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The Infosys Non-Compete Clause Saga: An Analysis

With attrition rates in the industry surging, Infosys and some other IT companies have gone in for a non-compete clause in their job contracts. Employees who leave Infosys are restricted, for six months, from joining any of the five companies (TCS, IBM, Accenture, Wipro, and Cognizant) specified in the contract as working on projects for the same client they served at Infosys. Infosys, a major providing IT services, has come under fire for including non-compete clauses in employee contracts. There were allegedly two missed opportunities for a collaborative meeting between the corporation and the Indian Ministry of Labor in 2022: in April and in the third week of June. The phrase in question is included in the company’s employment contract, which is why the meeting was called. The non-compete clause has been a matter of concern for employees, a nascent IT union, and labor regulators.

Late in April, the Nascent Information Technology Employees Senate (NITES), an IT workers’ union in Pune, filed a complaint with the Labour Ministry against the IT service provider, demanding that they remove the provision. However, the Infosys non-compete agreement prevents former workers from working for a competitor for at least six months after leaving Infosys, even if the matter has not yet been resolved.

What is the Infosys non-compete clause?
The condition prohibits former Infosys workers from working for the same customer for at least six months after they leave the business and join a competitor. The provision is activated if the departing employee has worked with the aforementioned customer during the preceding twelve months while they were employed by Infosys. They are prohibited from working for any of their five competitors, which are TCS, Accenture, IBM, Cognizant, and Wipro. When the percentage of employees leaving the Bengaluru-based firm increased to 27.7% in the quarter that ended in March, up from 15.2% during the same period the previous year, i.e. 2021, the company began invoking the clause.

Is the clause enforceable in India?
A non-compete clause is prohibited in India, and may not be enforceable in the country. “Such non-compete clauses in an agreement are unenforceable and customarily demonstrated as a disincentive for the former employees from joining the competitors”. The clause is void as it restrains someone from exercising a lawful profession, trade, or business, as given in Section 27 of the Indian Contract Act, of 1872. Courts have held this clause as void and against public policy as they deprive individuals of their fundamental right to earn a living.
But, there have been instances in the past when judgments challenged Section 27 and considered implementing a non-compete clause due to business factors. In such instances, the organizations were safeguarding their trade secrets and confidential and privileged insights.

Furthermore, Infosys revealed in its Q4 earnings report that its voluntary attrition rate had hit 27.7 percent, translating to the loss of around 87,000 employees.

High attrition in India’s IT services sector was attributed by some to industry poaching, which would make it an opportune time to start enforcing any noncompete clauses in employee contracts.

Precedents when the non-compete clause was used in India
In 2006, in Percept D’Mark (India) Pvt. Ltd. vs. Zaheer Khan and others [MANU/SC/1412/2006], the Apex Court refused to enforce a media management company’s non-compete clause that prevented prominent Indian cricketer Zaheer Khan from joining their rival for a specific period after the agreement ended.

In 1967, in the case of Niranjan Shankar Golikari vs. The Century Spinning and Mfg. Co [MANU/SC/0364/1967], the Supreme Court refused to uphold a non-compete clause that prevented a shift supervisor in a tire cord factory from joining a competitor for a higher salary.

However, there have been exceptions when such agreements were permitted as the Court found the restraint reasonable and in accordance with public policy.

In 2006, in Diljeet Titus, Advocate vs. Alfred A. Adebare and Ors. [MANU/DE/1875/2006], the Delhi High Court held that sensitive workplace information can be covered even during the post-employment period.

Infosys Stand about the clause
Infosys has called the clause a standard part of employment contracts in many countries. They are added to protect client confidentiality and safeguard other legitimate business interests. Infosys has justified the contentious clause. It says this is a standard business practice in many parts of the world to protect confidential information. It also says such controls are needed to protect the “confidentiality of information, customer connection, and other legitimate business interests.”

Infosys also pointed out that the conditions are fully disclosed to all job aspirants before they decide to join Infosys. They do not have the effect of preventing employees from joining other organizations for career growth and aspirations, the software major claims.

Author Ashish Dash