A Bengaluru court has held that employers cannot prevent former employees from joining rival companies merely by invoking confidentiality agreements [EOX Vantage Private Limited Vs Shruti BS]

Additional City Civil and Sessions Judge JV Kulkarni made the observation on October 6 while dismissing a suit filed by EOX Vantage Private Limited against its former employee, Shruthi BS, who was accused of leaking confidential information, poaching employees and soliciting clients.

The Court said employers can legitimately protect trade secrets, proprietary information, confidential pricing, customer data and commercially valuable information.

However, it clarified that restrictions preventing a person from carrying on a lawful profession, trade or business would be void under Section 27 of the Indian Contract Act.

"Therefore, an employer ordinarily cannot prevent a former employee from joining a competitor or using their general skills, experience and knowledge merely by calling the restrictive confidential clause," the Court said.

EOX Vantage, a company providing back-office and knowledge process outsourcing services, approached the Court seeking a permanent injunction to restrain Shruthi from soliciting its employees, former employees and clients, and from disclosing confidential information.

According to the company, Shruthi had access to sensitive business information while working as an Assistant Manager (Operations).

It alleged that after leaving the company, she collaborated with other former employees to share confidential information with competitors and divert business.

The company claimed that an internal investigation revealed unauthorised transfers of company data, including contracts and pricing information, to personal email accounts. It also alleged losses exceeding ₹20 lakh and referred to a criminal complaint registered against the former employees.

Shruthi denied the allegations and maintained that she had resigned on medical grounds in April 2022. She argued that the company had accepted her resignation and issued a relieving letter after scrutinising her records.

After examining the evidence, the Court found that the company's internal investigation report did not establish any specific wrongdoing by Shruthi.

It noted that the employees, whose WhatsApp conversations and emails were relied upon, had not been examined.

The individuals responsible for conducting the forensic investigation were also not identified, while the electronic evidence failed to conclusively establish data theft or employee poaching, the Court noted.

The Court further observed that the company had failed to establish that Shruthi had joined a competing business or solicited its clients.

It also took note of the fact that employees were permitted to access company data while working from home during the COVID-19 pandemic.

The Court also noted that company's chief executive officer and chief operating officer, who were involved in the internal investigation, had not testified.

The Court also questioned why the company had issued a relieving letter after eight months of scrutiny into the allegations.

"This also creates suspicion about the conduct of the plaintiff – Company. The suit is speculative, damages are not proved," the Court held.

It concluded that the suit was speculative and that the alleged damages had not been proved, Hence, it dismissed the company's suit with costs.

EOX Vantage was represented by advocate NB Narasimha Murthy

[Read Judgment]