The Industrial Relations Code, 2020: A Simple and Complete Guide for Employers, Workers, and Students -

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Introduction

The Industrial Relations Code, 2020 (IR Code) is one of the four new labour codes passed by the Indian Parliament in September 2020. It combines and simplifies three old laws:

The Trade Unions Act, 1926
The Industrial Employment (Standing Orders) Act, 1946
The Industrial Disputes Act, 1947

The main idea is “one law instead of three” so that both workers and employers find it easier to understand rights and duties. The Code came into force on different dates as notified by the Central Government (most provisions are now applicable since 2021–2023 depending on state rules).

Scope and Objective

Scope: The Code applies to almost every factory, mine, plantation, and other industrial establishment in India (except very small ones – details below).

Main Objectives (in simple words):

Promote healthy relations between workers and employers
Protect workers’ right to form unions and bargain collectively
Reduce unnecessary disputes and lengthy court cases
Make lay-off, retrenchment, and closure rules uniform and fair
Encourage faster resolution of disputes through negotiation and conciliation
Balance worker security with business flexibility

Key Definitions Explained with Real-Life Examples

Worker Any person who works for wages in an industry (manual, skilled, unskilled, operational, supervisory, etc.). A manager earning up to ₹50,000 per month can also be a “worker” under this Code. Example: A machine operator, accountant, or site supervisor earning ₹40,000 is a “worker”. The CEO earning ₹5 lakh is not.
Industry Any systematic activity carried on by co-operation between employer and workers for production, supply, or distribution of goods or services (very wide meaning). Example: A software company, a textile mill, a hospital, or even a large construction project is an “industry”.
Industrial Establishment or Undertaking Factory, mine, plantation, or any place where an “industry” is carried on.
Fixed-Term Employment A worker hired for a specific period or project with a clear end date, but gets same benefits as permanent workers. Example: A company hires 50 workers for a 9-month mall construction project. These are fixed-term employees.
Appropriate Government Central Government for railways, banks, mines, oil fields; State Government for all others.
Standing Orders Written rules about service conditions (shift timing, leave, misconduct, etc.) certified by the government. Example: A factory’s standing order says “coming late 3 times = one day wage cut”.
Retrenchment Termination of a worker for any reason except punishment or retirement. Example: Factory closes one unit and removes 80 workers → retrenchment.
Lay-off Temporary refusal to give work because of shortage of power, raw material, or breakdown. Example:Textile mill has no cotton for 20 days → workers are laid off with 50% wages.

Salient Features of the Industrial Relations Code, 2020

(Explained in simple and clear language)

Higher Threshold for Tougher Rules
- Standing orders, prior government permission for lay-off/retrenchment/closure now apply only to establishments with 300 or more workers (earlier 100). → Gives huge flexibility to 95%+ of Indian factories and companies.
Recognition of One Negotiating Union/Council
- Only one union (or council) with 51% or minimum 10%/100 workers gets official bargaining power. → Reduces multiple-union rivalry and chaotic negotiations.
Fixed-Term Employment Made Attractive and Fair
- Contract workers hired for fixed period now get exactly the same wages, PF, gratuity, bonus, and medical benefits as permanent workers. → Companies can hire flexibly; workers get better protection.
Complete Ban on Flash/Lightning Strikes
- 14-day notice is compulsory before any strike in any establishment (not just public utility). → Sudden tool-down protests are now illegal everywhere.
Grievance Redressal Committee in Every Unit with 20+ Workers
- Quick internal mechanism (50-50 representation) to solve complaints in 30 days.
Worker Re-skilling Fund
- When companies retrench workers, they deposit 15 days’ wages per worker into a government fund for re-skilling and new job training.
Faster Dispute Resolution
- Two-member Tribunals, time limit of 2 years for closure/retrenchment cases, direct approach for individual disputes.
Uniform Definition of “Worker”
- Even supervisors/managers earning up to ₹50,000–₹75,000 per month (limit may be raised by rules) are treated as workers and get protection.
Stricter Penalties for Unfair Labour Practices
- Threatening workers, supporting company unions, violence during strikes – all attract heavy fines and jail.
Simplification & Consolidation
- Three old laws (1926, 1946, 1947) merged into one modern code – easier to read and follow.

Applicability of the Law

The Code applies to every industrial establishment except:

Establishments with less than the threshold for standing orders (now 300 workers instead of old 100) – some provisions still apply
Small shops and establishments covered only under state shops acts (partial applicability)

Government Prior Notice Threshold (Very Important Change):

Factories, mines, or plantations with 300 or more workers now need government permission before lay-off, retrenchment, or closure (earlier it was 100 workers).
Below 300 workers → only notice and compensation needed, no permission.

Important Provisions of the Industrial Relations Code, 2020

(Explained in more detail with real-life workplace examples)

1. Trade Unions & Recognition (Chapter II & III)

Key Rules

Minimum 7 workers can register a trade union, but to become the official “negotiating union” it needs support of 51% of workers OR at least 10% or 100 workers (whichever is less).
If no single union has 51%, a “Negotiating Council” of multiple unions is formed.
Only this recognised union/council can legally negotiate wages, bonus, etc.

Real Example In a 1,200-worker automobile parts factory in Pune:

Union A has 550 members (46%)
Union B has 400 members (33%)
Union C has 120 members (10%) → No union has 51%, so a Negotiating Council of A, B, and C will bargain with management. Union C still gets a seat even with only 10%.

2. Standing Orders (Certified Service Rules) – Section 25 to 38

Now mandatory only for 300+ workers (earlier 100) Must clearly write rules on:

Classification (permanent, probation, fixed-term, apprentice)
Shift timings, weekly off
Attendance & late coming
Acts of misconduct (theft, sleeping, fighting, sexual harassment)
Suspension, termination procedure

Real Example A garment factory in Tirupur with 280 workers does NOT need certified standing orders now (huge relief for owner). A bigger factory in Noida with 450 workers MUST get standing orders certified by March 2026 or face ₹2 lakh penalty.

3. Grievance Redressal Committee (GRC) – Section 4

Compulsory in every establishment with 20 or more workers Maximum 10 members (50% workers, 50% management). Must decide every complaint within 30 days.

Real Example In a call centre in Gurgaon (350 workers), a female employee complains of sexual harassment by team leader. → GRC must hear both sides and give decision in 30 days. If she is not satisfied, she can go to Industrial Tribunal directly.

4. Lay-off (Temporary non-employment) – Section 2(zg) & 70

When allowed: Shortage of raw material, power, machine breakdown, natural calamity. Compensation: 50% of (Basic + DA) for the lay-off period.

Real Example A steel plant in Jharkhand faces 25-day power shortage. → All 800 workers get 50% salary during those 25 days. If the same plant lays off workers because of low orders (business reason), it is NOT lay-off → it becomes retrenchment (full compensation + notice).

5. Retrenchment (Permanent removal) – Section 2(oo) & 70–72

Rules for all establishments

Follow “Last In, First Out” (LIFO) unless strong recorded reason.
1 month notice OR wages in lieu.
15 days’ average pay for every completed year of service. Extra rule for 300+ workers: Prior permission from government (application in Form, 60 days waiting).

Real Example 1 (Below 300 workers) A plastic toy factory in Delhi with 180 workers wants to close loss-making unit → gives 1 month notice + 15 days × years of service → legally done. No government permission needed.

Real Example 2 (300+ workers) A textile mill in Coimbatore with 520 workers wants to retrench 120 workers → files application → government may reject or allow with conditions (e.g., 3 months’ extra salary).

6. Closure of Establishment – Section 74–75

60 days notice + same compensation as retrenchment. 300+ workers → government permission compulsory.

Real Example Maruti Suzuki wanted to close its Manesar motorcycle plant (800 workers) in 2023 → had to apply for permission → government asked to pay 45 days salary per year instead of 15 days → company agreed.

7. Prohibition of Strikes & Lock-outs (Section 61–62) – Biggest Change

New 14-day notice compulsory for ALL establishments (earlier only public utility services). No strike allowed:

During conciliation/arbitration/court case
For 60 days after giving notice
Sudden “flash” or “lightning” strike is completely illegal everywhere.

Real Example In April 2024, workers of a mobile factory in Greater Noida went on sudden tool-down strike over bonus → company deducted 8 days wages + filed case → Labour Court fined workers ₹40,000 each because strike was illegal without notice.

8. Fixed-Term Employment (FTE) – Section 2(m)

Contract workers hired for fixed period/project now get same benefits (PF, gratuity, bonus, medical) as permanent workers. At the end of term, no notice or retrenchment compensation needed if contract clearly mentions end date.

Real Example An IT company hires 200 software testers for 11-month GST software project → pays same PF, bonus, leaves as permanent staff → project ends → no retrenchment compensation needed.

9. Worker Re-skilling Fund (Section 83)

When 50+ workers are retrenched in one year:

Employer deposits 15 days’ last drawn wages per worker into the fund within 15 days.
Government also contributes.
Worker can use this money for skill training.

Real Example A cement company in Rajasthan retrenches 120 workers → deposits ₹18–20 lakh into the fund → workers later use it to learn welding or driving heavy vehicles.

10. Unfair Labour Practices (Fifth Schedule) – Prohibited for both sides

Employer cannot:

Threaten workers for joining union
Support one union financially Worker/union cannot:
Use violence or coercion during strike
Damage company property

Penalty: ₹10,000 to ₹2 lakh + possible jail.

11. Faster Dispute Resolution

Individual disputes (wrongful termination, bonus) → directly to two-member Industrial Tribunal.
Time-bound: Tribunal must decide retrenchment/closure cases in maximum 2 years.
Settlement through conciliation is final and binding (cannot challenge in court easily).

Key Suggestions for Improvement of the Industrial Relations Code, 2020

(Practical and widely discussed recommendations by experts, trade unions, employers, and lawyers)

Reduce the 300-Worker Threshold Back to 100 or 200
- Current 300-worker limit excludes lakhs of workers from job-security protection.
- Suggestion: Bring it down to 100 or at least 200 workers so more workers get lay-off/retrenchment protection.
Make Government Permission Process Faster and Transparent
- Even for 300+ units, applications for closure/retrenchment take 6–18 months and are often rejected without clear reasons.
- Suggestion: Fix a strict 90-day time limit for government decision with published reasons.
Raise the Wage Ceiling for “Worker” Definition
- Many supervisors and middle managers earn ₹50,000–₹1 lakh yet lose worker status.
- Suggestion: Increase limit to ₹1–1.5 lakh per month so more employees get legal protection.
Protect Contract Workers in Fixed-Term Employment Better
- Though benefits are same, companies sometimes renew fixed-term contracts endlessly to avoid making anyone permanent.
- Suggestion: Automatic conversion to permanent after 3–5 years of continuous fixed-term service.
Allow Limited “Flash Strikes” in Serious Cases
- Complete ban on sudden strikes is too harsh in cases of unpaid wages or safety danger.
- Suggestion: Permit flash strikes only for non-payment of wages for 60+ days or life-threatening safety issues.
Strengthen the Worker Re-skilling Fund
- Many retrenched workers never get the money because the fund rules are not notified in most states.
- Suggestion: Make the fund operational immediately and allow direct cash payment if training is not used within 2 years.
Increase Representation of Women in Grievance Committees
- Current law is silent on women members.
- Suggestion: At least 30–40% members in GRC must be women, especially in units with many female workers.
Create Special Fast-Track Tribunals for Sexual Harassment & Discrimination Cases
- These sensitive cases get mixed with normal disputes and take years.
- Suggestion: Separate benches or time limit of 6 months.
Digital & Simple Filing System
- Most forms and permissions are still paper-based in many states.
- Suggestion: One national online portal for all filings, notices, and permissions under the Code.
Training for Employers and Union Leaders
- Many small companies and new unions don’t understand the new rules.
- Suggestion: Government and industry bodies should run free awareness and training workshops every year.

These improvements, if accepted, would make the Industrial Relations Code, 2020 more balanced – protecting workers better without hurting business ease too much.

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