Indian government hauls Infosys in to explain non-compete clause

Not hard to see why Infosys wants to keep staff – rival HCL blames price hikes on pay rises and recruitment costs

As Infosys battles attrition that sees more than one in four staffers leave each year, India's Ministry of Labour & Employment has summoned the IT services giant to discuss the legality of a contract clause it uses to stop staff working for rivals or customers.

In a notice dated April 22 and seen by The Register, the Ministry told Infosys's group head of human resources, Krish Shankar:

This is with reference to the complaint … from the President, Nascent Information Technology Employees Senate (NITES) against the management of Infosys Ltd in respect of non-compete agreement clause whereby the employees terminated from employment from Infosys for any reason have been restricted in respect of their future employment.

The aforesaid clause has been alleged to be unethical and illegal by the complainant. It has been decided to hold a joint discussion on the issue before the Chief Labour Commissioner (Central), Ministry of Labour & Employment, Govt of India …

The appointment is scheduled for today – April 28. The Ministry has requested Shankar "make it convenient to attend" either personally or through an authorized representative "well conversant with the issue."

Infosys's non-compete clause requires staff to wait six months before accepting a job from any customer they served as an Infosys employee.

Employees are also barred from working for certain Infosys competitors if it means they would work with a customer they worked with at Infosys during the 12 months prior to leaving Infosys. The competitors are listed by name: Tata Consultancy Services (TCS), Accenture, IBM, Cognizant, and Wipro.

IT Labor rights organization NITES told The Reg these stipulations apply regardless of the reason for leaving – whether resignation, redundancy, or firing.

NITES argued that noncompete clauses are in violation of Section 27 of India's Contract Act, which states that any agreement restraining a person from engaging in their profession or trade is invalid. NITES alleges enforcement of the clause is only possible while an employee is still employed.

NITES president Harpreet Saluja told The Register that Infosys was threatening employees with unspecified legal repercussions and negative remarks on background verifications if they violated the non-compete clause.

India's IT services industry has been challenged by high attrition rates during what has been dubbed "The Great Resignation."

The conundrum has forced companies like Infosys, TCS, HCL and Wipro to raise hiring targets, and some have come up with innovative – if controversial – ways to keep employees from jumping ship.

HCL resorted to paying its employees bonuses in advance, and then clawing them back if the employee resigned – a policy NITES describes as illegal and unjust as it creates an undue burden on the employee, who may not have expected a demand for the money to be repaid.

Speaking at HCL's Q4 2022 earnings call, HCL CEO C Vijayakumar said the company hired a record 39,900 new staff over the last fiscal year. The company had a 21.9 per cent attrition rate over the prior twelve months.

Increasing wages to retain staff, and the cost of hiring new workers, were cited by HCL CFO Prateek Aggarwal as reasons for the company's recent price increases.

Vijayakumar attributed talent pool challenges to the company coming in one percentage point under its operating margin guidance for the quarter, at 18.9 per cent.

"This dip is largely due to the talent model transformation that we are investing in, which involves a large-scale fresher hiring, nearshore delivery scale-up and the talent, skilling and training investments," explained Vijayakumar.

HCL's FY22 revenue increased [PDF] year-on-year by 12.8 per cent to $11.5 billion.

Infosys's last twelve month attrition [PDF] sat at 27.7 per cent – up from 25.5 per cent last quarter and 10.9 per cent year-on-year. CEO Salil Pareek said in the earnings call that the company had added 22,000 employees in the fourth quarter alone.

"In the backdrop of various supply side pressures, we rolled out various measures to reduce attrition, higher compensation increases, higher promotions, skill-based interventions, et cetera in addition to higher subcons," said CFO Nilanjan Roy.

Roy said Infosys expected attrition to "come down in the following year." He chalked up the high rate to a "rotational churn issue across the industry."

Roy elaborated:

I don't think we are in a silo in the ecosystem. We are all interconnected. My attrition is somebody else's lapses, and somebody else's attrition is my lapses. And therefore, if the industry has to come out of this, it is fundamentally through – volume has to be through fresher, there is no other source of volume, right?

Infosys experienced 18.5 per cent revenue growth for Q4 2022 compared to the year ago quarter, while its revenue for the year hit $16.3 billion – a 20.3 per cent jump. ®