Navigating a global restructure in India

Indian employment laws have historically been complex, with both central and state level legislation governing employee benefits, defined social benefits, working conditions, trade union engagement, industrial disputes and terminations.

Recently, the Indian government announced four long-awaited labour codes, which consolidate and repeal 29 central laws relating to wage determination, social security, industrial relations and worker occupational health and safety.

Since this announcement, Indian employment law gains even more significance in the context of global restructuring – particularly because of the lack of clarity on implementation; interplay between the former laws and the new labour codes; employer compliance obligations and mechanisms; and due-diligence considerations.

As a result, businesses must be vigilant and proactive, and ensure that all stakeholders collectively work towards compliance with the four labour codes in any restructuring.

Acquisitions, global mergers and cross-border restructuring often involve employee transfers, redeployment and consequent redundancies.

Under Indian law, employee transfers can occur through several mechanisms, which are dependent on the overall transaction structure. For example, employees can be transferred based on a ‘slump sale’ – the transfer of an entire business undertaking on a going concern basis, for a lump sum. In this situation, employee transfers are usually included in the transfer of underlying assets and liabilities, with the employees likely moving from the seller to the buyer.

During an asset sale, where a buyer identifies or ‘cherry-picks’ select assets to move from the seller to the buyer, the transfer of an employee usually relies on a contractual agreement between the parties. This differs from a business transfer where, depending on the transaction structure, transfers may be triggered automatically but subject to employee consent.

In a standalone employee transfer from the seller to buyer, based on a contractual arrangement as part of acquisition or similar transaction, the transfer is usually enabled or facilitated through existing clauses in the employee’s contract. This, however, requires the employee’s consent.

Unless otherwise agreed between parties, costs relating to employee redundancies are normally handled by the seller. In slump sales, if the buyer is unable to meet conditions – such as service continuity recognition and ongoing employment benefits – associated with the employee’s original contractual agreement with the seller, retrenchment will occur, and the seller may be required to pay severance to the employee.

Legally mandated timelines and related obligations apply to redundancies, particularly under the new labour codes. 
No labour legislation in India facilitates the automatic transfer of employees, even during business transfers, and court guidance on automatic transfer is conflicting. Automatic transfer is not standard procedure during restructuring involving Indian employees.

With the newly introduced labour codes, this position may change in the future. To avoid potential disputes linked to employee movement, a consent-based route is typically considered for employee transfers, particularly when revisions to service conditions are likely.

Foreign employees in India may require either the transfer of their work visa or permit during a transfer, or may be required to cancel and have a new work visa or permit reissued where they are transferred from one business to another. There may also be notification requirements to the government, depending on the nature, type and conditions associated with the work visa or permit. Organisations should therefore evaluate these considerations prior to facilitating any transfer of foreign employees, as governmental dependencies can impact transition timelines.

Businesses must engage with, and consider guidance from, immigration specialists to ensure that their foreign employees remain legally authorised to work and to remain in India in these circumstances, even during transition periods. Terminations resulting in default repatriation requirements must also considered, as breach of any contractual conditions in this regard could result in contractual and monetary risks for employers.

Co-written by Sonakshi Das of JSA.

Read more about global restructuring in the APAC region:

• Significant changes to Singaporean laws will impact global restructures
• Navigating Philippine labour laws during a global restructure
• Navigating a global restructure in China
• Navigating Thai labour laws during a global restructure
• Restructuring in Japan is subject to stringent requirements
• Global restructuring presents both challenges and opportunities for Australian employers