Last week was a pretty interesting week for the business of global business
– our focus in this blog. Google, Microsoft, Yahoo and Cisco were raked over
the coals in a congressional hearing for aiding censorship in China. More on
this later. First let’s look at the class action lawsuit against TCS in
An Indian employee of TCS America sued TCS for ‘unjustly
enriching itself by requiring all of its employees in the U.S. who are not U.S.
citizens to endorse and sign over their federal and state tax refund checks to
Tata’. The law firm involved, Lieff Cabraser is a well-known plaintiff’s law
firm that pursues class-action lawsuits and has quite a track record doing it.
It regularly features on the National Law Journal’s ‘Plaintiffs’ Hot List’.
A law firm specializing in class-action lawsuits takes no
upfront fees from its clients (the plaintiffs – in this case the TCS
employees). It works for a cut of the settlement that the plaintiffs get. Since
they are dealing with individuals, they could get as high as 30% of the
settlement. Since this is an all or nothing game, the law firm will be very
careful in picking their lawsuits – the target should have deep pockets and
there should be a reasonably good chance of winning the case. Once they sink
their teeth into something they are very hard to shake loose. All of this is
bad news for TCS.
The news on the lawsuit has few details. It seems like TCS
had contracts with Indian employees working in the US that allowed TCS to take
the tax refunds from the IRS (US tax authorities) back from the employees. To
the American public this will sound totally egregious. So why would TCS do
My guess is that TCS had good intentions. They probably
wanted to guarantee a certain post-tax income to their Indian employees in the
US. The amount of tax one pays in the US can vary widely depending upon not
just your monthly income but also the duration of your stay (if it is less than
a year), which state you are resident in and dozens of other federal and state
tax rules. The employee’s tax can vary widely depending upon which client they
are assigned to and the duration of their engagement. So (TCS perhaps thought)
why not relieve the employee from worrying about all this? Why not guarantee a
post tax income to every employee? To do that TCS would have to be able to take
employee tax refunds back from employees if the refunds pushed the employee’s
income including the refund over the promised post-tax income.
Noble intentions, but they seem to have had unintended
consequences. I hope TCS resolves the matter quickly and satisfactorily. PR is
a major weapon for trial lawyers. If this thing goes all the way, they will
drag the Tata name through the American press. There will be collateral damage
to everyone in the Indian offshore industry. I hope it doesn’t come to that.