Explain ‘non-compete’ clause: Govt to Infosys

Taking cognizance of a complaint filed by the Pune-based employee association NITES (Nascent Information Technology Employees Senate), the Ministry of Labour & Employment has issued a notice to tech services major Infosys for a joint discussion regarding the so-called “non-compete agreement”.

NITES had filed a complaint against the management of Infosys for invoking the “non-compete agreement clause”, whereby the Infosys employees terminated from employment for any reason are restricted to joining a few ‘named competitors’ and customers with whom he or she worked in a professional capacity in the past 12 months before the termination. The named ‘named competitors’ included TCS, Accenture, IBM, Cognizant Tech, and Wipro.

“The aforesaid clause has been alleged to be unethical and illegal by the complainant. It has been decided to hold a joint discussion on the issue before the chief labour commissioner (central), the ministry of labour, on 28.04.2022,” says the ministry’s letter addressed to Krish Shankar, group head-human resources, Infosys.

The ministry asked all the parties to attend the joint discussion, either personally or through an authorised representative “well conversant with the issue” on the scheduled date.

"There should be a legitimate mechanism from the labour ministry to have a check on offer letters, being time and again modified by the IT sector companies as per their will, to mitigate exploitation of IT employees. The restraint being put on employees is greater than necessary to protect the employer, and is unduly harsh and oppressive," Harpreet Singh Saluja, president of NITES, told Fortune India.

The NITES thanked the government for prompt action to safeguard the interests of IT employees. “All the Infosys & IT sector employees are hopeful and looking forward to a favourable government decision,” says the association.

Infosys’ decision to invoke the non-compete clause comes on the back of a high attrition rate of 27.7% in the company. Infosys, on its part, has termed it a "standard business practice", which is not new and is crucial to protect the confidentiality of business interests.

In its letter written to the ministry, NITES had said the restraint being put on employees is "unduly harsh and oppressive". It sought necessary orders to be issued against Infosys for removing such an "illegal, unethical and arbitrary" clause from the employment letter. The NITES letter said the restrictions in the employment letter are "clearly in restraint of trade and therefore illegal under section 27 of the Contract Act".

"The invoking of the non-compete clause will deprive many talented individuals of joining some of the top rival companies. The clause hampers a person's freedom to choose whichever organisation or field one wants to work, and its violation of the Contract Act," Saluja said.

He said the clause cited by the company is not new but the issue was highlighted only recently when the company began enforcing it and several employees complained regarding the issue. He added that other rival IT companies could also come up with similar measures against employees after Infosys.

Almost all top IT companies are struggling to retain talent in the wake of huge demand, causing the attrition rate to surge to record levels. This is one area that remains a pain point for all tech services giants.

Infosys, which is India's second-biggest IT services exporter, had recorded a 12% year-on-year rise in its consolidated net profit at ₹5,686 crore in the January-March quarter of the financial year 2021-22. The Infosys stock surged 2.35% to Rs 1,589.1 as compared to the previous session close of Rs 1,552.8 on the NSE today.