Is invoking a non-compete clause by Infosys a right move?

Facing record levels of attrition, India’s second-largest software services firm Infosys is reportedly invoking the non-compete clause in the employment agreements to curb attrition.

A Pune-based IT union, The Nascent Information Technology Employees Senate (NITES), has written to the Union Labour Ministry seeking the removal of the clause, calling it “arbitrary, unethical and illegal”. 

While Infosys has had the clause for a long time, the union claimed that the company is now enforcing it and that it has received 65-70 complaints from employees.

The non-compete clause bars employees from accepting offers from any of the named rival companies for a period of six months after leaving Infosys, if the new job involves working with a client with whom the employee had worked during the last 12 months of their stint with Infosys.

For the said duration, the employee also cannot accept a job offer from any customer with whom they had worked in the 12 months immediately preceding the termination of their employment with Infosys. 

 According to reports, Infosys has named five competitors including TCS, Accenture, IBM, Cognizant, and Wipro for IT services employees and nine companies including Tech Mahindra, Genpact, WNS, TCS, Accenture, IBM, Cognizant, Wipro and HCL for business processing management (BPM) staff. 

Non-compete clauses are not valid in India as per Section 27 of the Indian Contract Act, which states that any agreement that restrains anyone from practising a lawful profession, trade or business is to that extent void.  

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The courts have time and again trashed such clauses and held that post-termination non-compete clauses are not enforceable. 

Infosys, on its part, said that it is a “standard business practice” for employment contracts to include “controls of reasonable scope and duration to protect the confidentiality of information, customer connection and other legitimate business interests”

It denied that the clause prevents employees from joining other organizations. The attrition rate at Infosys touched a record high of 27.7% in the March quarter on a last twelve months basis.

In FY22, Infosys hired around 85,000 freshers and has planned a fresher intake of more than 50,000 in the current fiscal. As of March 31, Infosys had 3.14 lakh total employees, while TCS had 5.92 lakh people on its rolls. Most IT firms are jostling to hire employees and retain existing ones in a tight job market.

Employees have previously opposed the long 90-day notice period standard in India’s IT industry. Invocation of the controversial non-compete clause despite its legal validity being under question can bring down employee morale, restrict the movement of labour between companies and dent the growth prospects of employees.  After all, there are only so many large employers in the IT services and BPM sectors and most employees tend to switch between this limited set of companies.