Navigating Employee Transfers: Do We Need to Terminate Contracts When Moving to a New Company?

Dear Seniors,

We have a few employees on our payroll. We have a company named X, and we have recently opened another company named Y. These employees have been transferred from the payroll of X to the Y company. It is important to note that both companies operate in different business lines and have distinct identities.

My question is, should we terminate their contracts with company X before issuing them new contracts with company Y? What reasons should be specified for this change? Are there any legal implications we should be aware of? Additionally, according to our current contracts, we are required to provide a notice period.

Kindly advise.

Hi,

The notice period is a requirement in the case of contract termination. However, if discontinuing the contract is a mutual decision, then both parties may sign a release letter. Subsequently, you may create a new contract within the framework of company Y.

In addition to Shefali, the contractor has to cancel his license from the Government Labour Office from which the contract license was issued. The certification of the contract cancellation has to be submitted to the organization.

Here you need to let us know more info on this. Is this change because of Merger/acquisition/consolidation? If yes, they only need to give the transfer letter saying that now you will be known as an employee of Y co, and all your terms and conditions of employment will remain unchanged. You cannot move employees from one company to another until they agree to the terms and conditions of the new company.

This is not because of merger/acquisition/consortium. The company is into different business lines. Now they have separated their business lines and formed a different company. Here, the condition is we cannot show that this is a sister concern of the previous company. Both companies have different identities.