Warner Bros v. Nelson 1937 (Case Summary)

In this case, the court addressed the enforceability of negative covenants in employment contracts. The case involved a dispute over an exclusive services agreement with a famous actress, clarifying the circumstances under which courts can grant an injunction to enforce such covenants.

Facts of Warner Bros v. Nelson

1. The plaintiff, Warner Bros. Pictures Inc., entered into a contract with the defendant, Bette Davis (real name Ruth Nelson), under which she agreed to work exclusively for the studio for a specified period i.e. 52 weeks. 
2. The contract contained a negative covenant, prohibiting her from working for other studios during the term of the agreement.
3. Davis breached the contract by attempting to work for another studio in the United Kingdom.
4. Warner Bros. filed a suit seeking an injunction to prevent her from acting for any other studio during the contract period.
5. Davis argued that the agreement was unfair and oppressive, claiming it restricted her professional opportunities excessively. 

Issues framed

1. Whether a negative covenant in an employment contract can be enforced through an injunction?
2. Whether the contract imposes unreasonable restrictions on the defendant’s freedom to work?

Judgment of Warner Bros v. Nelson

The High Court applied principles governing the enforceability of negative covenants in employment contracts. 

The court held that the negative covenant was reasonable and necessary to protect Warner Bros.’ interests, given the substantial investment made in promoting Davis’s career. The court granted an injunction preventing Davis from working for other studios but did not compel her to work for Warner Bros.

The court ruled in favor of Warner Bros., granting Warner Bros. an injunction to enforce the negative covenant.

 In India, the enforceability of negative covenants in employment contracts is primarily governed by Section 27 of the Indian Contract Act, 1872, which states:

“Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.”

This provision makes restraint of trade agreements generally void, except in reasonable circumstances. Unlike English law, Indian courts have narrower grounds for enforcing negative covenants in employment contracts.