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    Garden LeaveNon Compete Clause

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    surekhaa
    The plaintiff, VFS Global Services, sought damages and enforcement of negative covenants in the defendant's employment contract, including a "garden leave clause" prohibiting work for 3 months after leaving. The High Court of Bombay ruled that [1] under Section 27 of the Indian Contract Act, agreements restraining lawful professions are void unless related to goodwill sale; [2] the garden leave clause intended to restrain trade after employment and was not a goodwill sale exception; and [3] negative covenants cannot indirectly compel continued employment. Therefore, the court denied enforcing the garden leave clause but granted an injunction on using confidential information not publicly known.

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    Attribution Non-Commercial (BY-NC)
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    Garden LeaveNon Compete Clause

    Uploaded by

    surekhaa
    76 views3 pages
    The plaintiff, VFS Global Services, sought damages and enforcement of negative covenants in the defendant's employment contract, including a "garden leave clause" prohibiting work for 3 months after leaving. The High Court of Bombay ruled that [1] under Section 27 of the Indian Contract Act, agreements restraining lawful professions are void unless related to goodwill sale; [2] the garden leave clause intended to restrain trade after employment and was not a goodwill sale exception; and [3] negative covenants cannot indirectly compel continued employment. Therefore, the court denied enforcing the garden leave clause but granted an injunction on using confidential information not publicly known.

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    The plaintiff, VFS Global Services, sought damages and enforcement of negative covenants in the defendant's employment contract, including a "garden leave clause" prohibiting work for 3 months after leaving. The High Court of Bombay ruled that [1] under Section 27 of the Indian Contract Act, agreements restraining lawful professions are void unless related to goodwill sale; [2] the garden leave clause intended to restrain trade after employment and was not a goodwill sale exception; and [3] negative covenants cannot indirectly compel continued employment. Therefore, the court denied enforcing the garden leave clause but granted an injunction on using confidential information not publicly known.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    76 views3 pages

    Garden LeaveNon Compete Clause

    Uploaded by

    surekhaa
    The plaintiff, VFS Global Services, sought damages and enforcement of negative covenants in the defendant's employment contract, including a "garden leave clause" prohibiting work for 3 months after leaving. The High Court of Bombay ruled that [1] under Section 27 of the Indian Contract Act, agreements restraining lawful professions are void unless related to goodwill sale; [2] the garden leave clause intended to restrain trade after employment and was not a goodwill sale exception; and [3] negative covenants cannot indirectly compel continued employment. Therefore, the court denied enforcing the garden leave clause but granted an injunction on using confidential information not publicly known.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 3

    IN THE HIGH COURT OF BOMBAY

    VFS Global Services Private Limited (Plaintiff)


    Vs.
    Suprit Roy (Defendants)
    Notice of Motion No. 4388 of 2007
    in
    Suit No. 3171 of 2007

    Synopsis
    Facts of the Case

    1) The employment contract of the Defendant entered with the Plaintiff


    contained inter alia the following conditions:

    a) The Defendant shall not make use of or disclose confidential


    information whether during the period of employment or after.

    b) The Plaintiff reserves the right to require the Defendant to remain


    away from work/employment for a period of 3 (three) months after
    cessation of employment and to comply with all conditions that may
    be laid down by the Company at the time of such resignation or
    termination. (Garden leave clause)

    c) The Defendant shall not complete or carry on any business of visa


    processing services or similar business for a period of 3(three)
    months

    d) The Plaintiff shall pay compensation equal to 3 (three) month's


    remuneration last drawn at the time of termination or resignation at
    its sole discretion.

    2) Defendant tendered his resignation from service by giving 30 days notice


    period as per the contract

    Prayers/Relief Sought by the Plaintiff

    Plaintiff sought damages in the amount of Rs. 5 crores and for enforcing the
    negative covenant contained in the contract of employment {conditions (b) and
    (c)}

    The prayers in the Notice of Motion for interim relief sought

    a) enforcement of the Garden Leave Clause


    b) injunction against from the disclosure of confidential information
    c) injunction against the Defendant soliciting customers or employees

    1
    Decision

     Section 27 of the Indian Contract Act, 1872 provides that every


    agreement by which anyone is restrained from exercising a lawful
    profession, trade or business of any kind is to that extent void. An
    exception is carved out in Section 27 by which a person who sells
    the goodwill of a business may agree with the buyer to refrain from
    carrying on a similar business within specified local limits so long as the
    buyer carries on a like business, provided that such limits appear to the
    Court reasonably having regard to the nature of the business. The only
    exception which is provided to the doctrine that an agreement in
    restraint of the exercise of a lawful profession, trade or business is void
    is where the goodwill of a business is being sold.

     While construing the provisions of Section 27 of the Contract


    Act, neither the test of reasonableness nor the principle of
    restrain being partial is applicable, unless it falls within express
    exception engrafted in Section 27 which relates to the sale of
    the goodwill of a business. (Supreme Court in Zaheer Khan’s case)

     In the present case, the Garden Leave Clause is intended to operate


    after the contract of employment stands terminated, either as a result
    of resignation or upon the employee ceasing to remain in service upon
    termination.

     The payment of 3 months compensation does not renew the contract of


    employment. The Garden Leave Clause is therefore, prima fade in
    restraint of trade and is hit by Section 27 of the Contract Act.

     There is nothing in Section 27, to suggest that the principle in


    Section 27 will not apply when the restraint is for a limited
    period. (Krishan Murgai's case)

     A negative covenant cannot be enforced if it would indirectly compel


    the employee either to remain idle or to serve the employer. (Supreme
    Court in Gujarat Bottling Co. Ltd)

    Thus prayers pertaining to enforcement of the Garden Leave Clause and


    injunction against the Defendant soliciting customers or employees were denied
    and injunction against use of confidential information was granted in respect of
    such confidential information which is not in public domain (upon a confirmation
    by the Defendant in this regard)

    Decided On: 10.12.2007

    2
    D.Y. Chandrachud, J.

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