How to Smoothly Transition Employees to a New Subsidiary: What Documents Are Needed?

Hello Professionals,

I am associated with an IT firm (Software Development) and we want to register a new company (a subsidiary of the current company) and shift a few employees under the new company. Could you please confirm how we can shift and what documents need to be shared with the candidates? According to me:

1. New appointment letter.
2. Or a letter from the sister concern company (substitute) as the appointment has already been shared with them.

"What is 'Substitutory of current company'? Is it that you run a company and you want to form another company, or have you already formed a new company which will replace the functions of the existing company, and for that, all the employees should be transferred to the new company? If this is the idea, then there are several things to be taken care of.

Understanding between managements and employees

First, there should be an understanding among the management of the existing company, the management of the new company, and the employees regarding their length of service, treatment of service for payment of gratuity and other terminal benefits, treatment of unavailed leaves, treatment of service conditions including salaries and allowances, retirement age, etc. Without any understanding about how to calculate gratuity in the new establishment, you should not transfer the employees from the existing company to the new company.

Agreement with employees

If the new company is ready to consider the service of the employees in the existing company, that should be clearly mentioned in the agreement with the employees. In the absence of such an agreement, the existing company should be able to settle the gratuity and compensation for retrenchment under Section 25FFF or 25FFA of the Industrial Disputes Act. In such a scenario, it will be termination of employment from the existing company and then issuing a new appointment letter and joining the new establishment thereafter. At the same time, if the service conditions remain unchanged, and the length of service is considered, then any office order evidencing the same would be sufficient to transfer the employees.

Process of exiting and registering employees

In addition to the above, you will have to take care of the process of exiting the employees from the EPF of the existing company and registering them in the new company on the next day itself. The same should be done for ESI also."

My suggestions and other aspects I wish to point out here are:

The regime might involve:

a) Closure of past services with employees' benefits computed as of the date and settled, or
b) Continuation of 'past service' accountable for all purposes scenarios.

1. You have to draft an elaborate document consisting of conditions illustrating FAQs, impact on the careers of the employees involved if "transferred" to a new company, a subsidiary to your parent company, and circulate it among them. Ensure there is no hint of coercion in the process.

2. Devise an 'Express your Option' format and collect their willingness to accept the offer unconditionally, which is going to be a one-time offer. Ensure that the impacts, consequences, and future risks, if any, are well understood and accepted without any recourse thereof. This 'expressing option' is an essential document to avert any future complications/disputes from the employees' side.

3. Possibly, the employees would insist on a 'lien' to revert if conditions are not conducive in the newly formed company. Your management should consider and come to a conclusion if and when sought after.

4. Opportunities for career growth, improved service conditions, work environment, job satisfaction, etc., need to be addressed.