New Delhi: A US federal judge hearing whistleblower Jack Palmer’s visa misuse allegation case against India’s second largest software services firm Infosys Ltd has ordered mediation between the two parties to settle the case.
This is standard procedure before the trial of any civil case begins, and gives a window of opportunity to Infosys to settle the matter out of court at a time when the company is facing flak over its dismal financial performance in the recent past.
US district court judge Myron H. Thompson ordered the lawyers for both sides to settle the case in a conference on 24 July. The trial in the case will begin on 20 August if the mediation fails.
An Infosys spokesperson said in an emailed response to queries from Mint that “the mediation is standard procedure”, without elaborating whether the firm would opt for an out-of-court settlement and the offer it could make.
The offer of mediation is only for the civil case between Palmer and Infosys, and not for the grand jury probe into a larger visa misuse charge against the company.
“Infosys has in the past tried to settle the matter out of court and it seems that it will try harder to do it this time also,” said a technology analyst with a brokerage firm, who did not want to be identified as the matter deals with legal issues.
The analyst said the allegation of visa misuse overhangs Infosys’s performance and could impact its prospects as well as that of the entire industry in India. “If there are negative findings during the public trial, the company will not only be liable to damages, but several more cases could reopen, its contracts could get affected and clients could also become diffident while awarding future projects.”
The anti-outsourcing rhetoric in the US could also get stronger, the analyst added.
But an analyst with another brokerage firm, who too did not want to be identified, said Infosys should not opt for an out-of-court settlement as that could be seen as a tacit acceptance of some wrongdoing.
“The company has so far been maintaining that it is clean on this matter and even if it pays half a million dollars to settle it out of court, the Street will not take it positively,” the analyst said.
Proceedings during mediation will remain confidential and the judge will only be apprised if both the parties agree to settle out of court.
However, it all depends on whether Palmer wants to settle the case out of court. Infosys’s earlier attempts at arbitration were denied by the court last year. “We might settle if it’s a fair settlement,” said Palmer’s lawyer, Kenneth J. Mendelsohn. “We are going in with good faith. The judge has ordered us to do a mediation in good faith, and he expects us to put animosities behind and see if we can get a fair resolution rather than allowing a judge and jury decide. We’ll abide by the court’s ruling. But if they (Infosys) come in and keep acting as they have been and act like they have done nothing wrong, then we’ll have no other choice but to take it to court.”
Mendelsohn added that a fair settlement might include adequate compensation, along with an acknowledgement or an apology.
The $70 billion (around Rs4 trillion) Indian software services industry—and particularly Infosys—has recently faced a flurry of downgrades from brokerage firms due to a decrease in technology spending by clients in the US and Europe, its main markets. Analysts are also expecting Infosys to further trim its revenue outlook for the fiscal year from the current 8-10% due to pressures of cross-currency fluctuations, delays in decision-making by clients and softness in discretionary spending.
Infosys is scheduled to announce its financial results for the June quarter on 12 July.
Another analyst said that given that this is an election year in the US, protectionist sentiments against technology outsourcing are bound to rise and a public trial of this case might add fuel to fire. “However, given the corporate governance policies of Infosys, it is unlikely something really damaging will come out,” the analyst added.
Infosys is currently involved in two lawsuits: In February last year, Palmer, a US-based consultant for Infosys, filed a lawsuit in an Alabama court alleging that the company was sending Indian employees to the US to work on projects on short-term, non-employment visas (B-1). Palmer alleged that Infosys was doing this to circumvent increased restrictions around work visas. Then, three months later on 23 May 2011, Infosys received a subpoena from a grand jury in the US district court for the eastern district requesting its records pertaining to its sponsorships for, and uses of, B1 business visas.
A subpoena is a directive issued by a court requiring a person or an entity to appear before it at a specified time.
In April, Infosys said in a filing to the US Securities and Exchange Commission that the US department of homeland security (DHS) was reviewing the company’s employer eligibility verifications after it found a “significant percentage of errors in Forms I-9 of some of its employees working in the country”.
Form I-9 is used by an employer to verify an employee’s identity and establish that the worker is eligible to accept employment in the US. Every employee has to complete an I-9 form at the time of hire.
“In the event that the DHS ultimately concludes that our Forms I-9 contained errors, the department would likely impose fines and penalties on us,” Infosys said.
Failing to comply with Form I-9 requirements has a penalty of $110 (minimum) to $1,100 (maximum) for each form. The company, however, said it is unable to make an estimate of the loss it would incur if found guilty.
Infosys’s stock ended down 1.47% at Rs2,443.85 a share on BSE, and the benchmark Sensex fell 0.1% to 17,521.12 points.