Introduction
India’s labour laws have long been considered complex, outdated, and fragmented—an intricate web of over 40 central laws and hundreds of state-level rules. In response to this labyrinthine framework, the Indian government undertook a landmark codification effort, consolidating major labour laws into four labour codes. One of the most crucial of these is the Industrial Relations Code, 2020.
The Industrial Relations Code, 2020 (IRC) seeks to simplify and modernize India’s approach to employment relations, with particular focus on trade unions, conditions of employment, dispute resolution, and industrial harmony. This article explores the key provisions of the Industrial Relations Code, the changes it introduces, and its potential impact on employers and employees alike.
Why Was a New Industrial Relations Framework Needed?
Before delving into the industrial relations code 2020 key provisions, it’s important to understand the rationale for this reform.
The old framework was governed by three principal laws:
- The Trade Unions Act, 1926
- The Industrial Employment (Standing Orders) Act, 1946
- The Industrial Disputes Act, 1947
Each of these laws served a purpose in their own era. However, with economic liberalization, the rise of private and global enterprises, and the shift toward knowledge-based economies, they no longer aligned with the realities of the modern workplace. The new Industrial Relations Code, 2020 integrates these laws into a single, streamlined legislation aimed at striking a balance between flexibility for employers and protection for workers.
Trade Unions: Registration and Recognition
One of the biggest updates in the Industrial Relations Code, 2020 is related to trade union recognition.
- A trade union can now be recognized as the negotiating union if it has 51% or more support among workers.
- If no single union meets this threshold, a negotiating council will be formed with representatives from various unions, based on their proportion of support.
This aims to reduce multiplicity and inter-union rivalry, allowing for more efficient collective bargaining.
The code also enhances transparency in union registration by requiring updated membership records, audited accounts, and regular elections.
Standing Orders and Applicability Threshold
The code raises the threshold for mandatory standing orders from 100 to 300 workers.
Standing orders define the conditions of employment such as classification of workers, hours of work, holidays, and procedures for disciplinary action.
This change provides greater flexibility to small and medium-sized enterprises, sparing them the procedural burden of formal standing orders. However, critics argue it may weaken job security for employees in firms employing 100–299 workers.
Nonetheless, organizations still have the option to voluntarily adopt model standing orders prescribed by the Central Government.
Fixed-Term Employment
The Code introduces legal backing for Fixed-Term Employment (FTE) across all sectors.
Key benefits of FTE under the IRC include:
- Fixed-term employees will be eligible for gratuity if they complete one year of service.
- They will receive wages and benefits equal to those of permanent workers in the same role.
This aims to formalize contract employment, provide better protections for temporary workers, and offer employers more flexibility in hiring for seasonal or project-based work.
Layoffs, Retrenchment, and Closure
One of the most discussed features of the industrial relations code 2020 key provisions is the increased threshold for prior approval before layoffs, retrenchments, or closures.
- Previously applicable to establishments with 100 workers, the new threshold is now 300 workers.
- This applies to factories, mines, and plantations.
Employers must seek government permission before undertaking any of these actions if the establishment meets the threshold.
This is viewed as a pro-business reform that facilitates smoother restructuring processes, although trade unions have raised concerns about potential misuse.
Dispute Resolution and Strikes
The Code introduces stricter conditions for legal strikes and lockouts.
- 60-day notice is now mandatory for strikes in all sectors (earlier applicable only to public utility services).
- Strikes are prohibited during conciliation proceedings and for seven days after their conclusion.
- Similar restrictions apply to lockouts initiated by employers.
Additionally, the IRC mandates the formation of an Industrial Tribunal and National Industrial Tribunal with improved procedures to resolve disputes in a timely manner.
This provision aims to discourage disruptive industrial action and promote alternative forms of conflict resolution.
Worker Re-Skilling Fund
In a progressive move, the Industrial Relations Code, 2020 proposes the creation of a Worker Re-skilling Fund.
- Employers are required to contribute 15 days’ wages for every retrenched worker.
- This fund will be used to retrain and reskill workers who lose their jobs.
This initiative is a nod toward future-readiness, acknowledging the dynamic nature of employment, especially in sectors like technology and manufacturing undergoing automation.
Concerns and Criticisms
While the code brings welcome modernization, it is not without its criticisms:
- Dilution of labour rights: Trade unions argue that raising thresholds for standing orders and retrenchment approvals weakens job security and opens the door for unfair practices.
- Bureaucratic ambiguities: Despite the intent to simplify, some provisions still require clarification in rules and enforcement.
- State-level variance: Since labour is a concurrent subject, states can make their own rules under the code, which could result in regulatory fragmentation.
Nonetheless, the industrial relations code 2020 represents a significant effort to modernize and harmonize labour relations in India.
Benefits for Employers and Employees
For Employers:
- Simplified compliance with consolidated legislation.
- Greater operational flexibility, especially for mid-sized businesses.
- Easier hiring of fixed-term and contract employees.
For Employees:
- Formal recognition of fixed-term workers.
- Eligibility for equal benefits, including gratuity.
- Better dispute resolution mechanisms and access to tribunals.
- Re-skilling opportunities through the dedicated fund.
Industrial Relations Code 2020 in the Context of Ease of Doing Business
India has been making strides in the Ease of Doing Business index, and labour law simplification is a key component of that push. With the introduction of the Industrial Relations Code, 2020, the government aims to:
- Reduce litigation and compliance costs.
- Attract more domestic and foreign investment.
- Encourage formalization of employment.
This shift is also expected to boost entrepreneurship by lowering regulatory friction for start-ups and MSMEs.
Case Studies: Impact on Key Sectors
- Manufacturing: Firms with under 300 workers can now adjust workforce sizes with fewer bureaucratic hurdles, allowing quicker response to market demand.
- IT and Startups: The formalization of fixed-term employment will encourage project-based hiring, which suits the dynamic nature of tech companies.
- Infrastructure and Construction: These sectors often rely on temporary labour. The Code enables them to maintain compliance while providing security to contractual workers.
Preparing for Compliance
For businesses and HR leaders, adapting to the IRC involves:
- Revisiting employment contracts and updating policies.
- Implementing or updating grievance redressal mechanisms.
- Ensuring proper documentation for trade union activities and standing orders.
- Educating line managers about changes in retrenchment and layoff procedures.
Most importantly, organizations must build a culture that balances legal compliance with ethical responsibility toward workers.
Conclusion
The Industrial Relations Code, 2020 is a watershed moment in Indian labour law reform. By integrating decades-old laws into a more cohesive and contemporary framework, it holds the promise of improving industrial harmony, making employment more flexible, and protecting worker rights in an evolving economy.
While implementation will require careful navigation and ongoing adjustments, the industrial relations code 2020 key provisions provide a strong foundation for transforming how employers and employees engage in the modern workplace.
The road ahead will require collaboration between the government, employers, and workers to ensure the spirit of the code is upheld—not just in letter, but in practice.
