The Statutory Framework
Section 25FF of the Industrial Disputes Act, 1947 provides that where the ownership or management of an undertaking is transferred, every workman who has been in continuous service for not less than one year immediately before the transfer is entitled to notice and compensation under Section 25F, unless the transfer satisfies three conditions: the service of the workman has not been interrupted by the transfer; the terms and conditions of service after the transfer are not less favourable than before; and the transferee employer recognises the period of the workman’s service with the transferor for the purpose of tenure-linked benefits.
The Continuity Option
If the three conditions are satisfied, the workman is not entitled to compensation, and the service continues with the transferee. The scheme should expressly provide for continuity of service, no less favourable terms, and the recognition of prior service for tenure-linked benefits. The transferee company should confirm its ability to honour these conditions before the scheme is sanctioned.
The Compensation Option
If the conditions are not satisfied, the workman is entitled to compensation as if he were retrenched under Section 25F. The scheme should provide for the payment of compensation, and the transferee should ensure that the transferor has the funds to pay it. A scheme that neither provides for continuity nor for compensation is vulnerable to an industrial dispute.
The Non-Workman Employees
Section 25FF applies to “workmen.” Non-workman employees—those in supervisory or managerial roles—are governed by their contracts of employment, and their transfer requires their consent. The scheme should address the treatment of non-workman employees separately, and the transferee should obtain their consent to the transfer.
The Practical Documentation
The scheme should include an employee-continuity clause, a list of employees as on the effective date, and the terms of transfer. The transferee should obtain the employees’ acknowledgements and should update the provident fund and gratuity records. A scheme that is silent on employee terms is likely to attract objections from trade unions and delays in the NCLT process.
Call to Action: For Section 25FF compliance, employee continuity documentation, or scheme employment strategy, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.