Published Online:July 2026
Product Name:The IUP Journal of Law Review
Product Type:Article
Product Code:IUPLR030726
DOI:10.71329/IUPLR/2026.16.3.33-43
Author Name:Nishit Raj and P Lakshmi
Availability:YES
Subject/Domain:Law
Download Format:PDF
Pages:33-43
This paper examines the evolution of negative covenant in employment contracts in India, the legal framework governing such contracts, and the role of negative covenants within this framework. It critically analyzes the traditional common law approach, which distinguishes between the existence of a restraint and its reasonableness, and contrasts it with the Indian position, which ostensibly excludes the doctrine of reasonableness. Courts have consistently upheld certain restrictions, particularly those operative during the subsistence of employment, while invalidating unreasonable post-termination restraints, thereby demonstrating a functional, if not explicit, incorporation of reasonableness. The paper further explores the rationale behind negative covenants, including protection of trade secrets, safeguarding business interests, and ensuring organizational stability, while also highlighting the challenges faced by both employers and employees in their enforcement.
The legality of negative covenants included in employment contracts, which are governed by Section 27 of the Indian Contract Act, 1872, is a nuanced area balancing contractual freedom and the right to livelihood. While Section 27 sets forth a blanket prohibition on agreements in restraint of trade, labeling them void, the reality is that courts have developed a more refined interpretation of such provisions. The question is whether the Indian legal system, which does not expressly mention it, might still consider the concept of “reasonableness” as interpreted in common law countries in the context of restraint of trade.