TCS – Outsourcing Giant in Crisis

TCS – Outsourcing Giant in Crisis

How is it that TCS have let themselves become the subject of a class action lawsuit for allegedly unfairly pocketing their employees US tax refunds? For a highly successful company with a couple of billion dollars in free cash reserves, Monday’s US court ruling allowing the action to take place destroys at one fell swoop a decade of reputation and client goodwill must surely evaporate.

The plaintiffs’ lawyers, Lieff Cabraser Heimann & Bernstein, accuse TCS of forcing its Indian employees to sign over their US tax refunds, as well as not paying its employees various sums it promised them before they arrived in the United States. Just before you go thinking that it’s only a few people, this action affords “More than ten thousand current and former Indian nationals … their day in court,” said Kelly Dermody, co-lead class counsel.

TCS has yet to comment officially.

This action is pretty unprecedented in Indian culture, which normally enjoys a very old fashioned hierarchical structure where management largely goes unquestioned and employees know their place, and stay there. This tradition may be at the heart of why TCS believed that it had a legal right to employees tax rebates and that was an end to it. However, European and American clients are unlikely to express any emotion except that of moral outrage at the short-sightedness of TCS management and executives. The rights or wrongs of signing away your rights in these particular circumstances seems abhorrent to most fair minded people.

Contracted IT services or Outsourcing is, and remains, a people industry. Clients have choices and it is a very competitive market. If TCS does not rapidly settle the case with its employees (and ex-employees) the firm will suffer, and worse, if it loses the case its reputation will be tarnished and future business prospects will suffer for years to come. Last but not least the impact on TCS’ ability to attract the best Indian university graduates may be impaired for years.

This is a defining moment for the offshore industry. Tax rebates today, unions tomorrow.

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One Response to TCS – Outsourcing Giant in Crisis

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