BENGALURU: Legal experts say non-compete provisions in the contracts of new hires at Indian IT companies could act as a deterrent, as campus hires are being forced to sign agreements that are similar to those in India. are unenforceable.
Tech employers are using their bargaining power to impose such restrictions at junior levels and in many cases, legal experts said, this does not go beyond giving legal notice.
TCS, Infosys, Wipro And the contracts of HCLTech and Tech Mahindra contain non-compete clauses of up to 6-12 months that are not legally enforceable. Some companies do not allow newcomers to connect with competitors and customers within the stipulated time.
Industry body Nasscom said the Indian IT sector is expected to add 2.5-2.7 lakh freshers in the 2023-24 financial year, compared to 3.7-3.8 lakh in the last financial year. The subdued business environment has forced clients to scale back discretionary spending and put non-critical projects on hold. Due to this the consumption of fresh food has reduced significantly.
Last year, TOI had reported that Infosys had introduced a non-compete clause that barred employees from working on projects for the same client at five named competitors and their subsidiaries for six months after leaving the company. It names TCS, IBM, Accenture, Wipro and Cognizant as competitors, which employees cannot join if they are placed on projects for the same client for which they were working at Infosys.
Wipro also has a similar non-compete clause in its employment contract. This prohibits employees from accepting any offer from any customer or client with whom the employee has interacted or worked during the six months prior to the date of separation. Email sent to TCS, Infosys, Wipro hcl And Tech Mahindra did not respond till the time of going to press.
The Indian Contract Act, 1872, prohibits any agreement that is in restraint of trade. Therefore, any obligation of non-compete that extends beyond the term of employment is void and not enforceable. Pooja Ramchandani, partner for employment, labor and benefits at law firm Shardul Amarchand Mangaldas, said non-compete obligations can only be enforced during the period of employment, but not after the employment ends. “An employee cannot be prevented from leaving employment and joining a competitor. However, where monetary compensation is given to an employee in consideration of non-compete, it is possible to claim a fair share of the monetary benefit in case of loss “May be a violation of non-compete obligations.”
Sayantani Saha, leader of HR law at law firm Nishith Desai Associates, said post-employment non-competes do not apply in India except in the case of sale of a business’s goodwill. “Where an employee leaves an employer and joins a competitor, the ex-employer may fear loss of confidential information. This is the most common reason for employers to execute non-compete agreements. “Non-competes are often executed to prevent erosion through poaching of talent by competitors,” she said.
Ramkumar Ramamurthy, partner at tech growth advisory firm Catlinx, said the best way to retain employees is to create an open culture in which they learn and grow, and not through tools like bonds and service agreements. “If employees trust their careers with their employers, it’s natural to expect employers to trust their employees and lay the groundwork for a shared purpose and vision. Over the decades, I’ve observed that the best talent “We are attracted to companies with a culture of openness and trust, all else being equal.”
Saha said employers are looking at new ways to encourage compliance with post-employment non-compete agreements. “We have seen employers who make different conditional payments to different employees during the period of the non-compete restriction to encourage compliance.”
Tech employers are using their bargaining power to impose such restrictions at junior levels and in many cases, legal experts said, this does not go beyond giving legal notice.
TCS, Infosys, Wipro And the contracts of HCLTech and Tech Mahindra contain non-compete clauses of up to 6-12 months that are not legally enforceable. Some companies do not allow newcomers to connect with competitors and customers within the stipulated time.
Industry body Nasscom said the Indian IT sector is expected to add 2.5-2.7 lakh freshers in the 2023-24 financial year, compared to 3.7-3.8 lakh in the last financial year. The subdued business environment has forced clients to scale back discretionary spending and put non-critical projects on hold. Due to this the consumption of fresh food has reduced significantly.
Last year, TOI had reported that Infosys had introduced a non-compete clause that barred employees from working on projects for the same client at five named competitors and their subsidiaries for six months after leaving the company. It names TCS, IBM, Accenture, Wipro and Cognizant as competitors, which employees cannot join if they are placed on projects for the same client for which they were working at Infosys.
Wipro also has a similar non-compete clause in its employment contract. This prohibits employees from accepting any offer from any customer or client with whom the employee has interacted or worked during the six months prior to the date of separation. Email sent to TCS, Infosys, Wipro hcl And Tech Mahindra did not respond till the time of going to press.
The Indian Contract Act, 1872, prohibits any agreement that is in restraint of trade. Therefore, any obligation of non-compete that extends beyond the term of employment is void and not enforceable. Pooja Ramchandani, partner for employment, labor and benefits at law firm Shardul Amarchand Mangaldas, said non-compete obligations can only be enforced during the period of employment, but not after the employment ends. “An employee cannot be prevented from leaving employment and joining a competitor. However, where monetary compensation is given to an employee in consideration of non-compete, it is possible to claim a fair share of the monetary benefit in case of loss “May be a violation of non-compete obligations.”
Sayantani Saha, leader of HR law at law firm Nishith Desai Associates, said post-employment non-competes do not apply in India except in the case of sale of a business’s goodwill. “Where an employee leaves an employer and joins a competitor, the ex-employer may fear loss of confidential information. This is the most common reason for employers to execute non-compete agreements. “Non-competes are often executed to prevent erosion through poaching of talent by competitors,” she said.
Ramkumar Ramamurthy, partner at tech growth advisory firm Catlinx, said the best way to retain employees is to create an open culture in which they learn and grow, and not through tools like bonds and service agreements. “If employees trust their careers with their employers, it’s natural to expect employers to trust their employees and lay the groundwork for a shared purpose and vision. Over the decades, I’ve observed that the best talent “We are attracted to companies with a culture of openness and trust, all else being equal.”
Saha said employers are looking at new ways to encourage compliance with post-employment non-compete agreements. “We have seen employers who make different conditional payments to different employees during the period of the non-compete restriction to encourage compliance.”
