Employment and Human Capital Issues in M&A Transactions

Introduction

Presenter: Surbi Krial, M&A partner in Katans Corporate Group, Bombay
Event: M&A Academy Program, 6th webinar in 2024
Objective: Provide foundational legal knowledge on M&A transactions to stakeholders
Focus: Employment and Human Capital Issues in M&A Transactions

Complex Laws: India has a complex web of laws related to employment
Employee Disruption: Potential for disruption in restructuring positions, perks, integration
Evolving Landscape: Constant introduction of new laws, judicial precedents, ESG emphasis
Advisor: Mr. Anul Prakash, renowned advisor in employment law

Industrial Disputes Act (IDA): Governs employer-employee relations
Workmen vs Non-Workmen: Specific protections for workmen
- Definition of Workman: Manual, unskilled, skilled, technical, operational, clerical, or supervisory work
- Exclusions: Managerial roles, higher remuneration mainly for supervisory roles
- Role-based Classification: Substantive nature of duties and responsibilities, not salary or designation
Implications: Protection during restructuring, continuity of service, and terms of employment

Conditions for Transfer: Non-managerial employees need consent, continuity of service, no less favorable terms
- Judicial Precedents: Emphasize express consent of employees
Types of Transfer
- Continuity of Service: Transfer benefits such as gratuity and accumulated leave
- Resign and Rehire: Employees resign from the old employer and rejoin the new employer
- Hybrid Model: Recognize tenure for specific liabilities like gratuity
Implications of Undertaking: Business unit with distinct functions can be transferred as an undertaking
Example: Determining liability and ensuring parity in terms and conditions

Employer Entity Remains Same: No change in the terms and conditions of service in share acquisition
Due Diligence: Check compliance status with labor laws, assess risk, and seek indemnity for non-compliance
- Example: Non-compliance with Employees Provident Fund Act

Scheme Approval: Courts mandate conditions for transferring employees
Trade Unions: Assess unionization, consult with office bearers, ensure no breach of agreed terms
- Importance of Engagement: Proactively engage with unions to avoid disruption
- Example: Dealing with collective bargaining agreements

Universal Approach to Workforce: Minimize disruption by treating management and rank-and-file equally
Documentation: Clear agreements specifying the transfer of employees and associated liabilities
Nuances in Employee Policies: Address differences in leave entitlements, gratuity, etc.
- Example: Need for alignment in policy framework for seamless transition

Early Identification: Identify employment issues early for smooth transitions
Assess Liabilities: Factor in liabilities in cost sheet during due diligence
Continuous Interaction: Maintain open communication with employees
Documentation: Ensure clarity in terms for transfer of employment, terms, and conditions

Valuation of Employees: Consider employees as capital; value determined by accounting methods
Impact of Indirect Share Acquisition: Check if changes affect company policies and employee conditions
Changes in Designation: Importance of maintaining perception of role and designation post-transfer
Consents in Business Transfers: Ensuring both parties' agreement to avoid deem retrenchment
Trade Union Engagement: Critical for minimizing disruption; align with existing agreements

Summarized by Surbi Krial: Importance of preparedness, assessing liabilities, and maintaining communication
Feedback Request: Audience urged to respond to poll

Availability: Post-webinar materials and contact details for further queries