Impact on biz sentiment depends on scale of class action suit

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The Financial Express

By

NS Rajan
Partner & Global Leader - People & Organization, EY

Former employees of Tata Consultancy Services, India’s largest software company by sales, received permission from a US court on Wednesday to go ahead with a class action suit against the technology giant for alleged wage disputes. TCS’ rival Infosys Technologies is also facing a class action suit in the US. Increasing cases of class action suits against Indian firms has led to a growing concern among companies that employ outside India. NS Rajan, partner and global leader - people and organisation at consulting and audit firm EY, tells FE’s Shruti Ambavat that increasing stringent state labour laws and their enforcement has led to a rise in litigations. Excerpts: 

Why do we see a rise in class action suits worldwide against Indian IT firms? 
Increase in global mobility has led to greater movement of national employees to foreign soil. Today, large Indian IT organisations have full-fledged operations in the US with significant employee population. Moreover, the model of companies trying to maintain their competitive advantage of cost arbitrage forces them to keep tight control on costs. Also, stringent state labour laws and their enforcement may perhaps be increasing the litigative nature amongst Indian employees overseas about their rights and privileges. Complex and complicated guidelines and policies around expatriate taxations further add to the differences.

What are the possible overall implications? 
My belief is that large Indian IT organisations are already fairly conversant with the law. Given the complications and complexities involved, robust governance mechanisms around the issues of salaries, visas and tax mechanisms and adhering to the guidelines laid by foreign state labour law departments is an absolute essential. Taking advisory services from global consultants will further mitigate these problems and ensure adherence. Grievance redressal mechanisms could also help issues from going out of hand.

Does business sentiment of the firm get hurt in the respective region? 
Organisations face class action suits on a regular basis be it in the form of employee activism, shareholder activism or environmental activism. Impact on the business sentiment is proportional to the magnitude of the class action suit and the scale of the issue. How well an organisation addresses these issues and the governance mechanisms they put in place will provide an adequate safeguard.

Brand equity could be another casualty in such cases. Your view? 
Any litigation, especially when it is not frivolous, has a bearing on the employer brand and some adverse impact is a natural outcome. Such suits do impact the brand equity of the companies not only on foreign soil, but in their native country as well. Each country and the respective states have their own set of laws and it is vital for global corporations to be extra vigilant.

It is critical to retain talent in software companies. Do these litigations affect employee morale? 
Employee engagement refers to commitment and the drive to go beyond the call of duty to work for organisational goals. Conflicts of any kind do have an adverse impact, if not addressed at the root cause. Reputation is not created by good intent alone. It would be necessary for organisations to manage the problem on hand, and ensure that an open and transparent mechanism is in place.