Navigating Mergers: What Legal Steps Should HR Take When Companies Unite?

I am working as an HR Manager in a Pvt. Ltd. Company. I need to understand the responsibilities of HR activities. Does the HR department have to follow any legal procedures in advance when two companies decide to merge?

Certainly, in this connection, you should refer to the provisions of Sec. 25-FF of the ID Act, 1947, which deal with the procedures of compensation to workmen in case of the transfer of the undertaking. Apart from gratuity being a service condition applicable to all employees alike, it is also equally important to decide the number of managerial cadre employees to be retained and the terms and conditions of their employment after the merger.

The Role of HR in Mergers

Therefore, HR people have a proactive role when two companies are slated for a merger.

When two companies merge, the provisions of the Companies Act 2013 would apply. Besides that, in case you are registered as a factory as per the Factories Act 1948, the provisions on change of management would apply, and you need to nominate the Factory Occupier and Factory Manager as well as get the factory license amended.

In case you are a shop/establishment as per the Shop & Establishment Act, you have to inform the authorities concerned of the changes in composition. Additionally, an immediate task is to identify the positions that will become redundant; the plan to utilize them or to jettison them has to be prepared.

Most importantly, the task of HR is to prepare both the organization and the employees for the merger. Employees will have fears, apprehensions, and, more importantly, misgivings. It is necessary to communicate clearly and forthrightly the process of change and reassure the talents of continued care and support.

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Merger of X & Y Companies

Here, X & Y companies are in the process of a merger. This can result in either one of the two companies becoming extinct or both companies becoming extinct and starting a fresh business under the name of Z Co. Your company is the right entity to inform you about what exactly is going to happen.

Course of Action

The course of action has to be decided accordingly:

1. The provisions of the ID Act would come into play as per the case that best suits the purpose.
2. Issue fresh appointment letters to employees by settling their compensation arising from the proposed merger or closure of one or both units.
3. May be required to sign a memorandum of understanding with the employees affected by the merger process.
4. Obtain new registration if both establishments are permanently closed for a new one.
5. Obtain a new license for the factory in accordance with the Factories Act 1948 and handle the change of Occupier and Factory Manager.
6. Notify the authorities such as PF, ESI, Labour & Factory for closure and change of management as necessary.
7. Maintain new records and registers.
8. Issue Form VI & V to the contractor for the closure of the previous contract and to obtain a new license.
9. Carry out all other activities as per the guidelines of the consultant appointed for the proposed merger.