The recent stir over Infosys’s employment contracts with the non compete clause got me nostalgic. The first time I got a CXO appointment letter, I ended up calling my lawyer first instead of breaking the news to my family. The contract's length and clauses overshadowed the excitement around the new title and the offer.
It was 35 pages long, with a rather terse list of don’ts, and one clause stood out like a sore thumb. It said I could not join the competition for a year after leaving them. Ironically, they were hiring me from the competition and were preventing me from joining another.
Long story short, when I pointed out the bias in the contract, they backed off, saying it was a global template, and they understood that as per Section 27 of the Indian Contract Act, they may not be able to enforce it. I joined them only after their APAC CHRO admitted that over an email.
It’s a sure sign of desperation when enterprises put in non compete clauses in their employment contracts .
Poach or protect
A careful study of the top IT Services companies points out that they have been poaching each other successfully. It’s a well-known fact, and one can even call it a zero-sum game. An anti-competition clause has been a standard template by most enterprises.
By naming the clients and competitors, some employers seem to have admitted the seriousness of the talent crisis facing the IT industry. This protector mindset clauses have little bearing in India and has been selectively invoked by companies.
Think about it, if these anti competitor clauses must be invoked, each of these companies may need to send some 20,000 legal notices every year and have an infrastructure to execute them. They know that focussing on a new agile sustainable talent attraction and retention strategy is more prudent than spending time and money chasing thousands of ex-employees with legal suits.
In a client-controlled atmosphere, enterprises have no choice but to make watertight employment contracts discouraging employees from joining the competition. The idea seems to be that even if not enforceable legally or logistically, an anti-competition clause may deter employees before considering joining a peer employer.
This mindset might have worked in the past when enterprises and jobs were at a premium. However, thanks to social media, the new generation of employees are now exposing some of these aged contractual loopholes and employers are forced to react to them. The question is why have a clause that you can’t or won't enforce.
Build talent
Most marquee employers have always believed in building their talent; from HUL to Infosys, this model of hiring talent from campus and training them has been institutionalised for decades. Yes, it takes time to get fresh minds ready for employability and eventual productivity.
But it’s a proven template and a major USP for IT companies and has allowed them to build scalable, cost-effective business models. Unfortunately, a couple of years of pause on fresher hiring and an avalanche of new deals by IT services companies have caused the current talent shortage crisis.
Buy talent
The pandemic induced digital wave across the world has benefitted the Indian IT industry as more work got offshored, resulting in higher talent requirements across the board. Most companies reacted to it by hiring ready to deploy, experienced talent.
In a way, they ‘bought’ experienced people at market salaries, which means they cut short the ‘time to bill’ but inherited other challenges like cultural fitment, wrong hires, and early attrition. They probably saved on training costs, but IT companies ended up coughing up substantial wage bills and operating profits, as their balance sheets indicate.
Hiring skilled talent from the competition will continue for a few more quarters until the hired freshers become ready as digital billable talent. It’s well acknowledged that hiring experienced talent on a large scale is not sustainable, unlike recruiting leadership roles from the market. However, for now, buying talent from the competition is in full swing.
Borrowing talent
One of the time-tested models worldwide has been to hire talent on lease for the peaks and troughs. Today, more than 4 lakh tech talent work as contractors through staffing companies and a couple more lakhs via service providers; they act as a valuable buffer for a ‘just-in-time’ workforce.
Though this provides speed to hire, questions around loyalty, tenure and costs keep creeping up. But try before you hire as a concept has been embraced by most IT enterprises as they understand staffing and have successfully sold staffing as a ‘borrow’ model to global enterprises and created a massive IT offshore model for the world.
With the gig model coming into play, organisations need to build freelancers into their workforce mix sooner than later.
The right combination
The pandemic, WFH, return to the office and increased job opportunities have already created enough friction between employees and employers.
Achieving the right Build-Buy-Borrow mix is a fine calibration that enterprises will need time to ace. Meanwhile, attrition and wage wars will keep HR and Legal teams busy concocting clauses. Statements of threat, with or without teeth, are after all a necessary part of our cultural ethos. Don't parents still call upon the bogeyman to put naughty kids to bed!
Aron Nimzowitsch, a Danish chess player, regarded as one of the best players in the 1920s, authored a book on chess theory, and wrote: "The threat is stronger than its execution." Perhaps that's what enterprises must be thinking when they insert anti-competition clauses.