Transfer of undertakings in India

Employees’ Rights in Case of a Transfer of Undertaking

There are specific provisions under ID Act, that protect ‘workmen’ in cases of transfer of business undertakings. These however do not extend to non-workmen; thus, in case of non-workmen, the terms of the employment contract and/or the internal policies of the company would have to be examined.

In terms of Section 25FF of the ID Act, where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, every workman who has been in continuous service with that undertaking for not less than 1 year, would be entitled to one month’s notice, or payment in lieu thereof, and to compensation calculated at the rate of 15 days’ wages for every completed year of service.

However, Section 25 FF of the ID Act, would not apply to workmen if:

• the service of the workmen has not been interrupted by such transfer;
• the terms and conditions of service applicable to the workmen after the transfer are not in any way less ‘favourable’ than those applicable to them immediately before the transfer; and
• the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the workmen, in the event of their retrenchment, compensation on the basis that their service has been continuous and has not been interrupted by the transfer.

Requirements for Predecessor and Successor Parties

The requirements mentioned above relate to the obligations of the old employer (i.e. one whose business undertaking is being transferred). However, if for instance, the services of the employee are not ‘interrupted’ on account of the transfer or alternatively, the employees resign and join the new employer, then the successor entity would have to ensure that the salary and benefits that the employees were entitled to under the old employer (such as provident fund, employee state insurance, gratuity) will continue to be paid. Specifically, the liability of the successor entity will apply, where the predecessor has defaulted in remitting provident fund and state insurance contributions, prior to the date of the transfer of the undertaking.