Non-compete clauses in the employment agreements offered by IT major Infosys to its IT as well as BPO employees are “illegal”, a Pune-based IT employees union has said. The Nascent Information Technology Employees Senate (NITES) has written to Union Labour Minister Bhupender Yadav seeking his intervention to remove such “arbitrary, unethical and illegal clause from employment contracts.” It has also complained to the Ministry of Corporate Affairs.
A non-compete agreement is an agreement that employees have to sign that prohibits them from joining rival companies that are in competition for a specified period. NITES President Harpreet Saluja said that the matter was being brought up now as employees of Infosys have complained to it regarding the clauses.
The non-compete agreement reads:
“For the period of six months after leaving Infosys, employees will not
> Accept any offer of employment from any customer, (with whom I worked) in the twelve months immediately preceding my termination.
> Accept any offer of employment from a Named Competitor of Infosys, if my employment with such Named Competitor would involve me having to work with a Customer with whom I had worked in the twelve (12) months immediately preceding the termination of my employment with Infosys.”
Named competitors are TCS, Accenture, Cognizant, IBM and Wipro. Infosys has had such a non-compete clause in an agreement at least since 2007, and at the time, Infosys' head of HR told Economic Times that the clause was common and it was kept to named competitors to keep terms reasonable and not restrict employment opportunities.
A similar non-compete agreement is also a part of agreements given to Infosys BPM workers which names nine competitors — Tech Mahindra, Genpact, WNS, TCS, Accenture, IBM, Cognizant, Wipro and HCL.
The letter written by Saluja, which TNM has seen, states that the restriction “is clearly in restraint of trade and therefore illegal under section 27 of the Contract Act”. Section 27 of the Indian Contract Act states: “Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”
He wrote that the clause is seeking to enforce the restriction even after the employee’s services have been terminated. “If the agreement on the part of the employee puts a restraint even though partial, it is void, and, therefore, the contract must be treated as one which cannot be enforced. The clause of the covenant being imposed is to operate after the termination of services and is too widely worded, and hence the company should be stopped from enforcing it,” he said.
He added that the contracts must be scrutinised because of inequality in the bargaining powers of the employer and employee, and the employee may end up accepting the standard form of the employment contract.
“At the time of the employment agreement, the employee may have given little thought to the restriction because of his eagerness for a job hence the employment contract of the Infosys Ltd tempts improvident persons, for the sake of present gain, to deprive them of the power to make future acquisitions and expose them to imposition and oppression,” it states.
The letter adds that the restraint being put on employees is “greater than necessary to protect the employer,” and is “unduly harsh and oppressive” to the employee.
Speaking to TNM, Saluja said that while the clause has been around for a while, it is the first time that people have come forward to complain as the clause is being enforced. “Until recently, employees didn’t feel the heat of this clause. Now that the attrition rate of Infosys has crossed 28% and they are enforcing it and employees are in great trouble because of this,” he said.
He added that up until now, the usual practice is that companies try to match a competing offer from outside. “Suddenly now employees are being threatened that if you have already signed this non-compete and you are going to join these companies it will reflect in your background verification and possible legal action as well. They are all working in great stress and fear,” he added.
The Indian IT sector has been seeing record highs in attrition numbers and for the fourth quarter of FY22, Infosys saw 27.7% voluntary attrition. The company plans to hire 50,000 freshers in FY23 to combat the problem. The company hired 85,000 freshers in FY22.
Responding to the complaint, Infosys issued a short statement. "It is standard business practice in many parts of the world for employment contracts to include controls of reasonable scope and duration to protect confidentiality of information, customer connection and other legitimate business interests. These are fully disclosed to all job aspirants before they decide to join Infosys, and do not have the effect of preventing employees from joining other organisations for career growth and aspirations," the statement said.