Industrial Relations Code, 2020

The Industrial Relations Code, 2020 consolidates three foundational labour statutes that have governed employer-worker relations in India for nearly a century: the Industrial Disputes Act, 1947; the Trade Unions Act, 1926; and the Industrial Employment (Standing Orders) Act, 1946. With 104 sections spread across 15 chapters, the Code seeks to balance the twin objectives of worker protection and ease of doing business — a long-standing tension in Indian labour policy.

The Code introduces several structural reforms that significantly alter the employer landscape. Fixed-term employment receives statutory recognition for the first time at the central level, providing employers with legitimate flexibility while guaranteeing FTE workers the same benefits as permanent employees. The thresholds for government permissions in retrenchment, layoff, and closure have been raised from 100 to 300 workers, giving medium-sized establishments greater operational autonomy. The strike notice period has been extended from 14 to 60 days, and the dispute resolution mechanism has been streamlined with a two-tier tribunal system.

For employers, the Code represents both opportunity and obligation. The relaxation of standing orders certification requirements and retrenchment thresholds provides genuine operational flexibility. However, the new negotiating union framework, expanded unfair labour practice definitions, and enhanced worker protections require sophisticated labour relations strategies. Organisations with unionised workforces or significant blue-collar populations must carefully recalibrate their industrial relations approach to align with the new framework.

Section 2(o) of the Industrial Relations Code formally recognises fixed-term employment (FTE) as a distinct employment category, bringing India in line with global labour market practices. A fixed-term employee is defined as a worker engaged on the basis of a written contract for a fixed period. The contract must explicitly specify the term, and the engagement must not be through a contractor or staffing agency — the employment relationship is directly between the employer and the worker.

The most significant provision is the equal treatment mandate: fixed-term employees are entitled to the same wages, allowances, and benefits as permanent employees performing the same or similar work. This includes working hours, leave entitlements, social security contributions, and any other benefit available to permanent workers. The Code explicitly prohibits treating FTE workers as second-class employees in terms of statutory or contractual benefits.

Perhaps the most consequential change is the pro-rata gratuity entitlement. Under the Payment of Gratuity Act, 1972, gratuity required five continuous years of service. The Code on Social Security, 2020 (read with the IR Code) entitles fixed-term employees to gratuity on a proportionate basis even if the contract period is as short as one year. This eliminates the historical practice of using short-term contracts to avoid gratuity liability. Employers using FTE arrangements must ensure contracts are meticulously drafted with clear start and end dates, renewal terms, and explicit benefits provisions to withstand judicial scrutiny.

Standing orders define the conditions of employment in an industrial establishment, covering matters such as classification of workers, shift timings, attendance, leave, termination, suspension, misconduct, and grievance procedures. Under the Industrial Employment (Standing Orders) Act, 1946, every establishment with 100 or more workers was required to have certified standing orders. The Industrial Relations Code raises this threshold to 300 workers, significantly reducing the compliance burden on small and medium enterprises.

Establishments with fewer than 300 workers are now governed by model standing orders issued by the appropriate government. These model standing orders serve as deemed standing orders applicable in the absence of certified standing orders. The Central government has the power to prescribe model standing orders covering all the matters specified in the First Schedule to the Code. This includes classification of workers (permanent, temporary, apprentice, probationer, fixed-term, and badli), manner of intimating working hours, shift changes, holidays, attendance and late-coming rules, and conditions for granting leave.

For establishments above the 300-worker threshold, the certification process remains largely similar to the previous regime. The employer must submit draft standing orders to the certifying officer within six months of the Code's applicability. Workers must be given an opportunity to be heard. The certifying officer must certify the standing orders within a prescribed timeline. The certified standing orders must be displayed in English and the language understood by the majority of workers, including on digital platforms accessible to all workers. Amendments to certified standing orders follow the same procedure.

The Industrial Relations Code introduces a structured framework for trade union recognition that replaces the inconsistent state-level recognition practices under the Trade Unions Act, 1926. Any seven or more workers can form a trade union and apply for registration with the Registrar. The registration requirements include a minimum membership of 10% of the workers or 100 workers (whichever is less) employed in the establishment or industry. At least one-fifth of the office-bearers must be actively employed in the establishment.

The Code establishes the concept of a "negotiating union" or "negotiating council" for collective bargaining with the employer. Where a single trade union has 51% or more of the workers as members, it is recognised as the sole negotiating union. Where no single union meets the 51% threshold but one or more unions have at least 20% membership, a negotiating council is formed comprising representatives of all unions with at least 20% membership. Representation in the council is proportional to membership. Membership verification is conducted by the Industrial Tribunal or a designated authority.

The recognition as a negotiating union or membership in the negotiating council carries significant rights: the right to negotiate with the employer on matters affecting workers, the right to represent workers in proceedings, and the right to collect membership fees. Recognised unions enjoy immunity from civil suits for acts done in contemplation or furtherance of a trade dispute. The Code also defines unfair labour practices by both employers and trade unions in the Second Schedule, with penalties for violation. This includes interference with union activities by employers and coercive practices by unions.

The Industrial Relations Code significantly tightens the procedural requirements for strikes and lockouts. Under Section 62, no person employed in an industrial establishment shall go on strike without giving a notice of strike to the employer within 60 days before the strike. This is a substantial increase from the 14-day notice period under the Industrial Disputes Act, 1947, and applies to all industrial establishments — not just public utility services as was previously the case. The notice must state the date and reasons for the proposed strike.

Strikes and lockouts are prohibited during the pendency of conciliation proceedings before the conciliation officer (and seven days after conclusion), during the pendency of proceedings before an Industrial Tribunal, during arbitration proceedings, and for a period of 60 days after the conclusion of such proceedings. Any strike or lockout commenced or continued in contravention of these provisions is illegal. Workers participating in an illegal strike face penalties: imprisonment up to one month, or fine up to INR 10,000, or both. For employers declaring an illegal lockout, the penalty is imprisonment up to one month, or fine up to INR 10,000, or both.

The Code empowers the appropriate government to prohibit strikes or lockouts in essential services. The definition of "essential services" includes services in any establishment or industry dealing with railways, airports, ports, telegraph, postal, telephone, banking, clearance of goods at customs, establishments for sick or infirm, defence establishments, services connected with petroleum production, and such other services as the government may notify. The prohibition can extend up to six months.

The retrenchment provisions under the Industrial Relations Code represent one of the most significant employer-friendly reforms. Under the Industrial Disputes Act, 1947, establishments with 100 or more workers required prior government approval for layoff, retrenchment, or closure. The Code raises this threshold to 300 workers. This means establishments with fewer than 300 workers can now lay off, retrench, or close without prior government permission, subject to compliance with notice and compensation requirements.

For retrenchment without government permission (establishments below 300 workers), the employer must give the worker one month's written notice (or wages in lieu), pay retrenchment compensation at the rate of 15 days' average pay for every completed year of continuous service, and serve notice to the appropriate government in the prescribed manner. The "last in, first out" principle applies unless the employer records reasons for deviation. For establishments with 300 or more workers, prior government permission remains mandatory, and the government must communicate its decision within 60 days — failure to respond is deemed approval.

Closure of an establishment requires at least three months' advance notice to the appropriate government. Workers affected by closure are entitled to compensation equivalent to 15 days' average pay for every completed year of continuous service. For establishments with 300+ workers, government permission is required for closure as well. In cases of layoff, workers with one year of continuous service are entitled to compensation equal to 50% of basic wages and dearness allowance for the period of layoff, subject to a maximum of 45 days in a 12-month period.

The Industrial Relations Code establishes a multi-tier dispute resolution framework designed to encourage early settlement while providing robust adjudicatory mechanisms. At the establishment level, every industrial establishment employing 20 or more workers must constitute a Grievance Redressal Committee (GRC) with equal representation of employers and workers. The GRC must resolve individual grievances within 30 days. An aggrieved worker can escalate unresolved grievances to the conciliation officer.

The conciliation officer, appointed by the appropriate government, attempts to mediate a settlement between the parties within 45 days (extendable by a further 7 days). If conciliation succeeds, the settlement is binding on both parties for the agreed period (or three years if no period is specified). If conciliation fails, the officer sends a failure report to the government, which may then refer the dispute to the Industrial Tribunal.

The Code replaces the multi-tier adjudicatory structure (Labour Courts, Industrial Tribunals, and National Tribunal under the ID Act) with a streamlined two-tier system. The Industrial Tribunal is the primary adjudicatory body with jurisdiction over all industrial disputes, including those previously handled by labour courts. Members must be judicial officers with at least seven years of district court experience. The National Industrial Tribunal handles disputes affecting establishments in more than one state or matters of national importance. The Code also enables voluntary arbitration: parties may agree to refer a dispute to an arbitrator, whose award has the same effect as a Tribunal award. Awards must be implemented within 30 days.