Employee Matters during M&A in India

Employee Matters during M&A in India

Management Representation and/or Consultation in relation to Corporate Transactions

Q1) Whether the company is required to obtain consent from its employee before amalgamation or merger?

Employees are not entitled to management representation. However, as the amalgamation/merger is required to be approved by the court, the court may look into the employees’ interest while approving amalgamation/merger. Further, labour legislations also provide that in case of transfer of ownership or management of any undertaking, the workmen of such transferred undertaking shall be entitled to retrenchment compensation, if their services are being terminated. Alternatively, they are entitled for no less beneficial terms and conditions of employment. Workman is entitled to compensation in case of redundancies.  

Individual Employment Contracts – Termination Regulation

Q2) What are the provisions under labour laws with respect to termination of an employee?

If the person whose services are being terminated is a “workman” who has been in more than 1 year of continuous employment, then his services can only be terminated in accordance with the provisions of Industrial Disputes Act, 1947, by giving him appropriate compensation and notice as provided under the Act. Further, if the undertaking whose workman is being retrenched has more than 100 workmen in employment, it will also have to obtain prior permission of the appropriate authority before retrenching any workman. Further, if the employee is covered by the provisions of Shops & Establishment Act, which is enacted by each State in India, the employee’s services can be terminated by giving him such notice as is provided under the provisions of Shops & Establishment Act of the concerned State in which the undertaking is situated. In certain States the employees working in managerial or administrative capacity are excluded from the applicability of this legislation. In case an employee is not covered by the aforementioned legislations, which is generally true for managerial and administrative employees, such employees are governed only by the terms of their employment contract and their services can be terminated in accordance with the terms & conditions of their employment contract. There is no labour legislation governing such employees and such contracts are governed by the provisions of Indian Contract Act, 1872.

Redundancies/Layoffs Regulation

Q3) What are the legislations that govern retrenchment of an employee?

The retrenchment of a “workman” is governed by the Industrial Disputes Act, 1947. The retrenched (redundant) workmen are entitled to compensation as per the provisions of the Act.

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