Non-Compete Clause For Employees By TCS, Infosys, HCL & Others: Is It Legal? What Does Labour Laws State?

A development has recently surfaced related to the IT behemoth Infosys, which among attrition rate in the organisation, has reportedly been invoking the non-compete clause in the employment agreements of employees.

According to this clause, company employees are prohibited from accepting job offers from any of the rival companies which have their names on Infosys’ list (more on it later) for six months after leaving the IT major.

This is in extension to a clause that the new job involves working with a client which the said employee has already served in his/her past 12 months’ tenure in Infosys.

The company employees have taken the matter and complained against it to the Pune-based IT union, The Nascent Information Technology Employees Senate or NITES.

What Is Non-Compete Clause?

According to Wikipedia, a non-compete clause is a clause under which one party agrees not to enter into or start a similar profession or trade in competition against another party.

Infosys has invoked the clause, as per which its employees will not be allowed to switch to companies including TCS, Accenture, IBM, Cognizant, and Wipro for IT services, and 9 other companies for BPM services, for at least 6 months after leaving the company, provided the new job works with a client that the existing employee has worked with over the past 12 month period of his/her tenure at Infosys.

Now, this non-compete clause is a common industry practice, and it would be unfair to pinpoint that only Infosys supports this. Even employees in TCS, Wipro, Accenture, HCL and other IT firms impose this clause for new employees.

Is Non-Compete Clause Legal?

According to Section 27 of the Indian Contract Act, non-compete clauses are not held valid in the country, restraining any company from keeping anyone from practicing a lawful profession, trade or business.

But, there are two aspects we will like to mention here:

• IT Companies have been using non-compete clause to stop their ex-employees from working for the same clients, in different companies. This is done to protect their intellectual properties, and to safeguard client data.
• But since it’s not allowed as per Indian laws, we need a major reform in the IT policy, and a dialogue must be initiated between employees, employers and Govt over this issue.