Safeguard your interests

With focus on sustainable business operations, industry players are advised to focus on identification and retention of key talent. Hasty layoffs can have a ripple effect on business. Dheeraj Nair, Partner at J Sagar Associates, offers a simple understanding of contracts.

The hospitality industry, particularly, is a very individual-driven industry with a lot of business either coming or getting retained due to the personal equation developed between staff members and customers. Hence, loss of key talent also comes with the risk of loss of business and the apprehension of losing proprietary information such as client lists, marketing strategies and other confidential information. Ordinarily, in cases where former employees indulge in any such activities, if they want to challenge their termination, or make any post-employment claim, the only recourse available is filing a civil suit for injunctive reliefs or damages. This, of course, is the litigious route of safeguarding the confidential and proprietary information. Instead, it is advisable to have a precautionary approach in this regard by ensuring that the engagement contract with the employees has the requisite safeguards.

Non-compete clauses

Section 27 of the Indian Contract Act, 1872 declares an agreement to be void if it is in restraint of trade. Indian courts have consistently taken a view that employees cannot be restrained from working for competition post-resignation or termination. Non-compete clauses are enforceable only during the term of employment, and at best during the notice period. This leads to a major concern for most employers when a key employee exits a company to join a competitor, as there is always a threat that the ex-employee will share and divulge confidential information of the ex-employer which may include business strategies, client lists and employee data. While the law seeks to protect an ex-employee, courts have also struck a balance so as to prevent an ex-employee from sharing the confidential information of its former employer, by deciding on aspects such as non-solicitation of clients.  Therefore, employment contracts should clearly steer clear of having non-compete clauses for employees which will never be enforceable post-employment and instead, concentrate on the information and data that needs to be protected by the employer.

Confidentiality & Non-solicitation clauses

Confidentiality clauses prevent an employee from disseminating confidential and proprietary information which is exclusive to the business or knowledge of the employer, such as client lists, trade information, etc. Non-solicitation clauses prevent a former employee from inducing clients and employees of the former employer for his personal benefit in his own venture or for his new employer.

While these clauses can be enforced by the employee during the employment of the person, the post-termination enforceability of these clauses is based on the facts and circumstances in each individual case depending on how the organisation is able to define what protected information is. Employment contracts are often taken for granted with the impression that they will never litigate an employment dispute with its employees or employers. These contractual arrangements have recently gained more prominence than ever before. With the distressed economic condition of this industry and hostile lay-offs becoming a reality, there are going to be numerous anguished employees who may explore opportunities with competitors by using their former organisation’s proprietary information as a lucrative incentive. This may also lead to employees filing wrongful termination cases, defamation suits, frivolous police complaints, public interest litigations by Human Rights’ Commissions, NGOs, etc. Employment cases most often get settled out of court because the employer-organisation seeks to protect its goodwill and manage the public/media optics, or it exceeds the spending power of the employee to survive the litigation. In either case, litigating an employment dispute is a lengthy and financially draining processes, which neither party can afford today.

There is no foresight on the duration of the lockdown or the curtailment of COVID-19, resulting in unpredictable business prospects. Since that aspect is currently beyond the control of the industry, it is advisable for industry members to mitigate any other potential financial losses and take this down-time to revisit their organisation’s employment policies and reassess its existing and future employment contracts to account for requisite safeguards
and incorporate adequate enforceable rights.

Termination clauses

Termination clauses in agreements need to contain watertight provisions to ensure that employments can be terminated without any legal obstacle. To ensure that termination clauses exhaustively cover all aspects, the following provisions are necessitated in these agreements:

With cause: Typically, an employment contract indicates the obligations and duties of an employee with a provision for the employer to initiate suitable action, including termination, in the event of breach of such listed responsibilities. Such provisions ought to contain an exhaustive list of these obligations and duties and comprehensively lay down the termination procedure in case of breach.

Assessable performance standards: In addition to the duties of an employee, termination clauses must exhaustively detail the assessable performance standards for the employee, such as determination of targets, conformance to certain industry standards, etc. Such aprovision allows there to be quantifiable and reasonable basis for termination, and thus preventing scope of challenge. This clause must naturally empower the employer to issue a notice of termination in cases of non-adherence.

No-cause terminations: No-cause termination clauses are those whereby an employer may terminate services even beyond the terms and conditions of the employment contract. This provision ispremised on the principle that employment contracts are inherently determinable in nature and are thus, unenforceable under the Specific Reliefs Act, 1963.