Infosys Technologies Limited is considered a paragon of virtue among Indian businesses.

That of course is fiction.

You don’t believe us?

Go look at Infosys’ IPO documents dating back to the early 1990s. What did Infosys tell you they were raising money for in the IPO prospectus? Did the company do as promised in the immediate aftermath of the IPO?

Recently, troubling questions have been raised once again about this media darling.

This time, the issue is Infosys’ recent settlement with the California Division of Labor Standards Enforcement (DLSE) towards possible overtime payment to certain employees in California for a total amount of $26 million.

The payment pertains to the last three years and such back wages are to be paid to employees in due course.

Infosys announced the California Overtime settlement as part of its Q3 2007-2008 results.

The Infosys settlement document provided to us by some folks in California is your usual legal gobbledegook.

To put it in plain English, Infosys is saying it may have inadvertently broken some California or federal laws and is trying to cover its ass in the litigious U.S. business environment.

Were laws broken by Infosys? If laws were broken, was it inadvertent? Why did Infosys act the way it did?

Only a full trial and subpoena of documents can answer these questions. And that is what Infosys hopes to avoid with this $26 million settlement.

After all, as any student of U.S. law knows, trials are too unpredictable. Safer to settle than face the uncertainty and distraction of a lawsuit.

In the settlement, Infosys acknowledges that it could potentially be liable for misclassification of employees under state or federal laws (p.1).

Here are some of the rules or laws Infosys may have violated:

1. Failure to provide overtime as required by law
2. Failure to provide and/or require meal breaks or days of rest as required by law
3. Failure to provide and/or require a paid 10 minute break as required by law
4. Failure to make premium payments for missed meal and rest period as required by law
5. Failure to pay all final wages due and owing in accordance with state or federal law
6. Failure to make timely wage payments, provide accurate itemized wage statements and to keep accurate information relative to each Affected Employee within California as prescribed by state and federal law
7. Any and all civil and/or statutory penalties including the failure to pay such penalties, applicable under state and/or federal law

In our view, these are serious violations of the law and if Infosys has violated any of the above points, they are getting off easily and on the cheap by paying just $26 million.

Even if Infosys has commited these violations, does it mean that Infosys is not a great Indian success story?

Of course, Infosys is one of those rare inspiring Indian stories. And Narayana Murthy, Nandan Nilekani et al deserve all the kudos, particularly for being among the first Indian companies to hand out stock options to employees in the mid-1990s (See story on Infosys stock option launch by George Albert et al in Business Standard circa 1994).

So let’s put things in perspective and not go overboard in praising Infosys fulsomely (as is often done) nor tar them very harshly if they have engaged in deceptive conduct in the California instance (as some may be tempted to do now).

We have watched Infosys and several of its founders for nearly two decades. On balance, we can say Infosys has done more good than harm to its three core constituencies – employees, shareholders and customers.

Coming back to the settlement, our sources in California tell us that the total number of employees impacted by the Infosys settlement is 2,295.

Here is what Infosys will end up paying:

1. Back wages to the Affected Employees  –  $18.25 million
2. Meal and rest period premiums  –  $3 million
3. Waiting time penalties –  $1 million
4. Civil penalties to the DLSE  – $1.5 million

And the checks should start going out to current and former Infosys employees (employed in California from Oct 1, 2004 to December 19, 2007) on January 25, 2008.

Before we finish, we would like to tell you three things:

1. Infosys believes it has complied with California law and has admitted to no wrongdoing.
2. The lily-livered poltroons at the California Division of Labor Standards Enforcement have not conducted a thorough investigation in this matter in our opinion.
3. Infosys has also imposed restrictions on the California Division of Labor Standards Enforcement in discussing this settlement.

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  Infosys