Code on Industrial Relations, 2020: Review of critical changes

India’s labour laws evolved incrementally since independence, with statutory provisions scattered across multiple enactments dating back to the pre-independence period. The collective of numerous sector-specific legislation created a complex regulatory maze. The Second National Commission on Labour, 2002 recommended consolidation of these laws into functional groupings to simplify compliance, enhance clarity, and align Indian labour law with contemporary global practice[i].

With a view to simplify and streamline labour laws, the Government of India has, in November of last year, implemented four (4) new labour codes in place of the older twenty-nine (29) statutes. The new labour codes boost employment and workforce welfare, aiming to make strong industries, and facilitating ease of doing business in the country.

We review the key features of each code in our 4-part series.

Part I – Code on Wages, 2019: Review of critical changes (view here)

Part II – Code on Industrial Relations, 2020: Review of critical changes

Introduction

The Code on Industrial Relations, 2020[ii] (the “Code”) serves as a consolidation and comprehensive modernization of three (3) cornerstone labour legislations that had governed industrial relations since the pre-independence era:

the Trade Unions Act, 1926;
the Industrial Disputes Act, 1947; and
the Industrial Employment (Standing Orders) Act, 1946.

The Code establishes a unified legal framework that simplifies compliance while fundamentally restructuring the relationship between workers, employers, and the state in matters of employment, industrial relations, and industrial dispute resolution.

Critical Changes

1. Unified Definition of “Worker” and “Employer”

The Code provides for a clear, uniform definition of “worker” based on wage thresholds: workers earning up to Rs. 18,000/- per month fall within the Code’s scope. The definition of “employer” has expanded significantly to include contractors, sub-contractors, managers, managing directors, and any person with ultimate control over establishment affairs. This expansion directly impacts contractor-deployed workers, as establishments deploying contract labour are now explicitly deemed employers with corresponding statutory obligations.

2. Strike and Lockout: 60-Day Notice Requirement

The Code’s definition of “strike” now also includes mass casual leave where 50% or more workers take casual leave on a given day.

Section 62 mandates that no employee may commence a strike and no employer may declare a lockout without giving at least 60 days’ prior notice. Even after notice is served, strike/lockout cannot commence within 14 days, creating a mandatory cooling-off period.

Additional restriction on strikes/lockouts:

Prohibited during pendency of conciliation proceedings and 7 days after conclusion.
Prohibited during pendency of tribunal proceedings and 60 days after conclusion
Prohibited during pendency of arbitration proceedings and 60 days after conclusion

Exclusion: Where strike/lockout already exists, no prior notice required, but employer must intimate the authority on the day it is declared.

Implications: Flash strikes and sudden industrial action are now illegal. All workers’ collective action must follow prescribed 60-day notice protocol, providing employers extended time for negotiation and mitigation.

3. Increased Threshold for Lay-off, Retrenchment, and Closure

The threshold for establishments requiring prior government permission for lay-off, retrenchment, or closure has increased from 100 workers to 300 workers. Establishments employing 300 or more workers must obtain prior written permission from the appropriate government before effecting any lay-off, retrenchment, or closure. Smaller establishments (below 300 workers) enjoy greater flexibility in workforce rationalization without government approval requirements.

Lay-off compensation: Workers laid off are entitled to 50% of basic wages and dearness allowance for all days of lay-off (excluding weekly holidays), capped at 45 days in any 12-month period.

4. Retrenchment Notice and Worker Re-Skilling Fund

Section 79 mandates that employers provide 3 months’ written notice of retrenchment to affected workers, stating reasons clearly, or pay wages in lieu of such notice. Following retrenchment, Section 83 establishes a Workers’ Re-Skilling Fund wherein employers contribute 15 days’ last drawn wages per retrenched worker, transferred to the worker’s account within 45 days of retrenchment. This fund facilitates post-separation skill development and re-employment prospects.

5. Recognition of Trade Union as Negotiating Council or Negotiating Union

Section 14 of the Code introduces, for the first time, a statutory framework for the recognition of a negotiating union or negotiating council in industrial establishments. Under the old regime, trade union registration conferred legal status but did not create a corresponding obligation on employers to recognise any union for collective bargaining purposes. The Code institutionalises collective bargaining and provides a uniform legal basis for determining the representative body entitled to negotiate with the employer.

The Code provides a tiered mechanism for the formation of a negotiating union or negotiating council. Where only one trade union operates in an industrial establishment, that union is to be recognised as the sole negotiating union, subject to prescribed criteria. Where multiple registered trade unions exist, the union supported by fifty-one percent or more of the workers on the muster roll is to be recognised as the sole negotiating union. In cases where no union attains such majority support, the employer is required to constitute a negotiating council comprising representatives of trade unions that have the support of at least twenty percent of the workers. The recognition of the negotiating union is valid for a period of three years, and extendable up to five years.

6. Fixed-Term Employment Formalisation

The Code formalizes fixed-term employment as a distinct work arrangement with explicit safeguards. Fixed-term employees receive all statutory benefits equivalent to permanent workers such as provident fund, gratuity, bonuses, upon completing one year of service. Contract expiration does not constitute retrenchment; therefore, termination due to contract end triggers no compensation obligations, providing employers flexibility whilst improving conditions for previously unprotected workers.

7. Threshold Increase for Standing Orders[iii]

Mandatory certified standing orders previously applied to establishments employing 100 or more workers. The threshold has increased to 300 workers. Establishments below 300 workers are no longer statutorily required to frame or certify standing orders, reducing compliance burden for smaller enterprises. Larger establishments (300+ workers) continue to be subject to standing order certification obligations.

8. Dispute Resolution Framework Simplification

The Code establishes multiple dispute resolution pathways:

Grievance Redressal Committee (GRC): Every industrial establishment must constitute an internal GRC to address worker grievances before external escalation. Non-compliance with GRC procedures attracts penalties up to Rs. 100,000.

Conciliation: Appropriate stare government appoints conciliation officers to mediate industrial disputes and promote settlements. Conciliation remains primary mechanism for dispute resolution prior to tribunal escalation.

Industrial Tribunal: Two-member composition (one Judicial Member, one Administrative Member) replaces previous frameworks. Central Government may constitute National Industrial Tribunals for disputes of national importance or multi-state impact.

Arbitration: Industrial disputes may be voluntarily referred to arbitration by written agreement between employer and workers. Arbitrators investigate disputes and submit awards to appropriate government.

Clarificatory Order on Transfer of pending cases

It is pertinent to highlight that the Industrial Relations Code (Removal of Difficulties) Order, 2025[iv] was notified on 8.12.2025 to expressly address practical issues regarding matters pending before the Labour Courts and Industrial Tribunals prior to 21.11.2025, notification about the Code.

As per the Code, the cases pending in the Labour Courts, Industrial Tribunals and National Tribunals constituted under the Industrial Disputes Act, 1947, are now required to be transferred to the Industrial Tribunals and National Industrial Tribunal respectively constituted under the Code. However, the respective Tribunals under the Code have, as on date, not been constituted and it has been clarified under this Order that existing and new cases will continue to be adjudicated by the existing Labour Courts and Tribunals under former Act, until the constitution of the respective Tribunals under the Code. This measure has been adopted to prevent a judicial vacuum during the transition.

Concluding Remarks

The steps taken by the Indian Government certainly show a well-reasoned addressal for balancing the needs of workers and employers in India, in order to enable healthy employer-employee relations as well as promoting ease of doing business in the country.

With the revisions in the rules regarding strikes, lockouts, layoffs, retrenchment, simplification on compliance, industrial dispute resolution and the like, and the acceptance of trade unions as negotiating bodies, the Code is a pivotal initiative of the Government in drawing a balance in the overall relationship between employers and workers in modern times, which provides workmen rights while undertaking business requirements and foster industrial peace and growth.

Contributed by Akash Sajan (Associate, Corporate Commercial)

[guidance from Aditi Verma Thakur (Managing Partner)]

[i] National Commission on Labour. (2002). Report of the Second National Commission on Labour. Ministry of Labour and Employment, Government of India.

[ii] Ministry of Labour and Employment, Government of India. (2020). Industrial Relations Code, 2020. Government of India Act.

[iii] Employers in qualifying industrial establishments are required to formally define and register employment conditions like work shifts, leave, discipline, and grievance procedures with a Certifying Officer. These certified orders become legally binding rules.

[iv] Ministry of Labour and Employment, Government of India. (2025). S.O. 5683(E). Ministry of Labour and Employment, Government of India.