Freedom to Work: Delhi High Court's Landmark Ruling on Post-Employment Non-Compete Clauses
Employers must now shift gears—from control through legalistic shackles to engagement through value.
— Karan Bir Singh Sidhu
Retired IAS Officer (Punjab), Former Special Chief Secretary.
Graduate in Electronics & Electrical Engineering (Gold Medallist), MA Economics (University of Manchester, UK). Served nearly four decades in public service. Writes at the intersection of India’s tech sector, constitutionalism, and global practices
Freedom to Work: Delhi High Court Strikes Down Post-employment “Bondage”
In a significant affirmation of employee rights, the Delhi High Court has delivered a landmark judgment in Varun Tyagi v. Daffodil Software Private Limited (FAO 167/2025), dated June 25, 2025. This decision not only clarifies the scope of Section 27 of the Indian Contract Act, 1872, but also firmly reasserts the constitutional principle that an individual’s right to livelihood cannot be contractually curtailed once employment formally ends.
The Legal Bedrock: Section 27 and Article 19(1)(g)
At the heart of the ruling lies Section 27 of the Indian Contract Act, which states that any agreement that restrains a person from exercising a lawful profession, trade, or business is void. The law recognizes only a limited exception for sellers of goodwill. This statutory protection is further reinforced by Article 19(1)(g) of the Constitution, which guarantees all citizens the right to practice any profession or carry on any occupation or trade. The judgment in Varun Tyagi draws strength from this synergy between statutory and constitutional safeguards.
Background: Varun Tyagi vs Daffodil Software
Varun Tyagi, an IT engineer, was employed by Daffodil Software from January 2022 to April 2025, working on a government tech project under the Digital India Corporation. His employment contract included a sweeping non-compete and non-solicitation clause that barred him from working with or approaching any business associates or clients of the company for three years after termination. It also prohibited interaction with former colleagues for two years.
Delhi High Court’s Firm Stand: All Post-Employment Restraints Are Void
Justice Tejas Karia delivered a categorical verdict: any post-employment covenant that restrains an individual’s right to work is invalid under Indian law. Importantly, the Court rejected the "reasonableness" test often applied in English common law, stating that Indian jurisprudence makes no such distinction between partial and total restraints—all are equally void unless falling within the statutory exception. This ruling provides long-overdue clarity on the non-enforceability of post-termination restrictions.
Clear Demarcation: What’s Valid and What’s Not
The Court made a crucial distinction between during-employment and post-employment obligations. Negative covenants during employment—such as exclusivity—are valid as they protect the employer’s interests while the contractual relationship exists. However, once that relationship ends, so does the employer’s right to impose constraints. An employee cannot be placed in a situation where they must either return to their previous employer or remain unemployed.
Aligning with Supreme Court and High Court Precedents
This judgment is not an outlier. It stands in harmony with earlier decisions such as Niranjan Shankar Golikari v. Century Spinning and Superintendence Company v. Krishan Murgai, where the Supreme Court had also drawn the line between permissible and impermissible restrictions. Additionally, Delhi High Court’s own rulings in Wipro Ltd. v. Beckman Coulter and Affle Holdings v. Saurabh Singh have consistently invalidated post-employment non-compete clauses.
Practical Impact: A Guide for Employers and Employees
For employers, the judgment is a wake-up call. While they can still enforce confidentiality and non-disclosure provisions and use "garden leave" mechanisms during notice periods, blanket bans on joining competitors, clients, or business associates are now clearly off-limits.
For employees, the ruling enshrines their unconditional right to pursue employment opportunities post-termination, including with competitors or clients of their previous employers. However, they remain duty-bound to safeguard genuinely proprietary information and observe notice period terms.
Balance of Convenience: Tilted Towards the Employee
In assessing the balance of convenience, the Delhi High Court found the scales tipped strongly in favour of the employee. The potential harm to Varun Tyagi—loss of livelihood and career stagnation—far outweighed any speculative harm to Daffodil Software. Since the intellectual property in question belonged to the client (Digital India Corporation), the employer’s claim of proprietary risk lacked substance.
Moreover, the Delhi High Court noted that if an employer suffers actual harm from a breach of confidentiality, monetary damages—not restraining employment—are the appropriate remedy.
India’s Unique Stand: Rejecting the “Reasonableness” Doctrine
While jurisdictions such as the United States and the United Kingdom allow some form of “reasonable” restraint, Indian law deliberately omits such a provision. The Delhi High Court reinforced this policy stance, declaring that India prioritizes economic liberty over corporate convenience, labour mobility over restrictive contracts, and constitutional freedoms over private agreements.
Looking Ahead: What Should Change
For legal professionals and employers, this judgment underscores the importance of carefully drafting employment contracts. Focus should shift from restraining employees to protecting trade secrets and encouraging retention through incentives and engagement. There is also a strong case for businesses to explore alternative safeguards like intellectual property registrations and contractual clarity on confidential data.
From a legislative perspective, although recommendations have been made to permit reasonable restraints, the lack of action so far indicates the legislature’s tacit approval of the absolute bar under Section 27.
Conclusion: A Win for Economic Freedom
The Delhi High Court's verdict in Varun Tyagi v. Daffodil Software sends a resounding message: employment contracts cannot override the right to livelihood. This decision marks a robust affirmation of India’s employee-centric legal regime. By declaring post-employment restrictive covenants void, the Court has fortified the principles of fair opportunity, economic freedom, and professional mobility.
Employers must now shift gears—from control through legalistic shackles to engagement through value. And employees, freed from contractual overreach, can look ahead with confidence to a future of unhindered opportunity and growth.