Employment Status in Reorganisation Transactions: A Comprehensive Guide for Businesses

In today's fast-evolving business landscape, companies are increasingly undergoing reorganisations that can have significant implications on the employment status of their workforce. To avoid potential pitfalls and ensure compliance with applicable labour laws, businesses must take a careful and meticulous approach to addressing the employment status of employees affected by such transactions.

Section 25FF of the Industrial Disputes Act (ID act) offers specific protection to workmen employees whose employment may be terminated or transferred as a result of an ownership change. This provision provides compensation to workmen with at least one year of continuous service, including termination of notice period and payment in lieu, subject to certain exceptions.

However, the Supreme Court's ruling in Sunil Kr Ghosh and Ors v K Ram Chandran has clarified that employees cannot be compelled to join a new employer without their specific consent. This highlights the importance of ensuring prior consent documentation from affected employees for reorganisation transactions.

For non-workmen employees, state-specific Shops and Establishments Acts impose comparable obligations to those under the ID act, requiring retrenchment compensation in cases of change in employer. Exceptions similar to those available under the ID act also apply to the shops acts, including uninterrupted service, favourable terms, and continuity of benefits.

When considering reorganisation transactions, employers are advised to:

• Consult with labour authorities and legal experts familiar with applicable laws
• Ensure prior consent documentation from affected employees for workmen and non-workmen employees alike
• Explore alternative separation strategies such as robust settlement agreements
• Provide due notice or seek prior consent from labour authorities in cases of business closure
• Pay out statutory benefits, including provident fund, gratuity, and leave encashment
• Extend continued service benefits at par or on better terms than those provided during employment

As experts note, "it's crucial for companies to adopt a holistic approach when addressing reorganisation transactions that impact the employment status of their workforce." By doing so, businesses can mitigate potential risks, ensure compliance with labour laws, and maintain positive relationships with employees.