Dinesh Divekar
Business Mentor, Consultant And Trainer
Partner - Risk Management
+3 Others

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"Our organisation" have acquired by other organisation And we hear that "new organisation wants to reduce our compensation" (Salaries) by 5 to 20 % of our current," is this possible legally ?",or these all are only gossips."
Dear Heera Singh,

After acquiring some company, organisation restructuring is common. In the course of restructuring, salary rationalisation or removal of employees is also common. Nevertheless, salary reduction across the board is unheard of.

You could have given little more information like the nature of your industry, main reason for the acquisition. Whatever be the reason for acquisition, businesses are driven by people. By reducing the salary, people get demotivated and hardly any company can run the business with the demotivated employees. Therefore, worry on this count could be unfounded.

Your post is suggestive of the failure of communication from the HR of the acquiring company. After acquisitions, a fear of uncertainty always lurks in the minds of the employees of the acquired company. At this stage HR has got big role in dispelling these fears. Has HR done something on this count in your company?


Dinesh Divekar

Dear Heera

While acquisition, acquiring company is stronger and powerful to buy/acquire the other business Unit/company/organization. It’s very common that

We have seen many mergers and acquisition of big companies, where due diligence is done as first step,

Nowhere in the labour law written that company need to give increment every year, or company cannot reduce salary. (As far as company is giving more than minimum wages and on time and paying all statutory dues and compiling on all other legal compliance is fine from the labour law point of view), hence reduction in salary or some allowances is normal (This is done only when the business is not sustainable with the current cost)

Normally BTA (Business Transfer Agreement) is signed between the both the parties in the acquisition, where clause is always mention that “No Less Benefit” which currently offered to employees. (This clause is mainly mentioned when one profitable unit is being acquired). New company may change few policies as per their standards or group norms.

Manpower reduction is very common because, set of people becomes duplicate roles (especially for support functions), where rationalization is must is commonly understood, where cost is reduced for synergy of both the businesses. Finally people are running business and not the machines, so definitely management cares for performers and those who are assets for the company.

HR Department

BrainLight HR Solutions

In case your company's salary is in general, higher than industry standards, it is possible that the new company will want to reduce the salary levels. More so, if the salary it is paying for similar function and experience is lower. Considering that your company is being acquired (and not merged), it is possible that the new management is going to dictate the terms.

In most cases, unlike what BrightLight says, the sellers do not care about what happens to the employees after they have sold. So it is not necessary that “No Less Benefit” will be in the agreement. However, till you know the details, these are all gossip. For all you know, they may be acquiring the company because its manpower and its efficiency. In that case, they will definitely not be looking for reduction of salary.

While the labour laws do not prevent lowering the salary as such, an across the board reduction, or even selective reduction would come under the concept of "Changing Terms of Employment" and therefore can for an "Industrial Dispute" under the Industrial Dispute Act. The salary levels can not be changed without the consent of the concerned employees.

You need to access where you stand.

1. Why is the company being acquired (loss making, highly profitable, special skillsets, knowledgebase, customers)

2. What is the nature and structure of the company acquiring your employer.

3. What is your function, how important are you to the business and its success

4. Do you have any special skillsets due to which they can or will want to retain you ?

5. Is the new company a brand name that will help you and make your CV stronger in future ?

6. Is it easy to get a new job in your segment ? At the same salary levels ?

Based on the analysis of these, you need to decide whether to stay on or leave. You can make the decision even before the sale takes place. Or you can do it later once you see what your management is doing. Make a rational decision. Do not react to idle rumours.

Since no communication seems to have been made and no acceptance from employees has been obtained it must not be possible to reduce the earned wages....
Apparently it is acquisition with stock,flock,and barrel ...and change in service conditions might not be possible...
All employees may unite....form union/Works Committe and affiliate with trade unions and defend their interest....

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