About 800,000. That’s the number of people from top IT companies who switched jobs in FY22, according to a report by staffing firm Xpheno.
It’s a huge concern for IT companies as demand for technology continues unabated and talent is in short supply.
That’s probably why IT firms are looking at ways to retain talent, triggering outrage over enforcing non-compete agreements. This has set off a debate on the “unfairness” of the clause.
While some pointed out that the clause is needed to protect employers, considering that sensitive data is involved, others said it’s hardly practical when it comes to enforcement. According to them, such clauses serve more as a deterrent and will hardly help in retaining employees.
Not a new clause
On April 18, an IT union filed a complaint with the labour ministry against Infosys, seeking removal of the non-compete clause that banned former employees from working in rival firms for the same customers for six months.
To be sure, the clause is hardly new. Moneycontrol reviewed the “non-compete agreement” section in the offer letters where employees agreed not to accept employment from customers they had worked with in the 12 months preceding their departure from the company.
They also agreed not to accept offers from certain rival companies to work for a customer they had interacted with for the past one year. These competitors include
Tata Consultancy Services,
Wipro, Accenture, IBM and Cognizant.
It’s 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.
The only reason it is making news now is that it is being enforced, which was not the case earlier, said Supaul Chanda, vice president at Experis India, a part of staffing firm Manpower Group.
Harpreet Saluja, president of the Nascent Information Technology Employees Senate, the IT union that filed the complaint against Infosys, said the company is now enforcing the clause because of the high attrition rate. He added that the company is threatening employees with legal repercussions if they breach this agreement.
Moneycontrol wrote to Infosys,
TCS,
Wipro and
HCL Technologies to understand whether they are taking legal recourse in such cases. While Infosys said in an earlier statement that this is a standard procedure and will not affect the employee’s career prospects, the other companies did not respond.
Why now?
In simple terms: rising attrition. There is 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.
Rajesh Gopinathan, CEO of TCS, said the attrition rate would get worse before moderating.
Sunil C, head of specialised staffing at TeamLease Digital, said at the rate of current demand, attrition will stabilise by mid-FY23.
According to a report by Xpheno, there were almost 800,000 people who changed jobs in the IT sector last year. Another Xpheno report noted that Accenture, Cognizant and TCS were the top recipients of talent from Infosys. In the case of TCS, Infosys ranked third in terms of talent movement.
Kamal Karanth, cofounder of Xpheno, said IT companies are also losing talent to captive technology centres of companies, some of which are also their clients.
A fair clause?
Mohandas Pai, cofounder 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.
Rituparna Chakraborty, executive vice president of TeamLease Services, a staffing firm, said given that employees sign the document, the company can choose to take the legal route.
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.
Infosys had 314,015 employees globally at the end of March.
While companies are unlikely to take the legal route, there is a chance that other companies will follow Infosys.
“I won’t be surprised if other companies follow suit. These companies have acted as a cartel in the past to refrain from increasing fresher salaries, which have remained constant over the past decade. If they want to, they might come together and enforce them,” said the recruiter.
Chanda of Experius also pointed out that other IT firms may look at enforcing these clauses as the talent situation gets worse.
However, Singh of NITES said they have not heard complaints about other firms enforcing non-compete clauses so far.
But none of this will help address attrition in the long term. If anything, this will only make the situation worse by making employees wary, experts added.
