Termination obligations?

IT giant Infosys found itself in the middle of a major controversy in April 2022. Widely seen as a reaction to the spike in attrition from 15.2% in March 2021 to 27.7% in March 2022, Infosys introduced a non-competition clause which prevented former employees from working for the same client in a competing organization for at least six months after leaving the first. This clause prohibited employees from joining companies like TCS, IBM, Accenture, Wipro and Cognizant, among others.

Reacting strongly to this, a Pune-based union of IT employees, the Senate of Information Technology Employees (NITES), filed a complaint against Infosys with the Ministry of Labor asking for the removal of the clause. . In India, the non-competition clause is often opposed to public order which deprives employees of their fundamental right to earn a living. This means that the non-competition clause is not enforceable and is therefore considered void. That said, there have been cases where judgments have contemplated the implementation of the non-competition clause due to business considerations such as trade secret protection and confidentiality.

The non-competition clause is the most controversial employee bond imposed by many companies.

Job link in IT and ITeS

An employment pledge is an agreement between an employer and employee that sets out the terms of employment, including the ability to provide training to the employee and the amount spent on that training. This often requires employees to remain with the employer for a set period of time which can range from a few months to several years. In the event of a severance of the link, this contract gives the employer the right to compensate the employee for the costs incurred during the training period.

Earlier in 2020, pure-play analytics firm Mu Sigma came under fire for enforcing a four-year contract with their new batch of hires; in case of breach, employees were liable to pay up to INR 15,00,000 as a fine.

In India, employment obligations are considered ‘lawful’ when a reasonable penalty is applied for violation. Since “reasonable penalty” is open to interpretation, the Indian judiciary safeguards the interest of the employee over that of the employer.

Under the provisions of the Indian Constitution and the Indian Contracts Act 1872, an employee’s right to subsistence is paramount, even against an existing agreement with the employer.

For an employee bond to be valid, the employer must prove that the bond is absolutely necessary based on proof that they have invested a certain amount in training the employee. Under section 27, an employer cannot impose a restriction, direct or indirect, on the employee to restrict work for a competitor.

Attrition in Indian IT

In the June 2022 quarter, TCS, India’s largest services company, reported a 19.7% churn rate for the last 12 months. This is the highest attrition rate recorded by the company in the last six quarters.

Similarly, HCL’s attrition rate was recorded at 23.8%, compared to 21.9% in the quarter that ended March 2022; on a yearly basis, HCL Tech’s attrition level increased by 12% from 11.8% in Q1 FY-22. Another IT giant, Wipro, reported 23.3% attrition in the first quarter of FY23, slightly lower than the 23.8% attrition rate in the fourth quarter of FY22.

Amid such high attrition rates, companies are trying to control the situation by rolling out employee-friendly programs and policies. In one such affirmative action, food delivery app Swiggy recently announced the “moonlight policy” that will allow its full-time employees to take on second jobs. This policy permits Swiggy employees to accept pro bono gigs, as pro bono work or for economic considerations. This announcement follows a previously announced provision allowing Swiggy employees to work from anywhere.

Swiggy’s move is expected to set a precedent for other companies, especially when attrition rates are at an all-time high.

However, it seems that traditional IT companies are slow to get to grips with the idea, even though many of their employees do so unofficially. But such progressive corporate programs are sure to place employees in a position of power in such a way that practices such as employment bonds would be blatantly rejected.

Lance B. Holton