Compliance In Transition: The Legal And Financial Challenges Of Fragmented Labour Code Implementation For Corporate Transfers In India
- IJLLR Journal
- Oct 14
- 1 min read
Isha Amin, Advocate
ABSTRACT
The enactment of India's four new Labour Codes, particularly the Industrial Relations Code, 2020 (IRC) and the Code on Social Security, 2020 (CoSS), heralds a foundational restructuring of the legal framework governing employment obligations during corporate restructuring events such as mergers, acquisitions (M&A), and business transfers. This study presents an elaborate analysis of the legislative mechanics that determine successor liability, employment continuity, and operational flexibility within the Indian industrial landscape.
The analysis confirms that the IRC rigidly maintains the principle of "deemed retrenchment" upon a transfer of establishment (IRC Section 73), requiring the mandatory and cumulative fulfillment of three conditions— parity of service terms, recognition of continuous service, and re- employment by the transferee—to avoid substantial compensation liability. A key finding is the IRC’s strategic relaxation of regulatory oversight for mid-sized enterprises by raising the mandatory retrenchment/closure approval threshold from 100 to 300 workers. This shift substantially enhances post-acquisition rightsizing flexibility for approximately 15.97% of the industrial workforce.
Concurrently, the CoSS imposes explicit successor financial liability for accrued social security dues, but strategically mitigates transferee risk through a novel provision that caps liability to the value of the acquired assets. This statutory hedge necessitates sophisticated financial de-risking strategies, including granular indemnification clauses, especially given the CoSS's expansion of the 'Wages' definition, which mandates a minimum 50% statutory base and requires the retroactive quantification of historic financial shortfalls. Finally, the fragmented, state-by-state implementation of the Codes mandates a sophisticated dual compliance model, managing both new statutes and predecessor laws simultaneously, creating significant jurisdictional risk in multi-state transactions.
