Delhi High Court nixes post-employment Non-Compete Clause “Right to work can’t be fenced by contracts”

In a compelling reaffirmation of employee rights, the Delhi High Court has ruled that a post-employment restriction preventing a professional from joining another organisation after serving the notice period is void under Section 27 of the Indian Contract Act, 1872. The judgment, delivered by Justice Tejasvi Karia, dismantles the wide net often cast by employers through non-compete clauses, and sends a sharp message that contracts can’t override the constitutionally grounded right to livelihood.

The case arose from a dispute between Varun Tyagi, a software engineer engaged through Daffodil Software Pvt. Ltd., and the Digital India Corporation (DIC). Tyagi had been working on the POSHAN Tracker project a government nutrition initiative when he resigned from Daffodil and joined DIC after completing his notice period. Daffodil sought to restrain him under a three-year non-compete clause which barred him from working with any of its “business associates.” A trial court even granted a temporary injunction, preventing him from joining the new role.

Justice Karia held that post-employment restrictions such as non-compete clauses are unenforceable, particularly when they attempt to limit an employee’s ability to pursue lawful employment after resignation. The Court observed that such clauses violate Section 27 of the Indian Contract Act, which prohibits agreements in restraint of trade or profession.

What makes the ruling even more significant is the Court’s strong articulation of constitutional principles. It reiterated that the right to livelihood is embedded in the right to life under Article 21, and that a person cannot be forced to choose between working for their previous employer or remaining jobless. A clause that results in such an outcome is not just bad in contract law it is offensive to basic human dignity. Interestingly, the Court also dissected the purpose behind non-compete clauses. It held that if the clause had sought to protect trade secrets or confidential information, the analysis might have been different. But in this case, the software platform being worked on POSHAN Tracker was government-owned, not proprietary to Daffodil. Therefore, the clause served no legitimate business interest and merely operated as a tool of coercion.

This ruling echoes a well-established, though often ignored, legal principle: post-employment restraints are void ab initio in India, even if seemingly “reasonable.” The Indian courts have consistently refused to apply the proportionality or reasonableness test found in Western jurisprudence. Restraint of trade post-employment is not permissible.

For India’s ever-evolving employment ecosystem, especially in sectors like IT, consulting, and start-ups, this judgment is both a reality check and a call to clarity. While companies are free to secure legitimate business interests through narrowly tailored clauses, they cannot impose open-ended roadblocks on a person’s career trajectory.