Understanding Section 25FF: Does Our Factory Transfer Fall Under This Law?

Dear Seniors,

Our company is planning to transfer operations of our factory to another company. On-roll workers who are currently working with us will also be transferred to the new company. We are neither selling nor merging our company with the new company.

Query Regarding Section 25FF of the Industrial Dispute Act, 1947

Now, my query is, does this transfer of management come under Section 25FF of the Industrial Dispute Act, 1947? I also want to know the interpretation of the Transfer of Undertaking as per Section 25FF of the Industrial Dispute Act, 1947.

Request for your advice on the same.

Thank you in advance.

Regards,
Tonmoy Dutta

Dear Tonmoy Dutta,

This falls under Section 25FF of the Industrial Dispute Act, 1947. Section 25FF and Transfer of Undertaking

Section 25FF pertains to the transfer of undertaking, which includes situations like this where the management changes hands but the company itself isn't sold or merged. This section outlines the rights and protections of employees during such transfers, ensuring their continuity of employment and safeguarding their terms and conditions of service. If you have any further questions or need clarification, please feel free to ask.

Employee Transfer to a New Company

How are you going to transfer your employees to the new company? They should either resign, or you should terminate them. If they resign and join the new company, then neither 25F, 25FF, nor 25FFF will be applicable, and you can later close down the establishment easily. The employees who have completed five years of service would be paid gratuity as per the Payment of Gratuity Act. They will continue with their PF with a new PF ID generated at the new company where they join.

Protection of Salary and Service Conditions

If the employees think that they should get protection of salary and service conditions, including the length of service, then they will not resign. Then you will have to make some settlement (preferably a tripartite settlement involving the new employer also) and decide on the part of service and payment of gratuity by the new company considering their dates of joining at the present company as the date of joining with the new company.

Termination and Retrenchment Compensation

In the absence of such a settlement, the present employer will have to terminate the employees, paying the retrenchment compensation and following section 25F of the ID Act. If this is the case, there is no need to form a new company, nor is it required that a settlement is made among the employees and the owners of the two companies. These are the various possibilities available to you. Without a new company with a new registration number in the picture, however, you cannot do anything.

As per my understanding, your posting pertains to the closure of an establishment. This falls under Section 2(cc) of the I.D. Act. It refers to the permanent shutdown of the factory, which is the place of employment. The management is required to retrench all employees and then reappoint those who wish to relocate to a new establishment. Failure to do so may lead to various issues regarding the length of service and the payment of gratuity during the full and final settlement process.

Thank you, Prabhat, Madhu, and Raghunath Sir, for your valuable inputs. Prabhat Sir, we are not closing down our factory, but we are transferring our operations-related work, such as manufacturing and maintenance of the factory, to another company, and we are also transferring our on-roll workmen to that company.

Process for Transferring Workmen

My query is, what is the process, and how can we transfer our workmen smoothly?

Thanks & Regards,

Tonmoy Dutta

Transfer of Employees During Temporary Closure

That means your company will exist, but no manufacturing activities will take place for the time being. At the same time, you will transfer your employees to another company where they will work, earn a salary, and once your company becomes operational, they will come back and resume their service.

If this is the case, there can be different arrangements, such as declaring a layoff in your present organization and providing the employees with alternative work by asking them to work in the other company. However, the law stipulates some restrictions, such as the other company should be within a radius of five miles, the period of layoff shall be 45 days, etc. If the travel cost is reimbursed, the same can be taken care of. But if the company declaring a layoff has 100 employees, then approval from the authorities under the ID Act should be taken. Obviously, the reason for the layoff should be genuine and as per the provisions of the Act.

Temporary Closure Without Layoff

Now, if you do not want to declare a layoff but want to temporarily close down the unit, then you can depute the employees to the other company for a certain period. For this, there is no need to comply with any legal formalities, but you can do so after taking the employees into confidence. This can be achieved by offering a deputation allowance that shall compensate for the travel and other expenses at the other plant. Deputation being a temporary arrangement, they should be called back once you start operations. If you do not want them to come back, then the only solution is to retrench the employees from the last employee to the first employee in turn and pay whatever compensation is payable as per section 25F or 25N.

Mr. Tanmay, you mentioned in your post that employees shall be transferred to another company. How is that possible? You can send them on deputation. In reality, they are absorbed into another company, maybe your subsidiary or sister concern. It is illegal if the new company is not featured in the company's balance sheet. It is your prudence to do what is considered best for the concern.

Dear Madhu Sir,

We are outsourcing the management of our operations and manufacturing to another company.

We have around 100 on-roll workmen on our company's payroll, and we want to transfer them to the outsourced company.

I want to know the process and procedure to transfer our on-roll workmen to the outsourced company.

Thanks & Regards,
Tonmoy Dutta

Transfer of Operations and Manpower

The organization is not closing; rather, it is transferring the operations and maintenance activities to another organization along with the transfer of manpower. This can be done in different ways. If the employees resign and join a new organization, the service will be interrupted by such a transfer, and SEC-25FF will be applicable. If the transfer is uninterrupted, the conditions of service applicable should not be less favorable than the existing ones. In the case of retrenchment, the compensation will be paid considering uninterrupted service, and then Sec-25FF will not be applicable.

Agreement Between Parties

In the latter case, the three parties—the present employer, employee, and new employer—will agree by agreement/exchange of letters that under the new employer, the service conditions will be as good as they are currently, including salary, perks, and gratuity to be paid from the date of joining the first employer.

In my career, I have applied the latter case for one requisition in 2000, and it is operating smoothly. The business agreement between the two employers must be crystal clear about the above terms and conditions.

Regards,
S K Bandyopadhyay (Howrah, WB)
CEO-USD HR Solutions
[Phone Number Removed For Privacy-Reasons]
[Email Removed For Privacy Reasons]
www.usdhrs.in

Tonmoy Dutta,

Outsourcing the manufacturing operations to another company is okay, but you cannot put your own employees under an outsider's payroll. This is legally not possible unless the employees resign and join the other company or you initiate a closure and retrenchment. On the other hand, if the union or the employees decide to resign and join the other company, the process would be less complicated. In this case, you will have to offer gratuity for their service with your company. Otherwise, you have to negotiate with the other company and make a decision regarding their service.

Thank you, Madhu Sir & Nanu Sir. Can you please share the forms to be submitted to the Labour Department? I also request you to provide me with the Industrial Disputes (Karnataka) Rules. Additionally, I would like to understand the procedure to be followed for retrenchment.

Hi Tonmoy Dutta,

In India, the Industrial Disputes Act, 1947, including Section 25FF, deals with the rights of employees in cases of transfer of undertakings.

Section 25FF of the Industrial Disputes Act, 1947

Section 25FF states that in the case of transfer of an undertaking (which includes the transfer of ownership or management) from one employer to another, every workman who has been in continuous service for not less than one year in that undertaking shall be entitled to notice and compensation.

Interpretation of Transfer of Undertaking as per Section 25FF

Notice: The employer is required to give notice to the employees who will be affected by the transfer. The notice period should be at least 21 days before the date of transfer.

Compensation: If the employment of any workman is terminated as a result of the transfer, the workman is entitled to compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part thereof in excess of six months.

Continuous Service: For the purpose of Section 25FF, "continuous service" generally means uninterrupted service under the same employer. However, certain types of interruptions are considered permissible under the Act.

Application: Section 25FF applies to cases where there is a transfer of an undertaking without any change in its ownership or management. This means that even if your company is transferring operations to another company without selling or merging, it could still fall under the purview of Section 25FF.

Again, please consult with a qualified legal professional to get advice specific to your situation, as labor laws can be complex and may vary depending on your location and other factors. Thanks