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Will `poaching' stop with non-compete clauses?

Raja Simhan T.E.
N.S. Vageesh

CHENNAI, Oct. 24

A HIGH-PERFORMING relationship manager in a private bank hops jobs and joins a competitor. And takes with him a sizeable chunk of business (a couple of corporate accounts as well as high net worth individuals that he was handling) to his new employer.

So what can the erstwhile employer do? Rue the loss of the valuable manager and the business (which is hard to come by in these days of surplus liquidity all around), of course. But also start incorporating "non-compete" clauses in a couple of new employment contracts, which do not allow an employee to join a competitor for a certain period of time (usually between six months to one year) after he demits his current employment).

Competition for valuable human resources is acquiring a sharper edge, but a number of grey areas have to be addressed. According to Mr R. Suresh, Managing Director of StantonChase International, one of the leading executive search firms, the agreements have to not merely define who the competitors are but also define and justify what activities would constitute competition. He points out for instance that a couple of software companies have defined prospecting their client base within a particular period to come within the ambit of "competition."

Non-compete clauses are normally incorporated in employment agreements on a very selective basis - for very senior people or for employees who may be in possession of proprietary or sensitive information such as those in investment banks or research departments, says Mr A. Mathrubootham, Managing Director, Human Resources Consultants India Pvt Ltd.

Most legal and HR experts, however, say that such non-compete clauses are seldom enforceable.

"There are instances where in order to beat this rule, employees chose to work for another company just for the mandatory period of six months / one year and then join competition. This has happened with FMCG companies like Coke and Pepsi, where a candidate joins a dealer or a C&F agent for just that required term and promptly joins competition," says Ms Saundarya Rajesh of Avtar Career Creators.

Employees would have to be compensated for giving up their right to join a competing firm, says Mr Ulhas Deshpande, Head, HR, IDBI Bank. Without a consideration, the legal enforceability may become questionable, Mr Deshpande says. IDBI Bank does not have any non-compete clauses for its employees.

Some companies have got around the problem of incorporating such clauses by entering into either a formal or informal understanding on not recruiting each other's employees. Ms Rajesh says, "Pepsi and Coke have an unsaid agreement of not hiring from each other. Key accounts have migrated to either company when an employee moves. Airtel and Hutchison Telecom have actually entered into a formal agreement of not employing each other's resources. For the Chennai circle, Airtel does not hire from RPG Cellular also."

Everyone agrees that while this may work on a bilateral basis, such agreements are not possible on a wider scale. Employees can perhaps breathe a trifle easy! Poaching and moving to competition is not going to stop any time soon. A senior official in Kotak Mahindra Financesays that around 60 to70 per cent of the applications for the new bank being started by them is from these private banks!!

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