Specific Performance In Employment Contracts: Can Critical Roles Be Compelled?

Recent judicial interpretations suggest that while positive obligations cannot be enforced through specific performance, negative covenants—such as exclusivity and non-compete clauses—may still bind employees, preventing them from taking conflicting roles or working for competitors during the contract term or notice period

In the high-stakes world of business, certain roles are so critical that an employer’s financial stability may hinge on their successful execution. But what happens when employees choose to leave before completing a fixed-term contract or serving their notice period, potentially causing significant financial and reputational damage? This raises an important legal question: can an employer enforce specific performance, compelling employees to remain in their roles and fulfil their duties to mitigate such risks? In India, where labour laws prioritize individual autonomy, courts have generally been reluctant to compel employees to fulfil personal service contracts through specific performance. Moreover, despite the theoretical possibility of enforcement of negative covenants under Section 42 of the Specific Relief Act, 1963 (“SRA”), courts have frequently declined to grant injunctions as well in employment cases. However, interpretation of a recent case suggest that while positive obligations cannot be enforced through specific performance, negative covenants—such as exclusivity and non-compete clauses—may still bind employees, preventing them from taking conflicting roles or working for competitors during the contract term or notice period. This article explores the legal boundaries of enforcing employee obligations in critical roles, highlighting why damages remain the primary remedy for employers, with negative covenants providing an additional layer of protection in cases of early departure.

In a recent case in Ahmedabad, which was reported in Times of India¹, a local court ordered an employee to pay her former company Rs 5 lakh for quitting without serving the required notice period. The employee had a contractual obligation to serve a 30-day notice before resignation, which she disregarded by resigning via email and remaining absent without further communication. The company alleged that her sudden departure led to operational and reputational disruptions. Since the employee did not respond to legal notices, the court proceeded ex-parte and awarded Rs 5 lakh to the company as compensation.

Under Section 14 of the SRA, contracts that require personal service are explicitly excluded from specific performance. This section is based on the principle that enforcing personal obligations, especially in employment, infringes on individual freedom and disrupts the employer-employee relationship. In Nandganj Sihori Sugar Co. Ltd. v. Badri Nath Dixit², the Supreme Court held that personal service contracts cannot be enforced by specific performance; the remedy for breach lies in damages, as compelling performance would violate principles of autonomy and personal choice. Exceptions to this principle are rare, limited to specific situations like cases involving public servants dismissed in contravention of Article 311 of the Constitution, re-instatement of an employee under specific labour laws, or breaches of statutory obligations by statutory bodies.

In 2018, the SRA was amended to expand the use of specific performance, particularly in commercial contexts³. Traditionally, Indian contract law, following common law principles, prioritized damages as the main remedy for contract breaches, with specific performance being an exception. However, this approach was viewed as inadequate for modern business needs, as damages often failed to fully cover losses, impacting business confidence and legal certainty. The 2018 amendment addressed these issues by making specific performance a statutory right rather than a rare remedy. Despite these changes, the amendment preserved the exclusion of personal service contracts from specific performance, thus upholding the intent of Section 14 to respect individual autonomy in employment relationships.⁴

Even on the global stage, the rule against enforcing personal service contracts through specific performance is widely accepted in contract law. This stance is driven by concerns over personal freedom, involuntary servitude, and judicial constraints. Yet, there is a growing body of literature, such as the work of Kimberly D. Krawiec and Nathan B. Oman⁵, which argues that specific performance could sometimes be a better remedy than monetary damages, particularly for unique and specialized services. They suggest that the traditional rule may be outdated, especially for highly skilled employees with clear contracts and rough equality in bargaining power. In such cases, they propose that specific performance should be available as a remedy when monetary damages fall short, especially if both parties explicitly agreed to this in advance and the employee had legal representation to ensure a fair balance of power.

Consider the example of a well-regarded educator employed under a fixed-term contract with an educational institute. This educator may have a unique connection with students, especially those preparing for critical exams. If the educator decides to leave mid-year for a better opportunity, even if there are predefined damages, these may not cover the full impact of the breach. The institute and students would suffer not only from the educator’s absence but also from the difficulty of finding a suitable replacement mid-term—someone capable of maintaining the continuity, rapport, and teaching style that the students have grown accustomed to. Here, damages might not fully address the loss of trust, learning disruption, or harm to the students’ academic performance. In such cases, specific performance could be a more appropriate remedy, ensuring that the educator fulfils their contract until the end of the academic term, thus protecting the students’ welfare and the institute’s reputation.

However, judicial trends in India (such as in ABP Network Private Limited v. Malika Malhotra⁶) still indicate caution when enforcing negative covenants in employment relationship under Section 42 of the SRA.

In a welcoming development, the Division Bench of the Delhi High Court in Global Music Junction Private Limited v. Shatrughan Kumar aka Khesari Lal Yadav and Ors., offered a significant interpretation of the 2018 amendment to the SRA, emphasizing that specific performance is now the general rule in contract enforcement, though limited to the enforcement of negative covenants in personal service contracts. While positive obligations—those that compel an individual to actively perform services—the aggrieved party still cannot seek specific performance thereof, the court affirmed that negative covenants, such as prohibitions against competing activities, may still be enforceable even if a party unilaterally attempts to exit the contract.

The case revolved around a five-year production agreement between Global Music Junction (i.e., the plaintiff) and an artist which granted plaintiff exclusive rights to intellectual property created by the artist during the term. Despite an addendum permitting limited third-party monetization, a dispute arose when the artist monetized content outside the agreement. The plaintiff sought an injunction to enforce the agreement’s exclusivity provisions, initially leading to a court order restraining third parties from monetizing the artist’s work. However, this interim injunction was later vacated by a single judge, who found the contract unenforceable under Section 14 of the Specific Relief Act, due to its classification as a personal service agreement.

On appeal, the Division Bench considered the impact of the 2018 amendment, which shifted specific performance from an exceptional to a general remedy in commercial contexts. Although Section 14 of the Act still restricts enforcing personal service obligations, the Division Bench clarified that enforcing a negative covenant (e.g., preventing the artist from monetizing content with others) did not constitute compelling personal service. By maintaining this injunction, the court emphasized that negative covenants could be upheld without infringing on Section 14’s limitations.

A key aspect of the ruling was the court’s observation that not enforcing negative covenants due to unilateral termination could render Section 42 of the Act “nugatory.” Section 42 enables courts to enforce negative covenants without mandating specific performance of the positive obligations of a contract. Accordingly, the Division Bench reinstated the injunction, restricting the artist from monetizing content outside of Global Music’s exclusive rights for the remainder of the contract’s term.

This judgement ties in with the decision of Supreme Court in Niranjan Shankar Golikari⁷ case where it had affirmed the enforcement of negative covenant during the term of the employment relationship. These cases highlight the importance of balancing an organization’s right to protect its legitimate interests with an individual’s autonomy to seek gainful employment elsewhere, ensuring that the individual is neither compelled to return to the previous employer nor left idle.

Cases like Global Music Junction suggest a potential shift towards recognizing Section 42’s applicability in protecting exclusivity agreements, particularly when these obligations are crucial to the employer’s operations. It highlights that while one cannot seek specific performance of positive obligations in personal service contracts, negative covenants—such as not joining a competitor during the term of the contract— are enforceable under Section 42. This nuanced perspective indicates that while damages remain the primary remedy, Section 42’s role in enforcing negative covenants may continue to evolve. This interpretation also suggests that obligations that exist even during notice periods and fixed-term contracts may remain enforceable through enforcement of negative covenants. Therefore, a strong argument can be made that employees should refrain from engaging in conflicting activities, including working for competitors, not only during the notice period but also throughout the original contract term (in the case of fixed term contracts). Violating such restrictions could breach exclusivity obligations, as these negative covenants may still bind the employee until the contract’s intended conclusion, even in cases of early departure.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature