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Employee Rights When an Undertaking is Transferred in India

The ID Act, mainly determines transfer of undertakings in India. The workmen are protected in the event of the business transfers but non-workmen cannot have the same remedy where the undertaking of a business or business in itself is getting transferred.

1. Employees’ Rights

Under the section 25FF ID Act, compensation has to be paid to workmen in case of transfer of undertakings. The transfer of undertaking can either be by an agreement or by operation of law between the old employers and the new employers and in either case, every workman who has been in continuous service for not less than 1 (one) year in that undertaking immediately before such transfer, shall be entitled to notice and compensation in accordance with the provisions of the ID Act, as if the workman had been retrenched.

2. Requirements for Predecessor and Successor Parties

When the services of an employee are “interrupted” due to transfer of an undertaking, notice and compensation by the old employer has to be provided to the employee, since this condition qualifies to be a retrenchment. However, in case of “uninterrupted” services of the employee during the transfer of undertaking, if the conditions of the provisos are met, the liabilities of salary and post-retirement benefits which the employees were earlier entitled to under the employment of the old employer, are transferred in favour of the new employer.

The Supreme Court has held that payment of compensation on the transfer of an undertaking will not be applicable where employment has not been interrupted, if the terms and conditions of service are as favorable as they were before such transfer, and the acquirer is committed to pay the employees their dues as if their employment had been constant and uninterrupted by the transfer.

Given the above, the Company has to give notice and pay adequate compensation if the employment of the employees of the department is interrupted while transfer of undertaking.

The successive employer shall have to bear the liabilities of salary and post-retirement benefits which the employees of the company were earlier entitled to when the employment of the employees of departments are “uninterrupted”.

For more information on these articles or any other issues involving labour and employment matters in India, please contact Avik Biswas, Partner at IndusLaw (www.induslaw.com) at avik.biswas@induslaw.com
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