Non-compete clauses are no walkover
Premium- Many believe that non-compete agreements limit mobility and opportunities and companies use them to bully employees. A few even believe that these restrictive clauses are often used indiscriminately.
Employees in India don’t give much consideration to non-compete clauses when it comes to switching jobs. This is because legal experts argue that such provisions are not enforceable.
But it’s time both companies and people should seriously weigh on employment contracts the next time they are looking to join an American firm.
The thirty-third edition of Twich+ brings to light an episode that has not been reported yet but serves as a salutary reminder of the pitfalls of such conditions that limit a worker’s right to work after quitting a firm and how this almost created an embarrassment for a homegrown technology services firm.
In March last year, Accenture Plc. brought before a court in New York to carry out a non-compete agreement with its former executive, Stephanie Neal Trautman, according to a court filing reviewed by your writer. The employment agreement of Trautman barred her from working with Accenture’s rivals for a year. But less than a month after Trautman quit Accenture on 10 February, she started work as chief growth officer at Wipro Ltd on 2 March.
Trautman agreed that she would give an “advance notice" to Accenture if she joins Wipro, according to a separate court filing. But Trautman, who joined Accenture in November 2013, did not keep her word, and Accenture learned about the ex-employee starting with Wipro only after she updated her LinkedIn profile and the subsequent press statement by the country’s fourth-largest IT services firm.
Wipro has been in discussions with Trautman since August 2020, according to Accenture’s forensic investigation of the former employee’s laptop.
“As a senior sales leader at Accenture, Trautman had access to and intimate knowledge of Accenture’s sales strategies, prices, margins, and pipeline," said Accenture in its complaint. “She now intends to work for a direct and significant competitor as the head of sales, in a position directly recruited by and reporting to the competitor’s CEO, Thierry Delaporte, and board chairman, Rishad Premji, where she will be part of creating the competitor’s global strategy. In that senior global role, she will be able to take the knowledge and skills she obtained at Accenture, including over the last 18 months, and apply the Accenture playbook across the entire Wipro client base. That is precisely what Accenture’s non-compete agreement was designed to prevent—and appropriately so—to protect Accenture’s competitive position, its confidential information, and its client goodwill."
Accenture was also peeved that Wipro, through an unnamed executive search firm, solicited the interest of “many of its employees".
“Thus, in the midst of its dispute over Trautman’s non-compete with Accenture and despite Trautman’s contractual obligation to refrain from soliciting, or assisting any other party from soliciting, certain Accenture employees, Wipro sought to recruit Accenture employees to join Trautman in her effort to compete against Accenture, specifically invoking the “growth" role for which Wipro hired Trautman," according to court filings.
Trautman denied any wrongdoing even as both sides continued wrangling for five months. It appears both parties arrived at a settlement, which according to an executive, was reached after a few months of discussions.
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Your writer cannot independently verify if, indeed, peace has been brokered (Wipro will not comment). But this incident raises several points.
Accenture’s decision to file a lawsuit was a surprise. This is because, in the last two decades of the outsourcing industry, there has been hardly any such case involving a homegrown technology services firm. People shuffle between rival firms. When former SAP board member Vishal Sikka took over as the CEO of Infosys Ltd, 16 executives from the German firm joined the Bengaluru-based firm at the rank of vice president and above.
SAP expressed its unhappiness, but the company did not knock on the doors of any court.
Significantly, this chapter, undeniably, puts Wipro’s HR team in an embarrassing position, reckons a senior partner at a global executive search firm. Simply because Wipro, which has a presence across the globe, should have been mindful of hiring a senior executive, especially as the contract spelt out the non-compete clause and such things are fraught with risks.
Accenture argues that Trautman, who was the head of sales at the financial services group in the US, had information about the strategy of the firm’s largest clients. Additionally, as Trautman also was part of Accenture’s Global Leadership Council, she was privy to “strategy and business plan for the next several years."
“The Chief Growth Officer position at Wipro is a global leadership role, and the decisions Trautman makes in that role—decisions that will involve her knowledge of competitive information, including Accenture’s plans, pricing, and strategy—will impact the entire Wipro organization on a global scale," said Accenture in the court.
There is merit in Accenture’s argument. It is for this reason companies have non-compete agreements that limit former employees from walking out of the door with valuable know-how.
Still, many believe that non-compete agreements limit mobility and opportunities and companies use them to bully employees. A few even believe that these restrictive clauses are often used indiscriminately.
So how can a company and an employee get out of this pickle?
One simple answer is that a prospective employer should pay extra to compensate employees for signing away some of their rights.
Bottom-line: Non-competes indeed benefit companies by making it easier (and cheaper) for them to retain staff. But this comes at the expense of others to fish in the limited talent pool.
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