Employee Gratuity Confusion: What Happens to Your Benefits When Companies Merge?

What are the rules for employee gratuity withdrawal if two companies are merged? Our company has not provided any answers regarding this matter and has not facilitated the withdrawal of my gratuity from the previous company.

Tripartite Agreement for Mergers

In order to make the merger proper, there should be a tripartite agreement among the employees and management of the two companies. The purpose of the agreement is to have an understanding about the past services of the employees, the gratuity claims of the employees, retrenchment compensation which may have to be calculated in the future, the salary fixation, etc.

In that agreement, both managements should reach a consensus on how gratuity will be calculated when an employee leaves. There can also be a decision to consider the employees as newcomers in the new company, and in such a situation, who will bear the responsibility of paying the gratuity and retrenchment compensation owed to each employee. In the absence of such an agreement, it will be challenging for the employees to receive their benefits, especially considering the date of joining in the old company as the date of joining in the new company.

Merger Process and Employee Service Continuity

In the present company undergoing a merger, there should be a Board of Directors' resolution or a resolution from shareholders or the Executive Board. Besides all terms and conditions, there should be one condition regarding the service continuity of employees and the earlier liability on gratuity and other terminal benefits.

Once the merger is complete, the newly acquired company must issue individual letters to all employees regarding their service continuity and terminal benefits. Sometimes, employees are given the option to continue with the present employer under different service conditions or salary structures, or they can opt for voluntary retirement (Golden Handshake) if they do not accept the new service conditions.

Options for Employees if New Company Does Not Comply

If the new company does not comply with the above procedure, the option available to the workmen is to raise an Industrial Dispute under the ID Act for the liability on previous service conditions or continuity of service. They can settle their claim or issue by a settlement under section 12(3) of the Act.

Memorandum of Settlement in Mergers

There are no specific rules governing such situations, but when a merger occurs, a memorandum of settlement is created between the employees and owners of the two merged companies. This memorandum details the liabilities of the employees and outlines the disbursement procedures, including who will handle it and when. A copy of the signed memorandum is sent to labor authorities and other relevant entities for their records.

In the absence of such a document, employees from each company must submit a claim to their respective employers to receive gratuity payments up to the date of the merger or from the absorbed company.

Escalation for Unpaid Gratuity

Employees who have not received their due payments can escalate the issue by filing a case with the labor department or the district magistrate.