Indian IT giants employ non-compete clauses in junior staff contracts

In a recent development, major Indian IT companies, including TCS, Infosys, Wipro, HCLTech, and Tech Mahindra, have incorporated non-compete clauses into the contracts of junior employees, spanning from 6 to 12 months. However, legal experts contend that these clauses are generally unenforceable, often amounting to little more than serving a legal notice.

A non-compete clause, a binding agreement in employment contracts, prohibits current and former employees from disclosing any trade secrets acquired during their tenure with a company. Typically effective during employment and for a specific period post-employment, these clauses can restrict employees from working with a competitor, in a designated geographic location, or within a specific market.

While these clauses may hinder freshers from joining competitors or customers for a designated period, experts underline that, according to the Indian Contract Act, any agreement limiting trade beyond the employment term is void and unenforceable. They clarify that non-compete obligations are valid only during employment and cannot impede an employee from joining a competitor post-employment.

Infosys, in 2023, introduced a non-compete clause preventing employees from working on the same customer’s project across five competitors for six months after leaving the firm. Wipro also includes a similar clause in its employment contract.

NASSCOM reports a subdued hiring environment in the Indian IT sector, expecting an addition of 250,000–270,000 freshers in the 2023–2024 financial year, compared to 370,000–380,000 in the previous financial year. The contractual non-compete clauses are seen as efforts to curb attrition by discouraging employees from joining competitors.

In response to the high layoffs and hiring freezes in the IT sector over 2023, employers are exploring innovative approaches, such as staggered conditional payments, to incentivize compliance with post-employment non-compete agreements.