The Industrial Relations Code, 2020 (India)
India's Industrial Relations Code, 2020 consolidates three labor laws governing trade unions, industrial disputes, and standing orders into a single code, raising the retrenchment threshold to 300 workers and introducing new provisions for fixed-term employment and worker reskilling funds.
- What Is the Industrial Relations Code, 2020?
- The Three Laws Replaced by the IR Code
- Retrenchment, Layoff, and Closure: New Rules
- Fixed-Term Employment: Statutory Recognition
- Trade Union Registration and Recognition
- Strike and Lockout Provisions
- Standing Orders Under the IR Code
- Industrial Relations Statistics in India [2026]
- Frequently Asked Questions About the Industrial Relations Code, 2020
What Is the Industrial Relations Code, 2020?
Key Takeaways
- ✓The Industrial Relations Code, 2020 (IR Code) merges three laws: the Trade Unions Act 1926, the Industrial Disputes Act 1947, and the Industrial Employment (Standing Orders) Act 1946.
- ✓The retrenchment, layoff, and closure permission threshold increases from 100 workers to 300 workers, giving employers significantly more flexibility to restructure without government approval.
- ✓Fixed-term employment gets statutory recognition for the first time, allowing employers to hire workers for a specific duration with the same benefits (including gratuity on a pro-rata basis) as permanent workers.
- ✓A Worker Re-skilling Fund is introduced, requiring employers contributing 15 days' wages (last drawn) for each retrenched worker to support reskilling.
- ✓Strike and lockout rules tighten: workers must give 14 days' notice before striking in all establishments (previously required only in public utilities), and strikes during tribunal proceedings are prohibited.
India's industrial relations framework was built in the pre-independence and early post-independence era. The Trade Unions Act dates to 1926. The Industrial Disputes Act to 1947. These laws served their purpose during India's socialist economic model, but they've struggled to keep pace with a modern economy. The IR Code attempts to modernize these rules while balancing worker protections with employer flexibility. The most debated provision is the 300-worker threshold. Under the old Industrial Disputes Act, any establishment with 100 or more workers needed prior government permission to lay off, retrench, or close. In practice, this made it nearly impossible for medium-sized factories to downsize, because state governments rarely granted permission. Many employers kept headcount at 99 to avoid the threshold. The IR Code raises this to 300, which gives thousands of establishments the ability to restructure their workforce without bureaucratic approval. Labor unions have opposed this change, arguing it weakens job security. Employer groups have welcomed it, saying it encourages formal employment by reducing the risks of hiring.
The Three Laws Replaced by the IR Code
Each of the three old laws addressed a different aspect of the employer-worker-union relationship.
| Old Law | Year | What It Governed | Key Issue |
|---|---|---|---|
| Trade Unions Act | 1926 | Registration, rights, and liabilities of trade unions | Required only 7 members to form a union, leading to multiplicity of unions in single establishments |
| Industrial Disputes Act | 1947 | Investigation and settlement of industrial disputes, layoffs, retrenchment, closure | 100-worker threshold for government permission made restructuring near-impossible for medium establishments |
| Industrial Employment (Standing Orders) Act | 1946 | Conditions of employment in industrial establishments | Applied only to establishments with 100+ workers; model standing orders were outdated |
Retrenchment, Layoff, and Closure: New Rules
The retrenchment provisions are the most consequential changes for HR teams managing workforce planning.
300-worker threshold
Establishments with 300 or more workers still need prior government permission before retrenching workers, laying them off, or closing. Those below 300 can retrench after following the prescribed procedure: three months' notice (or pay in lieu), compensation of 15 days' average pay per completed year of service, and written notice to the appropriate government. The Central Government can increase or decrease the 300-worker threshold through notification, which means it could change without legislative amendment. This gives the government flexibility to adjust based on economic conditions.
Worker Re-skilling Fund
A completely new provision. Employers must contribute an amount equal to 15 days' last-drawn wages for each retrenched worker to a Worker Re-skilling Fund. This fund will be used to provide reskilling opportunities to retrenched workers. The intention is sound: companies benefit from workforce flexibility, and displaced workers get support for finding new employment. The practical mechanics (who manages the fund, what training it covers, how workers access it) will depend on the rules when notified.
Compensation calculations
Retrenchment compensation remains at 15 days' average pay for every completed year of continuous service (or part thereof exceeding six months). For closure, the same compensation applies. The key difference from the old Act is procedural: establishments below 300 workers no longer need to wait for government permission, which could take months or even years under the old system. They just need to follow the notice and compensation requirements.
Fixed-Term Employment: Statutory Recognition
The IR Code gives fixed-term employment a legal framework for the first time, filling a gap that has caused confusion across industries.
Key provisions
Fixed-term employees are entitled to the same wages, allowances, and benefits as permanent employees doing the same work. Pro-rata gratuity applies even for contracts shorter than five years, which is a significant departure from the Payment of Gratuity Act's five-year minimum. Employers can't convert permanent positions into fixed-term roles to avoid labor law obligations. The contract must specify the exact duration, and it ends automatically without constituting retrenchment.
Practical implications
This gives companies a legal alternative to contract labor for project-based or seasonal work. Instead of hiring through a contractor (and dealing with the complexities of the Contract Labour Act), companies can directly hire fixed-term workers with clear end dates. It's especially useful for IT project staffing, seasonal manufacturing peaks, and event-based hiring. HR teams should update their HRIS to handle fixed-term contracts with pro-rata benefit calculations.
Trade Union Registration and Recognition
The IR Code introduces a formal recognition mechanism for trade unions, addressing the problem of multiple competing unions within a single workplace.
Registration requirements
A trade union now needs at least 10% of workers (or 100 workers, whichever is less) as members for registration, up from just 7 members under the old Trade Unions Act. This reduces union fragmentation. The Code also introduces a "negotiating union" concept: if a union has 51% or more of workers as members, it becomes the sole negotiating union. If no union reaches 51%, a negotiating council is formed from unions with at least 20% membership.
Dispute resolution changes
The Code establishes a two-member Industrial Tribunal (one judicial, one administrative) to replace the existing Labour Court and Industrial Tribunal system. It introduces a mandatory conciliation process before any strike, lockout, or reference to the tribunal. Grievance Redressal Committees are required in establishments with 20 or more workers, giving workers a first point of contact before escalating to formal dispute resolution.
Strike and Lockout Provisions
The IR Code makes strikes harder to call legally, which has been one of the most criticized aspects of the new law.
14-day notice requirement
Workers in all establishments (not just public utilities, as under the old Act) must give 14 days' written notice before going on strike. Strikes during conciliation proceedings, during tribunal proceedings, or within 60 days after the conclusion of such proceedings are illegal. This effectively means that once a dispute enters the formal resolution system, workers can't strike until the process plays out.
Lockout restrictions
Employers face similar restrictions. A lockout during conciliation or tribunal proceedings is illegal. Employers must also give 14 days' notice before a lockout. The symmetry is intentional: both sides must exhaust the dispute resolution process before taking industrial action. Penalties for illegal strikes and lockouts include fines and imprisonment.
Standing Orders Under the IR Code
The Code integrates standing orders provisions, requiring establishments with 300 or more workers to have certified standing orders governing employment conditions.
Threshold change
The old Standing Orders Act applied to establishments with 100 or more workers. The IR Code raises this to 300. Establishments below 300 workers can adopt model standing orders provided by the Central Government without going through the certification process. This simplifies compliance for smaller establishments. The model standing orders will cover classification of workers, attendance, leave, termination, suspension, and misconduct.
What must standing orders cover
Standing orders must address: classification of workers (permanent, temporary, apprentices, fixed-term), working hours and shifts, attendance and late coming, leave provisions, termination and the process for it, suspension, misconduct and disciplinary action, means of redress for workers against unfair treatment, and any other prescribed matter. Companies above the 300-worker threshold must get their standing orders certified by the certifying officer.
Industrial Relations Statistics in India [2026]
Data on labor disputes, union activity, and workforce restructuring in India.
Frequently Asked Questions
Is the Industrial Relations Code in effect?
Can companies with fewer than 300 workers retrench without restrictions?
How does fixed-term employment differ from contract labor?
Can workers still form unions under the new Code?
What is the Worker Re-skilling Fund?
Written by Adithyan RK