Infosys Big Ban! Can The ‘Non-Compete Clause’ Be Actually Enforced?

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Infosys Big Ban! Can The ‘Non-Compete Clause’ Be Actually Enforced?

From massive hiring for fighting high attrition rates to banning ex-employees from joining competitors by invoking the non-compete clause, Infosys’s struggle to keep its workforce intact is clearly evident. However, as the Indian IT giant takes its measures, Pune based IT employee union-Nascent Information Technology Employees Senate (NITES) have allegedly written to the Ministry of Labor and Employment, seeking action against Infosys for the non-compete clause in the employees agreements.

Calling it out as ‘arbitrary and unethical’, the union is seeking the removal of this clause from the agreements. So is this clause a new instrument being used by the company to arrest employees' resignation or has it only gained prominence against the backdrop of high attrition rates?

What is a ‘non-compete clause’?

A non-compete clause is a condition in employment agreements that restrict the employees from joining the rival companies for a specified time period. As per Infosys’s non-compete clause, the following conditions are binding on the employees:

“For the period of six months after leaving Infosys, employees will not

Accept any offer of employment from any customer, (with whom I worked) in the twelve months immediately preceding my termination.

Accept any offer of employment from a Named Competitor of Infosys, if my employment with such Named Competitor would involve me having to work with a Customer with whom I had worked in the twelve (12) months immediately preceding the termination of my employment with Infosys.”

Nothing new?

Although it might seem as a deliberate step by the company to keep employees' resignations in check, according to Infosys, addition of non-compete clauses is a standard business practice that is followed in many parts of the world for employment contracts. As per the company, they have had non-compete clauses in agreements since 2007 and these are added ‘to include controls of reasonable scope and duration to protect the confidentiality of information, customer connection, and other legitimate business interests. Further ‘the clauses are completely disclosed to all the candidates before they decide to join the company and are not framed to limit the career growth and aspirations of the employees.’

As per recruitment experts, Infosys is not the only company to have non-compete clauses in the offer letters. These are in fact standard agreements in companies across sectors that employees are asked to sign before they join. So why is this clause making headlines?

The reason for the debate around this clause is that Infosys has hinted at invoking this clause, which was not the case earlier.

Should the employees be worried about the ‘non-compete clause’?

Speaking of India, non-compete clauses, also known as ‘doctrine of restraint covenants’, may not be valid in many cases as per Section 27 of the Indian Contract Act 1872. The section of the Act states that

‘any agreement that restrains anyone from practicing a lawful profession, trade or business is to that extent void.’

Keeping this in view, the courts have time and again squashed such clauses and held that post-termination non-compete clauses are not enforceable.

So is the clause just a scare tactic? The answer could be both ‘yes’ and ‘no’.

Considering the number of employees who are leaving their jobs, it is next to impossible for the firms to take action against each and every employee and shoot thousands of legal notices every month.

However, there is a chance that other companies might follow the legal route as the last resort.

In accordance with the Indian Contract Act 1872, courts are obligated to take into consideration the terms of the contract as per individual cases and assess the case based on reasonableness, nature of circumstances etc. Hence, for a non-compete clause to be enforceable, it should be reasonable and should not be overly burdensome to the employee. For example, restricting an individual from working with a direct competitor for a period of five years could be considered as unreasonable. Hence, most contracts restrict the time period from 6 to 12 months.

Taking this into account, Infosys may be able to invoke the clause for employees dealing with highly sensitive information to restrict the same being passed on to its competitors. Mohandas Pai, co-founder of Aarin Capital, said, “It is not like the employees 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, who was a member of the Infosys board and its CFO from 1994 to 2006.

From ‘Great Resignation’ to ‘Great Reconsideration’

Apart from India, countries where non-compete clauses were much commonly enforced, are too considering taking a mild stand when the question regarding invoking this clause arises. Speaking of Canada, legislators are proposing to ban the non-compete clauses. In July 2021, U.S. President Joe Biden urged the Federal Trade Commission to ‘curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.’

As millions of employees quit their jobs seeking better wages, flexible working modes and higher salaries, companies are focussing on reconsidering and restructuring their work culture to make it welcoming for the employees. Hence, even though invoking legal clauses might be one of the last measures that companies could take in exceptional cases, resorting to conditions that seem draconian to employees will only worsen the situation.