Infosys, Wipro, TCS: Can IT companies prohibit ex-employees from working with rivals?

The Indian IT sector employs over 51 lakh individuals as per a recent report by NASSCOM,  with top companies like TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra being some of the largest employers. Interestingly, the employment contracts of these companies have ‘non-compete clauses’ and other restrictions that prevent employees from working with competition even after their stint at the company has been terminated.

Business Today reviewed employment contracts of the top Indian IT companies like TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra and also spoke to lawyers to get more insight about the same. 

For instance, the Non-Compete agreement section of Infosys’ employment contract says, 

"I agree that for a period of six (6) months following the termination of my employment with Infosys for any reason, I will not:

a. accept any offer of employment from any Customer, where I had worked in a professional capacity with that Customer in the twelve (12) months immediately preceding the termination of my employment with Infosys;

b. accept any offer of employment from a Named Competitor of Infosys, if my employment with such Named Competitor would involve me having to work with a Customer with whom I had worked in the twelve (12) months immediately preceding the termination of my employment with Infosys.

For the purposes of this Non-Compete Agreement, "Named Competitor" shall mean the following entities and their wholly owned subsidiaries:

i. Tata Consultancy Services Limited

ii. Accenture Limited

iii. International Business Machines Corporation

iv. Cognizant Technology Solutions Corporation

v. Wipro Limited"

Varsha Kripalani, Partner at SNG and Partners notes that such a restrictive covenant would not be enforceable in the court of law. She told Business Today, “A negative covenant that restricts the employment of an employee after the cessation of employment contract with a competitor would fall within the periphery of Section 27 of the Indian Contract Act. ”

Section 27 of the Indian Contract Act, 1872 says, “Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind, is to that extent void.”

She further said, “Being violative of Section 27 of the Indian Contract Act, such restrictive covenants may not be enforceable in the courts of law.” She added, “The employer may not be able to injunct the employee from joining the competitor.”

Wipro’s employment contract also has similar non-compete clauses. It says, “You confirm that for a period of six (6) months after separation of your employment from the Company (irrespective of the circumstances of or the reason for the separation), you will not accept any offer of employment from a customer or client with whom you have interacted or worked in a professional capacity representing the Company during the six (6) months preceding the date of separation.”

Bhagyashree Pancholy, Employment Law practitioner and General Counsel at LanoGMBH highlights that Wipro cannot prohibit employees from working with competition after their stint at the company has been completed. 

“Wipro cannot restrict an employee, post termination of their employment, from working with a competitor,” she said.

She also noted that ‘non-compete clauses’ are prohibited under the Indian Contract Act, 1872. She said, “Non-compete clauses in contracts are prohibited under the Indian Contract Act 1872 and article 19 (g) of the Constitution provides every citizen of India the right to practice any profession, trade or business.”

Article 19 of the Indian Contract Act states, “All citizens have the right to carry on any trade or profession/occupation, provided the trade or occupation is not illegal or immoral.”

Amit Kumar Pathak, Director at Nangia Andersen LLP notes that Indian courts have held ‘non-compete’ clauses as void but courts may interpret them differently depending on the case.

He said, “There have been many judgments of honourable High Courts and the Supreme Court that have held non-compete clauses prima-facie void. However, this is also subject to reasonable restrictions which shall be interpreted by the courts."

“If courts find that clauses of the agreement are too restrictive, negative, and arbitrary in nature, then such clauses are set-aside by the courts and are declared void, however, if courts observe that the clauses are preventive in nature, up to an extent that, employers need to restrain employees from sharing any sensitive and confidential information e.g. trade secrets, then the court may declare such clauses valid, up to such extent only,” he added.

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