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Is Infosys' non-compete clause enforceable? Legal expert explains

Is Infosys' non-compete clause enforceable? Legal expert explains

Is Infosys' non-compete clause enforceable? Legal expert explains
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By Kanishka Sarkar  Apr 28, 2022 11:49:45 AM IST (Updated)

Infosys’ non-compete clause bars ex-employees from working for the same customer in rival firms such as TCS, Accenture, IBM, Cognizant, and Wipro for at least six months after quitting but legal experts say the clause may not be enforceable. Here's why

Infosys’ non-compete clause -- barring ex-employees from working for the same customer in rival firms such as TCS, Accenture, IBM, Cognizant, and Wipro for at least six months after quitting -- may not be enforceable, say legal experts.

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According to the clause, employees are not allowed to work on the same projects in competition firms, for at least six months after leaving Infosys, on which they worked within the company for the last 12 months. It also prohibits them from being in the employment of the clients if they had worked with them in the 12 months before they quit Infosys.
The Labour Ministry has issued a notice to Infosys to hold a joint discussion on April 28 regarding the enforcement of the agreement.
The matter came to light after an IT employee union, Nascent Information Technology Employees Senate (NITES), filed a complaint with the Ministry against the tech major, seeking removal of the clause.
Akshay Sachthey, Associate Partner, Phoenix Legal, explained to CNBCTV18.com that it is a fairly well-settled position in India that non-compete clauses are enforceable only during the term of employment and not thereafter.
“The position comes from Section 27 of the Indian Contract Act 1872 which declares as void any agreement that restrains a person from exercising a lawful trade or business. While there are exceptions to this rule for restraints that are 'reasonable', courts have consistently refused to enforce non-compete clauses beyond the term of employment,” he said.
Sachthey said that employers often include these clauses despite them being aware of their unenforceability so that they act as a deterrent for employees.
While an employer cannot enforce a non-compete post-employment, courts have recognised the need to protect employers' proprietary information or trade secrets. Therefore, if there is an unauthorised disclosure of such information by the employee, then one would expect courts to grant relief to employers, he explained.
According to Sachthey, public information suggests that the clause imposed by Infosys has two restrictions. The first is an absolute restriction on employment with existing customers while the second seems to be a partial restriction on employment with competitors where it would involve working with existing customers. It would be difficult to enforce either of these since courts have held even partial restraints to be invalid once the employment term ends, he told CNBC-TV18.
Infosys’ clarification
While many argue such a clause may restrict career growth, Infosys has called it a standard business practice in many parts of the world for employment contracts to include controls of reasonable scope and duration to protect the confidentiality of information, customers connection and other legitimate business interests.
It also clarified that these terms 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.
What Infosys employees and ex-employees make of it
While there may be a hue and cry outside the organisation, the clause does not come as a surprise to people within Infosys or for those who have worked with the IT major in the past. CNBC-TV18 spoke to two such people who said many companies have such clauses as they must protect their own unique traits, which lie with their workforce.
An Infosys ex-employee, who requested not to be named, said, “Talent itself is a gateway to delivering work more uniquely or more efficiently than others now.”
From that perspective and secondly, due to the data and information that employees are trusted with when they're working, especially, in consulting or service firms like Infosys, TCS, etc., it’s okay for firms to have such contracts, he said.
It's not unfair from a business perspective but from an individual’s point of view, "in a closed circuit like the IT industry, to propel career growth people would go from an MNC to an MNC or a firm that can match their current profile and salary package", he said. When switching firms, it is the best opportunity for an employee to progress being connected to the same client as it helps them create a network and become a useful resource, he added.
“However, such a clause limits growth opportunities for employees and interns which in turn hampers the talent ecosystem. The talents would slowly lose their trust in their employers,” the ex-employee of Infosys explained.
Meanwhile, inside Infosys, there is not much chatter about the whole issue because it’s not new. The company has had similar clauses for a long time, an employee, who requested anonymity, told CNBC-TV18. “Do not understand the sudden hype around it,” he said.
Siva Prasad Nanduri, VP and Business Head- IT Staffing, TeamLease Digital, said at a time when the attrition rate is so high in the IT industry, Infosys will not be able to implement this policy or enforce it for employees because it will not hold in the spirit of employment.
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