Can Employers Legally Shift Employees to Another Company's Payroll? What About Gratuity?

Dear seniors,

I want to ask, can an employer move an employee to another company's payroll? Is it legal? What about the employee's gratuity in this matter?

Merger or Acquisition and Employee Shifting

If the shifting is due to any merger or acquisition, then there is no harm in it. In such cases, there will be a tripartite agreement comprising both the companies' management and the employees. This agreement will determine the treatment of service of the employees in the company acquired by another company or merged with another company, as the case may be, so that retirement benefits like gratuity will not be lost to the employees.

Outsourcing and Employee Shifting

At the same time, if there is no change in management but only a few employees are shifted to the rolls of another company by way of outsourcing, then it should be viewed very seriously. Such arrangements, though becoming very common among new-generation companies, should be discouraged at any cost. With this shifting, the employees will become contract labor, and the company for whom they continue to work will become an entity with which they will have no servant-master relationship. For them, the contractor or the company under whose payroll they are attached will be the master. Unless their gratuity is settled before such shifting, it will be lost forever.

I think if the employee is shifted to any sister company with the same date of joining mentioned in the offer letter, then there won't be any deviation or issues.

The change of shifting should be under the provision of law and may be due to any merger, acquisition, closure, or lay-off. There should be a tripartite agreement comprising the company management, employees, and an officer from the appropriate government. Furthermore, the company's board of management should be unified.

Dear colleague,

If your appointment letter contains a clause stating that your services are transferable to the company's sister company, then the management has the right to transfer you; however, your continuity in service will not be affected. In the case of a merger or acquisition, it is governed by the agreement, but typically, the continuity of service is protected.

Regards,
Vinayak Nagarkar
HR Consultant