In 2023, as key executives depart C-suite roles, the IT industry grapples with challenges. Jatin Dalal's move triggers a legal battle, unveiling non-compete complexities in India's legal framework
In 2023, the departure of key executives from C-suite positions has overshadowed challenges like layoffs, reduced recruitment, and global headwinds in the IT industry. Let's be honest, a company can make significant workforce reductions in the name of cost-cutting, but a big-name exit from high-level leadership is a nightmare for both stock prices and investor confidence.
Recently, Jatin Dalal's transition from Wipro to Cognizant triggered a legal battle, with Wipro filing a lawsuit against him. While the specific reasons for the case remain in the shadows, past exits in major IT firms often pull the non-compete card. In a nutshell, this clause ties former employees' hands, preventing them from jumping ship to a competitor for a specified period—sometimes stretching up to a year.
The catch? India doesn't exactly dance to the tune of this clause. The Non-compete clause faces a roadblock under the Law of Contracts. Section 27 of the Indian Contract Act-1872 makes it clear, "Every agreement by which anyone is restrained from exercising a lawful profession or trade or business of any kind is, to that extent, void."
What we know so far...
While Narayan Murthy's 70-hour work comment turned into thousands of memes, C-suite exits at Infosys grabbed headlines, significantly impacting investor confidence. Prominent senior-level departures at Infosys, including executives Ravi Kumar and Mohit Joshi, were followed by an additional four exits. Last year Infosys had introduced a clause preventing its ex-employees from working for a rival firm, serving the same client for six months, triggered if they had worked with the client in the past year at Infosys.
Wipro joined the exit party, leading a change of tune with the departure of COO Sanjeev Singh, Mohd Haque, and the impactful exit of Jatin Dalal taking center stage.
In Q2FY24, alongside C-suite exits, TCS, Infosys, HCL Tech, and Wipro reported attrition rates of 14.9 per cent, 14.6 per cent, 14.2 per cent, and 15.5 per cent, respectively.
While the figures were comparatively better than prior numbers, the exit rates continue to be one of the highest in the IT sector. In recent months, the Indian IT giants confronted challenges, and under Thierry Delaporte's leadership, Wipro seemingly bore the most substantial impact. Wipro's net profit in FY23 stood at Rs 2,646.30 crore, reflecting a nearly 8 per cent decline from the Rs 2,870.10 crore reported in Q1FY24.
A 'Cognizant' eye
In Wipro's exit saga, Dalal and Haque's goodbyes were turned into a legal battleground. Their recent exits took an unexpected turn as both are now facing a lawsuit for joining Cognizant.
While Dalal has opted for arbitration, specifics of the lawsuit remain undisclosed. Haque, on the other hand, is confronted with allegations of violating a non-compete clause by joining Cognizant before the specified timeline, leading Wipro to file a complaint. Haque, who resigned in June, had agreed to certain post-employment limitations, including a 12-month restriction from working with select competitors.
Compounding the situation, a day later, Infosys, as reported by moneycontrol.com, formalized its response by sending a communication letter to Cognizant.
Domestic laws maintain their void status and outright prohibition when it comes to non-compete clauses. However, within the IT sector, major players have adopted a robust stance against such practices. It is worth noting that when the concept of moonlighting emerged last year, industry leaders like IBM and Infosys were quick to issue warnings to their employees. Regardless of how the current situation unfolds, the fascinating aspect lies in these companies maintaining similar stance at every level of their organizational hierarchy.