Class action lawsuit against TCS

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
California.

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
this?

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.

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15 Responses to Class action lawsuit against TCS

  1. Geeta says:

    “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.”
    Now this is a strange argument. I’m sure TCS will grab it so it can put this across while answering the class action suit in court. If
    TCS’s heart is bleeding for the employees, all they had to do was inform the employees that TCS was going out of its way to keep their pay packets fat. Sort of neglected to do that, didn’t they? How come they didn’t take the employees into confidence? Or is it that the employees wouldn’t believe the company? Grabbing the refund to give employees the promised post-tax income is like an uncle telling a child, “Beta, I’ll keep your chocolates for you. See, if you don’t give it to me, someone evil will take it away.”

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  2. ben says:

    All I can do is just laugh at the the usage ‘noble intentions’. If the author of this blog wrote this because of ignorance, maybe he should try talking to alteast one of the 1000s of TCS employees who were earning the fruits of the ‘noble’ intentions of their employer. One bit of information I can give out here is that, its not in just getting the refunds back where TCS does fraud. There is an deduction element called Indian salary in the TCS pay slip which projects a false figure which I guess the US govt would never bother about. The ‘noble’ intention behind that is to adjust the pay amount to what they call monthly allowance.

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  3. ila says:

    i’m amazed at the comments. want to bet the same employees now carping would have been ready to sell their souls to come to US ? they are the worst ambassadors of india and give all indians a bad name by walking out of their assignments for a few $$ more when they’ve got their green cards and such ….
    Apropos
    “Or is it that the employees wouldn’t believe the company?

    What prevented these guys from refusing their US assignments if they felt TCS was defrauding them ?

    At the end of the day, every one of them is a highly educated adult who should be bright enough to read contract fine prints before signing them.

    And if anyone thinks the attrition rates among Indian IT Companies are a good thing, think again guys – you are pricing yourself and your company out of the market and there are enough bright young russians and irish to take your place.

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  4. Indian says:

    Ila, At the end of day it is business. Do you think the engineers at these firms have the luxury of sitting at the negotiating table with their employers? Working in US, or more specifically, for US salary is summum bonum for many of these engineers. It is the right kind of money that they should be making. When client is ready to pay 48$,what right do these companies have to take a major cut out of it? And let there be competition from “bright and young” from Ireland, or Mainland. Indians can face it.

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  5. ila says:

    Indian, the companies have the right of “risk”. There is a capital risk to start with and over time, labour risk gets added.
    The client doesnt pay $$$ for an individual, he pays it to TCS for the risk TCS is taking in providing a capable individual , replacing that person if s/he quits, doing the job right and bringing in the other tangibles and intangibles that separates an organisation from an individual.
    And if that difference were not there, why would any organisation exist per se ?
    Codes of Governance exist to ensure that the org. and the ind. respect each other but at the end of the day ” caveat emptor ” -let the buyer (in this case the employee) beware.

    As for the Irish or anyother, I for one am a bit concerned as I notice the increasing number of non-Indians in Indian IT cos. in India.

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  6. Indian says:

    Ila, I agree with you regarding the risk factor. Certainly as a free lance programmer cannot command the same price. But tell me which industry on the face of this earth doesn’t face risk? Risk is inherent in any business. This cannot be an excuse for companies to take huge cuts and I still maintain my stand on this. If you happen to visit any IT company in India on saturday or sunday, you will find people working – albeit unpaid. Each day an Indian IT worker puts around 10 hrs without any complaints.
    And Indian offshore majors want to have diversity in their workforce. This is the reason why you find chinese and european work force in Indian companies, and not because these people bring home any advantage, except may be to soothe political nerves in european or American markets. Many of them, atleast in the company that I work for, come to India for training, do the same work their Indian colleagues do, but surprisingly take american pay in India. Feel free to email me if you want to discuss further.
    programmer_indian@yahoo.com

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  7. ben says:

    First of all, i dont think TCS is doing a favor to anyone bringing them to US earning atleast 50$ and paying them less than 15$. Even if it was a favor it is no reason to cheat them out of the money which righteously belong to them. All the IT companies (including Infosys which is a major offshore player) also does bear the various ‘risks’ mentioned..but they dont make it an excuse for fraud. When TCS does fixed budget projects most of the employees are in India (because of the Rupee versus dollar advantage) and these employees work for 10-12 hrs with out any additional pay. They dont complain because they dont realise they are getting exploited. The explanation which I have seen everyone give for this unpaid overtime is kinda funny.. a government employee makes 10 times less than what an IT employee makes. So an IT employee definitely ought to work all these extra hours for free. well.. thats a whole different story.. my point is the that, most of the TCS employees who are in US are directly billed by the client companies on a hourly basis. Thats why I dont agree with ‘The client doesnt pay $$$ for an individual, he pays it to TCS’ .. the client does pay the individual like they pay any second rate Indian consultancy in US. But when the consultancy company grows bigger and bigger, they tend to invent new levels of exploitation. When it crosses all limits, definitely someone raises a voice..

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  8. ila says:

    Ben, I didnt plan to react anymore to this post and this is for sure my last comment on the subject .

    a. “They dont complain because they dont realise they are getting exploited”

    Huh ? Are the IT engrs of TCS akin to the tribals of Jhabua who are so cut off from the mainstream they arent aware of their “rights” ?

    b.”the client does pay the individual “.

    I doubt you’d find too many clients willing to risk hiring a freelancer and a foreign one at that.

    And while we are on the subject of exploitation , care to think about the Indians working in the Gulf ?

    Seeing the world in black and white means losing out on the shades of grey.

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  9. Anadi says:

    Biggest fraud that I see all the Indian IT companies do is projecting the extra revenue, earned by employees working 12-14 hours while getting paid for 8 or 8.5 hours, as the proit margin.

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  10. Annonymous says:

    what has happened …there is info anywhere about this case.
    Is this case closed? Coporates Win?

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  11. M. Barrett says:

    I was on the TCS management call when the new head of N America told everyone this lawsuit must go away or people’s jobs will be in jeapordy. So it just fizzled away. I think that was an illegal statement to make which gives further proof that some of the brilliant Indian executives who come here to run big organizations don’t have a clue how to operate in the US. The class action lawsuit was another bi-product of being stupid. If the intentions were good as the writer of this blog stated then they were stupid. But at least that is better than being malicious.

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  12. ex TCS says:

    well.. I too would like to find out. According to the same contract TCS made us sign when we came to US, I went back to India to leave TCS, paid the money stated by contract and thought they would leave me alone. Looks like the Accounts staff thinks they want to make more money out of me.. (Since I was the honest one).. and are not even ready to give my experience certificate to me without additional $1000. I mean,Is this how the largest S/W company of India conducts itself ? sucking money off its employees and even Ex-Employees ? Isn’t it the duty of a company to provide Experience letters to people leaving ? Would someone tell me what noble intentions lie behind this ??

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  13. TCS employee says:

    I am in TCS and the alligation is very TRUE. TCS makes the employes sign the contract, that clearly says that you can not leave TCS in USA else have to pay the company huge amount of money. The contract and other US paper work shows the gross salary of 48000$/annum. But The Tax returns on this salary is consumed by TCS. If an emplyoeer agrees to pay you some Gross salary, the employees are paying tax on it then they are the one to getting the returns also, not the company.
    I do not concur with the author, what is noble in it….

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  14. UK TCSer says:

    Hi All,
    A worthy enough discussion !!
    I am in UK and I feel that the Indian companies give a better breakup of the salary in India than they provide on-site.
    In UK they term it as the “Allowance” and not the salary !!
    God knows what happens with the IT returns since we dont do anything with the returns filing.
    Heard that Infosys, returns the tax paid per employee in UK, when the employee returns to India which amounts to about 300£ per month ( a big amount !! ).
    Dont understand why the companies tend to hide this information from people who make the face of this company in front of the world !!!

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  15. Firoz says:

    The TCS ex-employees that are part of this lawsuit have had a minor victory last month – read this for more details –
    http://www.lieffcabraser.com/press_releases/20070314-lawsuit-against-tata-press.htm

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