendation that if the contract is forced when it is known to be invalid, then its
inconvenience may constitute an unscrupulous practice not steady of reasonable
rivalry.
Rule
R3.1 sets out as follows:

In the conduct of business or professional activities, a CPCU shall not engage in any
act or omission of a dishonest, deceitful, or fraudulent nature. Consider that an
unsophisticated worker may not appreciate whether a particular covenant is valid or
not, and may simply be intimidated into accepting its limitations without question as a
condition of employment. If that happens, then the party imposing it may be
overreaching and, in essence, engaging in arguably dishonest conduct. A much
closer question develops if there is merely some doubt as to the validity of the
proposed covenant. For one thing, it may be more difficult to argue that the party
imposing the covenant knew that doing so would not be legally binding. And only if
the bound party takes exception to the overall arrangement will it likely be known
whether the covenant in question would have been deemed valid or invalid. An
employer or principal has an interest in keeping its employees and agents employed
in its behalf, and not having them work for a competitor.
Undoubtedly, terms of occupation that bound the representatives and executors not
to work for contenders would likely not pass gather if tested. At the same time there
are circumstances where the contracts are arranged to ensure prized formulas or
created client connections or both. The most disagreeable setting, in my estimation,
concerns agreements that secure client information and connections that the bound
laborers may have appointed to their principals or managers. Normally the
withdrawing representative or executor is restricted from taking and utilizing the
client data (which he or she may have served to produce for the earlier key or
superintendent) to request clients for another vital or management.
As such, the foods grown from the ground of the earlier business exertion may be
considered the property of the chief or manager, and not that of the executor or
representative. The rupture of these procurements may bring about the
relinquishment of commissions or other remuneration kept down by the previous
main or superintendent. In
addition, there is the prospect that the former principal or employer will seek to enjoin
the former employee or agent from using the customer information previously
entrusted to him or her to solicit those customers on behalf of the new principal or
employer.

So what then are the ethical issues we might need to focus on? For our purposes,
the predominant ethical considerations are the following:
1. Is it reasonably clear that the restrictive covenants in question were drawn to
protect identifiable interests deemed worthy of protection? Preventing or dampening
potential competition without more, as we have said, is not enough to justify the
enforcement of these covenants.
2. Is it proper to submit an ethical complaint against a CPCU concerning the validity
of a disputed covenant to which he or she may be a party? The underlying complaint
may focus on the allegedly unfair competition that the covenant imposes on the
bound party as a violation of Rule 3.1, previously discussed above, or Rule 4.1,
which provides that a CPCU shall competently and consistently discharge his or her
occupational duties. Interestingly, any boards of ethical inquiry appointed to examine
these types of allegations, under the AICPCUs ethics policies, will likely refuse to
consider these complaints. The following statement appears in a commentary on
these ethical proscriptions
3. Are there circumstances where the AICPCU will want to examine allegations of
unethical conduct in relation to one of these covenants? Wienings commentary,
cited above, alludes to the desirability of resolving the underlying dispute privately
or through the courts if necessary as a possible precondition to the consideration of
any violation of the Code. (Id. p. 2.29)
4. Why have different callings and expert gatherings denied or endeavored to
repudiate the moral legitimacy of prohibitive pledges? Case in point, the codes of
morals that administer legal counselors and the act of law consistently forbid
assentions that confine an attorney's entitlement to provide legal counsel.
Concerning Cpcus, and conceivably other proficient gatherings also, the insurance of
made business relations and investment may surely prevail over people in general's
opportunity to pick the specialists with whom they will bargain.
5. Does the Societys Code of Ethics, as developed in the Societys ethics policy
statement, address the subject of restrictive covenants? It does not, but it does invite

us to think of how we might meet the potentially conflicting interests between an

employer or principal and a client. If the member leaves the employment of his or her
employer or principal while subject to a restrictive covenant, then what is the
member to do if the client expresses a preference to deal with the member?
Members need to be aware that they must respect the confidential relations they
have with others as part of their business transactions. [Cf. CPCU Society Ethics
Code Section 4(a)(3)]
Honestly, it is noticeably difficult to handle the vital nature of these prohibitive
contracts and the points of confinement of their legitimacy and authorization. In
handy terms, it is prudent to counsel with equipped lawyers when considering the
arrangement or translation of these procurements. My particular suggestions for
CPCUS managing these agreements take after:

Do seek to identify interests worthy of protection prior to the acceptance and

negotiation of a restrictive covenant in an employment or other personal services

agreement.

Consider whether the restrictions being imposed are reasonably satisfactory

in terms of their duration and geographical scope.

Where you offer employment subject to a restrictive covenant, be sure to limit

its application as narrowly as befits the interests you seek to protect.

If your business interests allow, then consider conducting business without

restrictive covenants anticipating that the public as a whole will best determine with
whom it will deal.

If you offer employment with restrictive covenants, then avoid terms as

onerous or questionable as will likely serve to drive away your best prospects for
service, in time create resentments that will harm productivity, or simply generate
unproductive and costly disputes.

Role of Education in Legal compliance of Restriction of

Covenants:
Learning of the law is basic to creating instructive approach and school change
methodologies. Instructive policymakers, executives, and specialists progressively
turn to legal advisors as they arrange a continually perplexing the earth, in which

state and government organizations are included in nearby choice making in

phenomenal ways. Thus, attorneys must see how schools work as intricate
associations and must ace the essential apparatuses approach experts use when
handling social issues. Stanford's JD/MA in Educational Policy, offered by the
schools of training and law, gets ready pioneers and researchers to address these
difficulties.
Starting with its top notch schools of law and training, Stanford gives unparalleled
chances to those intrigued by seeking after a joint degree in law and instruction.
Legitimate and instructive personnel, regarded for their exploration, are routinely
included with policymakers and other people who look to change instruction in the
United States.
Whether recording a legal claim to keep a neighborhood school region from
unlawfully barring understudies from school without giving them their established
right to a hearing, supporting for a preschooler with extreme introvertedness in an
intervention session to guarantee that he gets fitting instructive administrations, or
drafting an arrangement short that looks to enhance the conveyance of mental
wellbeing administrations to youth with inabilities, understudies in the center are laid
open to an extensive variety of instructive strategy change and backing work.
Amid the movement from Mughal legitimate framework, the backers under that
regimen, "vakils", excessively stuck to this same pattern, however they basically
proceeded with their prior part as customer agents. The entryways of the recently
made Supreme Courts were banished to Indian experts as right of group of
onlookers was constrained to parts of English, Irish and Scottish proficient bodies.
Ensuing tenets and statutes coming full circle in the Legal Practitioners Act of 1846
which opened up the calling paying little respect to nationality or religion.
In India, lawful instruction has been customarily offered as a three years graduate
degree. However the structure has been changed since 1987. Law degrees in India
are allowed and gave as far as the Advocates Act, 1961, which is a law passed by
the Parliament both on the part of legitimate training furthermore regulation of
behavior of lawful profession.[2] Under the Act, the Bar Council of India is the

incomparable administrative body to control the legitimate calling in India furthermore

to guarantee the agreeability of the laws and upkeep of expert measures by the
legitimate calling in the nation.
To this respect, the Bar Council of India recommends the base educational module
needed to be taught in place for an organization to be qualified for the award of a law
degree. The Bar Council likewise carries on a period supervision of the
establishments giving the degree and assesses their showing philosophy and
educational program and having verified that the foundation meets the obliged
norms, perceives the establishment and the degree presented by it.
Customarily the degrees that were given conveyed the title of Ll.b. (Unhitched male
of Laws) or B.l. (Lone wolf of Law). The qualification necessity for these degrees was
that the candidate as of now have a Bachelor's degree in any subject from a
perceived organization. From there on the Ll.b. / B.l. course was for three years,
upon the fruitful culmination of which the candidate was allowed either degree.
However upon the recommendation by the Law Commission of India furthermore
given the predominating sob for change the Bar Council of India initiated upon an
analysis regarding creating specific law colleges exclusively dedicated to lawful
training and in this manner to raise the scholarly guidelines of legitimate calling in
India. This choice was taken some place in 1985 and from there on the first law
University in India was set up in Bangalore which was named as the National Law
School of India University (prevalently 'NLS'). These law colleges were intended to
offer a multi-disciplinary and coordinated methodology to lawful instruction. It was in
this way shockingly that a law degree other than Ll.b. alternately B.l. was conceded
in India. NLS offered a five years law course upon the fruitful fruition of which a
coordinated degree with the title of "B.a.,ll.b. (Respects)" would be conceded.

Effective leadership to motivate employees

In his classic book on corporate responsibility and compliance, Stone (1975) argued
that the deterrent effect of legal sanctions is insufficient to prevent harmful corporate
behavior and promote compliance with law. He suggested that law could most
effectively shape organizational behavior and promote compliance with law. He
suggested that law could most effectively shape organizational behavior by
generating normative commitments through systemic internal controls. Since then,
regulatory scholars have argued that internal compliance structures can align

the

behavior of corporate organizations with law and social expectations and can
remake the regulated corporation into a more reflexive, responsive and even
democratic.
As regulatory demands have increased in scope and complexity, organizations have
turned to self-regulatory structures both to signify and to facilitate compliance. A
number of studies have documented the rise of internal controls in corporations as
they sought to comply with the mandates of
civil rights laws governing the workplace. Other research has noted the widespread
adoption of self- regulatory structures to signal, and ostensibly to promote,
compliance with financial regulation, environmental regulation and workplace safety
and labor regulation. But although it is clear that corporations have widely adopted
self-regulatory structures, it is not at all clear whether these structures have brought
about the kind of fundamental changes in those organizations that would improve
legal compliance.

Although recent work has stressed the importance of motivation to leadership

processes, the leadership literature, in general, has paid limited attention to the
underlying psychological processes and mechanisms through which leaders
motivate followers. Recent developments in motivation theory stress the importance
of peoples self-regulatory focus as a central component shaping their motivations
and behavior. This theoretical development may be helpful in attempting to
understand the ability of leaders to influence and motivate followers by arousing
different
self-regulatory foci of followers.

The Relationship Between Leaders Values and Leaders Chronic Regulatory Focus

Individuals, including leaders, hold different values and give prominence to certain
values over others. Various researchers have asserted that the values held by
leaders are related to their behaviors and effectiveness review of earlier research
showed a consistent relationship between the personal values of managers and
several criteria of managerial effectiveness. More recent work by Trow and Smith
showed that leaders hold the values of the groups they lead more strongly than do
the followers in those groups so that followers have a model on which they can focus
and to which they can aspire.
FOLLOWERS MOTIVATION: PRIMING FOLLOWERS REGULATORY FOCUS

There is accumulating evidence that transformational and charismatic leadership

substantially influences employee motivation and performance very differently from
transactional and monitoring leadership (e.g., Dvir et al., 2002; Lowe et al., 1996).
However,

only

recently

have

transformational

and

charismatic

leadership

researchers attempted to reveal the processes by which transformational leadership

exerts its influence on followers. Here we suggest that one of the mechanisms by
which transformational and/or charismatic leaders exert their influence on followers,
and differ from transactional and/or monitoring leaders, is by eliciting a promotion
focus among their followers.
Organizational commitment
Commitment is a force that binds an individual to a course of action that is of
relevance to a particular target suggest a three-component model of organizational
commitment. The main differences among the three components are in the mindsets
presumed

to

characterize the

commitment. These

mindsets reflect three

distinguishable themes: affective attachment to the organization affective

commitment; obligation to remain normative commitment; and perceived cost of
leaving continuance commitment. The reason for distinguishing the three
organizational commitment types is that they have different implications for behavior.
For example, affective commitment has the strongest positive correlation with job
performance. Recently, researchers asserted that the different types of commitment
could be related to different regulatory foci. Specifically, they suggested that a
promotion focus is related to affective commitment, while a prevention focus is likely
to be related to normative and continuance commitment. Promotion-focused
individuals are intrinsically motivated and are mostly guided by their inner ideals and
not by external forces. Thus, they are likely to be committed to the organization in an
autonomous form. In contrast, prevention-focused individuals are more influenced by
external or social pressure and attempt to fulfill obligations and avoid losses. Thus,
they are more likely to be committed to the organization out of a sense of obligation
or necessity.
Prior studies have shown that transformational leadership is positively related to
followers affective commitment to the organization, and management by exception is
more strongly related to continuance commitment. Using our framework, we suggest
that one of the mechanisms through which transformational and charismatic leaders
elicit affective commitment is by priming the followers promotion focus. Monitoring

leaders are more likely to elicit a normative or continuance commitment by priming

followers prevention focus.
Effect of Motivation on Restrictive Covenants
As can be seen from above, motivation along with effective leadership does have a
positive impact and it leads to employee self- regulation. If the employer is motivated
enough he will be careful and considerate before including certain restrictive clauses.
Hence the super boss plays a vital role in motivating employees to have an overall
effect on the organization.

Relevance for Business Managers:

Employees are the backbone of any business. The more capable and qualified the
employees the better the performance of the company. Employees like to learn new
skills and meet challenges and they are more motivated when they feel there is great
potential for personal growth. When the company shows interest in employee
development, the employee naturally has a greater interest in the company's
development too. The contract of service and the restrictive covenants is a very
important tool in determining the motivation levels of employees. There is very thin
line between protecting the companys secrets and restricting the freedom of
employees.
As potential business managers and decision makers, we need have proper
understanding of how to keep employees motivated and protect the companys
interests at the same time. In order to know that we need to know the laws governing
such contracts and how to use them to maximize the interests of both the company
and its employees.