Whether Foreiture Clause In An Employment Agreement Is Enforceable In Law

Last updated: 20 September 2022
Quick Summary
This judgement addresses the enforceability of a forfeiture clause in an employment agreement, where an employee's deferred bonus was to be forfeited if they joined a competitor. The court ruled that such clauses are generally unenforceable in India, as they violate Section 27 of the Indian Contract Act, 1872, and Article 19(1)(g) of the Constitution, which guarantee freedom of trade. The court reasoned that the deferred bonus was an amount already earned and belonging to the employee, and withholding it based on joining a competitor constitutes an unlawful restraint of trade.

Court :
[Del] CS (OS) No.1157of 2014

Brief :
The Plaintiff resigned from Defendant which was accepted on the same day and he was relieved from duty. The plaintiff joined in a competitor's business. When the Plaintiff approached the Defendants for payment of the balance incentive award, he was informed that he did not comply with the terms and conditions of the incentive award and hence the payment was not liable to be made.

Citation :
DEEPAYAN MOHANTY v. CARGILL INDIA PVT LTD & ORS.

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