Explained | Infosys’ controversial non-compete clause

The Infosys non-compete clause restricts ex-employees from working for the same client at a rival company for at least six months after they leave Infosys

Employees walk along a corridor in the Infosys campus in the southern Indian city of Bangalore | Photo Credit: Reuters

IT services company Infosys is facing a controversy over its non-compete clause in employment contracts. The company is said to have skipped India’s Ministry of Labour’s call for a joint discussion twice, one in April and other in the third week of last month. The meeting was called to discuss the a clause in the company’s employment contract. The non-compete clause has been a matter of concern for employees, a nascent IT union and labour regulator.

The incident took spotlight in end of April after a Pune-based IT employee union, Nascent Information Technology Employees Senate (NITES), filed a complaint with the Labour Ministry against the IT service firm seeking removal of the clause. The issue is yet to find closure.

What is Infosys non-compete clause?

The clause restricts ex-employees from working for the same client at a rival company for at least six months after they leave Infosys. The clause kicks in if the employee quitting the firm has worked with the said client in the past 12 months during their tenure at Infosys. The clause bars them from joining rivals like TCS, Accenture, IBM, Cognizant, and Wipro.

The Bengaluru-headquartered company started using the clause when its attrition spiked to 27.7% in the March ending quarter from 15.2% during the same time previous year.

Is the clause enforceable in India?

Non-compete clause is prohibited in India, and may not be enforceable in the country.

“Such non-compete clauses in an agreement are unenforceable and customarily demonstrated as a disincentive for the former employees from joining the competitors,” Urja D Sharma, a corporate lawyer said to The Hindu.

The clause is void as it restrains someone from exercising a lawful profession, trade or business, Sharma added citing Section 27 of the Indian Contract Act, 1872. 

Courts have held this clause as void and against public policy as they deprive individuals of their fundamental right to earn a living.

But, there have been instances in the past when judgements challenged Section 27 and considered implementing a non-compete clause due to the business factors, Sharma noted. In such instances, the organisations were safeguarding their trade secrets and confidential and privileged insights.

Has there been any past instances when the clause was used in India?

In 2006, in Percept D’Mark (India) Pvt. Ltd. vs. Zaheer Khan and others, the Apex Court refused to enforce a media management company’s non-compete clause that prevented prominent Indian cricketer Zaheer Khan from joining their rival for a specific period after the agreement ended.

In 1967, in the case of Niranjan Shankar Golikari vs. The Century Spinning and Mfg. Co, the Supreme Court refused to uphold a non-compete clause that prevented a shift supervisor in a tyre cord factory from joining a competitor for a higher salary.

However, there have been exceptions when such agreements were permitted as the Court found the restraint reasonable and in accordance with public policy.

In 2006, in Diljeet Titus, Advocate vs. Alfred A. Adebare and others case, the Delhi High Court held that sensitive workplace information can be covered even during the post-employment period.

Has Infosys issued any clarification about the clause?

Infosys has called the clause a standard part of employment contracts in many countries. They are added to protect client confidentiality, and safeguard other legitimate business interests.

Some new hires and employment contract offerees, The Hindu spoke with confirmed the clause has been mentioned in their offer letter.