Many Indian IT companies, including TCS, Infosys, Wipro, HCLTech, and Tech Mahindra, have incorporated non-compete clauses into their job contracts for both senior executives and junior-level employees.
The issue of the non-compete clause became a hot topic when Wipro filed a lawsuit against its former CFO Jatin Dalal who joined its rival Cognizant Technologies. Wipro's non-compete clause restricts its executives from joining many of its rival firms. As per the clause, senior executives who leave Wipro cannot join any rival company within 12 months of serving their last day at Wipro.
The clause got a lot of prominence as Wipro had reportedly lost more than ten senior executives along with many junior employees to their competitors. Wipro's former CFO Dalal and former senior vice president Mohd Haque left the company to join Cognizant. Wipro sued both for breaching non-compete clauses.
Experts with whom THE WEEK spoke feel that employees joining rival firms is not something new, but the suit filed by Wipro against its senior executives has caused tremors in the tech industry and the outcome would be extremely important to the sector. However, many argue that such kind of clauses may not help companies prevent their employees from joining rival firms. At the same time preventing talent movement between firms could adversely affect India’s image as a back-end software hub of the world, and impact the growth of the IT sector.
“Legally refraining individuals from switching to rival firms in their areas of competence could open doors to modern slavery, where the individual would not be able to move out to pursue his or her professional aspirations. It would further result in a severe manpower crunch since more often than not, it is the individual in the same sector, across companies in the same space, who are pushed for senior roles rather than new faces from the outside. As per the information given by multiple leading lawyers in the newspapers, we see that an entity will not be able to prohibit its employees from joining elsewhere. In fact, non-compete clauses are prohibited under Indian Contract Act, 1872, with the Constitution of India as per Article 19 (g) providing every citizen of India a fundamental right to practice any profession, trade or business,” observed Satya Pramod, founder and CEO, Kayess Square Consulting Private Limited.
Experts point out that non-compete clause has been an issue in contracts of employment in several industries.
“Though not explicitly termed a fundamental right, the right to livelihood and consequently the right to employment is considered as inherent in Article 21. Any restrictions on employment that are not just and fair would provide the cause for exercising such a right. Hence non-compete clause for all levels in employment would certainly not stand the scrutiny of law. At the same time, senior positions that are generally privy to significant corporate confidential information, trade secrets and associated matters may be restricted through a mutually accepted contract for a specified period post cessation of such employment. The case of Wipro can be viewed through this angle and is a possible enforceable right,” said Subramanyam S. the CEO of Ascent HR.
Market analysts also point out that while there have been a few contentious instances in the past, the way the issue is shaping now reflects hyper-competitiveness, especially in the big deals scenario. “There have been instances in the past, where once the key executive shifted, ended up helping the competitor win the deal. Given the price of arbitrage is so advantageous, the incumbent player has a lot to lose. While these rogue practices can only serve as much, the real risk is if the case goes to the court and some of the rogue employees come under the attention of the court,” remarked Alok Shende of Mumbai-based Ascentius Consulting.
