Infosys, facing record high attrition, said its non-compete clause is a standard business practice
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The IT sector cannot prevent employees from joining a rival firm and a non-compete clause does not stand in court, said recruiters and lawyers. Meanwhile, Infosys Ltd, facing record high attrition, said its non-compete clause is a “standard business practice" to protect client confidentiality and denied that it hampers an employee from joining other firms.
“As per Section 27 of the Indian Contract Act, 1872, any agreement which restrains anyone from practicing a lawful profession or trade is not enforceable in a court of law. Any such non-compete clause in any employment contract is unenforceable and is usually used as a deterrent for the employees from joining rival companies," said Soubhik Dasgupta, partner, Pioneer Legal.
Typically, these clauses act as a deterrent and are a common practice in the IT sector.
“This is a common practice and a lot of IT companies and also companies from other sectors have such clauses despite being fully aware that their enforceability in any court is highly questionable. To that end, Infosys itself has said that these clauses do not have the effect of preventing employees from joining other organisations," Dasgupta said.
This follows a Pune-based labour union’s appeal to the Union labour ministry seeking removal of Infosys’ non-compete clause.
However, senior executives in Infosys and other IT firms said such non-compete clauses are a standard procedure where a list of competing firms are named, joining whom may lead to breach of client confidentiality.
“It is standard business practice in many parts of the world for employment contracts to include controls of reasonable scope and duration to protect confidentiality of information, customer connection and other legitimate business interests," Infosys said on Wednesday. “These 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," the company said in response to Mint’s queries.
These clauses come into focus at a time the Bengaluru-based firm is facing record attrition. On a last-12 months basis, Infosys’s attrition rate rose to 27.7% in Q4 from 15.2% a year ago and 25.5% in the December quarter.
Most people who left Infosys in FY22 joined Accenture, followed by Cognizant, TCS, and Deloitte, according to specialist staffing company-Xpheno’s data shared exclusively with Mint.
“The top IT services companies hire from each other and its more or less a zero-sum game. If two more services companies move to similar clauses such as Coke and Pepsi used to decades ago, where will they recruit from?," asked Kamal Karanth, co-founder, Xpheno.
TCS, Wipro, Cognizant, IBM, and Accenture did not respond to queries on whether they have similar clauses in their offer letters.
The IT sector is plagued by high attrition and the swift churn rate is adding to the pressure on companies’ margins. Infosys hired 85,000 freshers last fiscal and plans to hire about 50,000 college graduates in FY23.