Can an NDA Stop Employees from Joining Competitors?

Employee exits frequently raise two separate concerns for businesses: protecting confidential information, and preventing clients or employees from being solicited. A recent decision of the Bengaluru City Civil Court shows why those concerns must be addressed with carefully drafted restrictions and supported by evidence of an actual breach.

In EOX Vantage Private Limited v. Shruthi B.S., the petitioner sought permanent injunctions against a former employee to restrain her from soliciting its current or former employees or disclosing confidential information, on the basis that she had disclosed confidential information and solicited the company’s clients and employees. The Court dismissed the suit. The decision offers a useful illustration of the limits of post-employment restrictions under Indian law.

The dispute

According to the petitioner, its former employee who resigned in 2022, had access to employee records, client information and other sensitive business material. The company alleged that, after leaving, she worked with businesses operating in a similar space, disclosed confidential information and participated in attempts to solicit its clients and employees. It also alleged that company material, including rate cards, contracts and collateral, had been transferred to personal email accounts over several years.

What the Court held

The Court dismissed the suit as, among other things, the petitioner could not demonstrate the alleged disclosure of confidential information or solicitation on the employee’s part. Nor could it show that she joined a competitor. Further evidence of access to company data alone did not prove unauthorised extraction or disclosure.   

Apart from these crucial facts, the Court also considered Section 27 of the Indian Contract Act, 1872, which renders agreements in restraint of trade void. It observed that an employer cannot ordinarily prevent a former employee from joining a competitor, or from using their general skill, experience and knowledge, merely by characterising the restriction as a confidentiality obligation.

This does not mean that confidential information loses protection once employment ends. The Court recognised that businesses may protect legitimate commercial interests, including trade secrets, proprietary source code, confidential pricing, customer data, technical know-how, and other commercially valuable information. The relevant distinction is between restrictions that, in effect, restrain the employee from carrying on a profession or competing, rather than restrictions directed at misuse of specific protected information.

The decision reinforces the need to identify confidential information with reasonable precision. Rather than defining all information obtained during employment as confidential, employers should specify the categories that genuinely require protection, such as non-public customer information, pricing and margins, source code, product roadmaps, security architecture and proprietary processes. The confidentiality restriction should then focus on what the employee may not do with the protected information: retain it without authorisation, copy or transfer it to personal systems, disclose it to third parties, or use it for the benefit of another business.

A clause that is drafted so broadly that the employee cannot work for a competitor without inevitably breaching it may, in substance, operate as a post-employment non-compete. That form of restriction is vulnerable under Section 27, irrespective of whether it is labelled as a confidentiality obligation.

Moreover, contractual drafting is only one part of the exercise. If misuse is suspected, the employer must be able to identify the information involved, connect the former employee to the alleged disclosure and preserve the evidence required to prove it.