INDUSTRIAL DISPUTE ACT, 1947
Corporate expansion through a various modes transactions like, mergers, acquisitions, slump sale has become the most popular means of restructuring and acquiring corporate assets including the human resources and intellectual property. Other than the commercial aspects of any transaction, what play the next big role is the human resources and employment related consequences of such transaction. Many deals fail to execute just because of dispute regarding employees.
- Act was enacted to make provisions for investigation and settlement of industrial disputes and for providing certain safeguards to the workers.
- To provide a machinery for peaceful resolution of disputes and to promote harmonious relation between employers and workers.
- "Industrial dispute" means any dispute or difference between employers and employers or between employers and workmen, or between workmen and workmen, which is connected with the employment or non-employment or the terms of employment or with the conditions of labour, of any person;
- "Retrenchment” means the termination by the employer of the service of a workman for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action, but does not include
- voluntary retirement of the workman; or
- Retirement of the workman on reaching the age of superannuation if the contract of employment between the employer and the workman concerned contains a stipulation in that behalf; or
- Termination of the service of a workman on the ground of continued ill-health.
- "Workman" means any person (including an apprentice)employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person--
- Who is employed mainly in a managerial or administrative capacity; or
- Who, being employed in a supervisory capacity, draws wages exceeding ten thousand rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.
When we talk about Demerger (under section 230-231 of the Companies Act, 2013) under Industrial Dispute Act, there are three parties involved in a transaction i.e.,
- Demerged Company (Seller Company)
- Resulting Company (Buyer Company)
- Employees of Demerged Company which will get transferred in course of Demerger
Let us discuss about regulation parties have to comply with while going for any Demerger.
Compensation to Workman at the time of Transfer of Undertaking
Section 25FF of the Industrial Disputes Act, 1947 provides that: “Where the ownership or management of an undertaking is transferred, whether by agreement or by operation of law, from the employer in relation to that undertaking to a new employer, every workman who has been in continuous service for minimum one year in that undertaking immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 25F, as if the workman had been retrenched.
When there is change in employers due to transfer of ownership or management of the undertaking, the notice and compensation is not required to be given to workman if:
- Their services are not getting interrupted due to the transfer
- Terms and conditions of their services are not less favourable after the transfer
- The new employer after the Transfer is also legally liable to pay retrenchment compensation to the workman for the entire period of his pre and post transfer employment.
However, as regards for retrenchment compensation, the position has changed from Sunil Kr. Ghosh vs. K. Ram Chandran (SC) case decided in November 2011, when there was a transfer of ownership or management of an industrial undertaking on a going concern basis during Demerger, though there was no variation in the terms of employment of the workmen as part of the transaction, it is necessary obtain consent of workmen or to pay retrenchment compensation to any workman who did not wish to continue working under the new management.
Section 25F of the Act provides for the amount of retrenchment compensation to be paid at the time of retrenchment.
The compensation should be equivalent to fifteen days’ average pay of the workman for every completed year of continuous service or any part thereof in excess of six months. This should be in addition to one month’s notice or wages for the period of notice.
Continuity of Service
The continuity of employment provisions provides that a person’s length of employment with the Seller of a business is attributed, or “flows through” to the purchaser of the business. This means that an employee’s entitlements to rights that are based on length of employment are unchanged, despite the sale of the business or the change in management.
When a person’s length of employment is attributed to a new employer, the new employer has to recognize the time the person worked for the previous employer. This “earned” time must be credited toward any rights the employee has that are based on his or her length of employment.