Business Transfers And Employee Rights Under Section 25FF

Business transfers in India, whether by way of sale, slump sale, merger, or restructuring, raises a pressing question: What happens to the employees during a Business Transfer? While shareholders and creditors are protected under corporate and contract laws, it is the Industrial Disputes Act, 1947 that steps in to safeguard workmen during a transfer of ownership or management of an undertaking.

The governing provision, Section 25FF, ensures that employees are not reduced to collateral damage in corporate reorganisations.

It requires that when an undertaking changes hands, employees must either:

• be offered continuity of service on "no less favourable terms", or
• receive statutory compensation as if retrenched.