Infosys, Labour Ministry to meet on May 16 to discuss non-compete agreement

Moneycontrol sent an email seeking comment on Infosys’ participation in the meeting. The story will be updated when the company responds.

What happened?

The IT union, NITES, filed a complaint with the ministry on April 18 seeking removal of the clause and alleged that enforcement of the clause was unethical and illegal since they are being enforced at the back of rising attrition.

Saluja further explained that courts in India have already held that the right to livelihood must prevail over the interests of employers, regardless of the existing agreement between employer and employee, and hence not enforceable.

Following this, the labour ministry issued a notice addressed to Krish Shankar, Group Head – Human Resources, Infosys, dated April 22, stating: “It has been decided to hold a joint discussion on the issue before the Chief Labour Commissioner, Ministry of Labour & Employment… on April 28, 2022…”

Non-compete agreement

As per the clause, employees who have quit the firm are banned from working with the clients, with whom they were associated for 12 months before they quit. They are also not allowed to work for the same customers as their “named” competitors. This includes TCS, Wipro, Accenture, IBM, and Cognizant.

Infosys had 314,015 employees globally at the end of March.

It is not only Infosys that has non-compete clauses in its offer letters. Recruitment experts said these are standard agreements that employees are asked to sign before they join. However, with rising attrition, enforcement of this clause is stirring up a debate.

Rising attrition

There is a huge demand for technology services and this has led to a larger need for technology professionals. In the light of the war for talent, attrition has spiked over the past few quarters.

Infosys’ attrition rate widened to 27.7 percent in the quarter ended March from 13.9 percent in the first quarter of FY22. TCS and HCL saw their attrition rates climb to 17.4 percent and 21.8 percent, respectively.

Attrition is expected to get worse before it moderates. According to a report by Xpheno, there were almost 800,000 people who changed jobs in the IT sector last year.

A fair clause?

Mohandas Pai, the co-founder of Aarin Capital, said non-compete agreements are hardly new and the restrictions are only fair considering that employees deal with sensitive information.

“It is not like they are completely banned from joining other firms. The restriction is only on the client accounts you need to join and the restriction is only for six months, that too for five companies,” said Pai, a former member of the Infosys board and its chief financial officer from 1994 to 2006.

But it isn’t as straightforward as that.

Scare tactic

An executive of a mid-tier IT firm, who did not want to be identified, said that while non-compete clauses are standard, enforcing them and taking the litigation route does not make sense. “We are engineers – not lawyers – who want to focus on building products,” the executive said.

Recruiters agreed. Sunil of TeamLease Digital said it is not practical for any company to track the thousands of employees who leave. According to him, the whole talk about enforcement is merely a scare tactic.

“It is the carrot-and-stick approach. Companies gave employees carrots (bonuses and hikes) and when that doesn’t work, they are using the stick (enforcement of non-compete),” Sunil said.

But this isn’t likely to go anywhere, apart from deterring some employees from leaving. “Can you imagine how many notices they need to send given the current attrition rate?” asked a recruiter who works with top IT firms.