Transitioning Companies: Can Gratuity Be Preserved When Moving to a New Entity?

Is there any provision where existing gratuity can be carried forward or moved for an organization that is transitioning from its existing entity to a new entity? The organization plans to conduct a full and final (F&F) settlement and relieve employees before inducting them into the new entity, where management, employees, clients, and everything else will remain the same. It is merely adopting a new name and identity.

The employees will lose the benefit of continuous years of service if their gratuity is paid out as part of the F&F, even though they continue to work for the same company in essence. Any input would be highly appreciated.

Understanding Gratuity in Mergers and Acquisitions

If the new company is formed to acquire the old one after following the mergers and acquisition protocols, there will be an understanding of how to deal with the service and payment of gratuity when the employees leave the new company.

Settlement in Name-Only Transformations

On the other hand, if the transformation is just a namesake arrangement of proprietor or partners, the employees should make some settlement with the new company about their service/date of joining. Obviously, the management will not be interested in taking the employees with their dates of joining the previous establishment as their dates of joining in the new company, but the employees should demand the same or make a settlement about it, preferably in the presence of a conciliation officer of the Industrial Disputes Act.

Components of Full and Final Settlement

The Full and Final Settlement from the old company should also have components like retrenchment compensation, which is almost similar to the amount of gratuity but is available to employees who have not completed 5 years. In respect of employees who are eligible for gratuity, certainly, the F&F should include the gratuity amount in addition to retrenchment compensation.