After Infosys, US law catches up with Tata Consultancy Services

BANGALORE: A US court in California has granted class action status to a lawsuit against India's largest information technology services firm Tata Consultancy Services, which according to two former employees allegedly refused to return tax refunds besides not paying promised wages.

Those who worked at TCS between 2002 and 2005 are now eligible to be part of the class action suit against TCS, a case originally filed in 2006 by former employees Gopi Vedachalam and Kangana Beri.

If the class action eventually goes against TCS, it could have a negative impact on the firms' brand and reputation in the US market and its efforts to grow rapidly in that market contributing over half the revenues of the Mumbai-based outsourcing powerhouse that employs quarter of a million software engineers.

TCS , part of Tata Group that is identified in India with high levels of ethical standards, also deprived employees of earned wages and accurate wage statements, thereby violating California labour laws, according to a media statement by Lieff Cabraser Heimann & Bernstein, the law firm representing the employees.

TCS said that the latest court order is "only on one procedural matter and does not address the merits of this case." In an emailed statement, it added "When this matter concludes, the court will find that the plaintiff's claims are without any merit."

Investors, however, took a negative view, driving the company's shares down. In the sectoral index of IT stocks on Bombay Stock Exchange, TCS was the only one in negative territory with a fall of 1.04% compared to a 0.7% gain in the broader market. Shares of TCS closed at 1,178 on Tuesday.

According to Avendus Securities, TCS had 5,000 employees in the US in 2005 and chances are that a lot more will now join the lawsuit. "No near-term impact on earnings. However, if the ruling goes against TCS, damages claimed could have a financial impact," Avendus said in a note.

TCS' competitor Infosys too is witnessing its share of troubles in the US after an employee accused it of large-scale visa fraud.

According to the employee, the company has been sending executives on B1 visas to work on client locations, though the visa is meant only for business meetings and attending conferences. The employee has also accused the company of harassment when he filed a complaint with the company's whistleblower team.