Industrial Relations Code 2020 Explained: Strikes, Layoffs & Unions; The IR Code Rules For Indian Workplaces

A significant section of legislation, the Industrial Relations Code, 2020 (IR Code) was established in order to modernize and amend the laws pertaining to employment conditions in industrial enterprises, trade unions, and the investigation and resolution of labour disputes. Trade unions, standing orders, industrial disputes, lockouts and strikes, layoffs, retrenchment, and closure are only a few of the key elements of the employer-worker relationship that are governed by the IR Code.

Pratik Vaidya, Managing Director and Chief Vision Officer of Karma Management Global Consulting Solutions Pvt. Ltd., prepared this explainer, which breaks down the main provisions of the Industrial Relations Code in an understandable FAQ format to assist professionals and employers in understanding what has changed, what stays the same from the old regime, and what steps are essential to remain compliant under the new industrial relations setting.

1. To which establishments does the Industrial Relations Code apply?

The IR Code applies to industries and industrial establishments or undertakings as defined in the Code.

In practice, this covers:

• Manufacturing factories and plants
• Mines and plantations
• Transport undertakings, docks and warehouses
• Large service sector units where there is a systematic activity of producing or delivering goods or services through workers - for example:

1. IT / ITES and BPO units
2. Hospitals and big private educational institutions
3. Hotels, restaurants, malls and organized retail
4. Large logistics, warehouse and distribution setups

At the same time:

• Local matters like opening and closing hours, weekly holidays and local leave continue to be governed by State Shops and Establishments Acts, even for offices that are also "industrial establishments" under the IR Code.
• The IR Code governs trade unions, standing orders, industrial disputes, strikes, lay-offs, retrenchment and closure for such units.
• The exact coverage for some categories (for example, IT, startups, certain kinds of offices) depends on how the appropriate government and State Rules / notifications treat those sectors.

2. Who is the "appropriate government" under the IR Code?

The IR Code follows the long-standing distinction:

The Central Government is appropriate government for:

• Railways
• Major ports
• Mines, oil fields
• Central public sector undertakings
• Banking and insurance companies
• Any other establishment that the Central Government specifically notifies

State Government is appropriate government for:

• Most private factories
• Shops and commercial establishments
• Local undertakings and state public sector units
• Other establishments not specifically marked as Central

This matters because:

• Central Rules apply where the Central Government is the appropriate government.
• State Rules and notifications apply where the State Government is the appropriate government.
• The Industrial Tribunal or authority you approach will also differ.

3. What is the difference between "worker" and "employee" under the Code?

The IR Code primarily uses the term worker for key protections.

A worker is:

• Any person employed in an industry to do manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward;
• Employment may be direct or through a contractor;
• Excludes those employed mainly in:

1. managerial or administrative capacity, or
2. supervisory capacity drawing wages above the prescribed limit or mainly performing managerial functions.

The wider term employee may appear in some places, but:

• Retrenchment, lay off, closure compensation and many dispute-related protections are tied to "worker", not all employees.
• Senior managerial staff and high-level supervisors may therefore be outside some of these IR Code protections, even though they are employees of the company.

Example: A plant has 300 people - 260 shop floor and admin staff, 40 supervisory / managerial. Most of the 260 will be "workers" under the Code. The plant head, HR head and senior finance manager will usually not be workers.

4. How does the Code treat headcount - company total or each unit?

Headcount thresholds in the IR Code are normally applied per industrial establishment, not on the total company strength.

• A company can have 1,000 employees across India, but if each factory or office is a separate industrial establishment with, say, 200 workers, the 300-worker thresholds in the Code are tested unit by unit.
• Only if a particular unit crosses the relevant threshold (for example 300 workers for standing orders or for prior permission for retrenchment and closure) do those obligations apply to that unit.

Separate units may be treated as one industrial establishment only if:

• there is strong functional integrality,
• unity of management and control,
• a single pool of workmen with frequent interchange, or
• the government has issued a notification to that effect.
• Default assumption: thresholds such as "300 or more workers" are per establishment, unless a rule or decision clearly clubs multiple units

5. Does the IR Code apply to shops and offices governed by the Shops and Establishments Act?

Yes, often both apply, but for different things.

A large IT company or corporate office is usually a shop or establishment under the State Shops and Establishments Act for hours, weekly off and local conditions.

The same entity can also be an industrial establishment under the IR Code for:

• trade unions,
• standing orders (if threshold met),
• grievance redressal,
• industrial disputes,
• strikes and lockouts,
• lay off, retrenchment and closure.

Whether a particular category of shops / offices is treated as an "industrial establishment" for certain IR Code chapters depends on State Rules and notifications.

6. Do existing trade unions have to re-register under the IR Code?

No.

• Trade unions registered under the Trade Unions Act, 1926 continue as registered trade unions under the IR Code by virtue of the savings clause.
• They do not have to re-apply for registration.

However:

• Their constitution, office bearers and filings must comply with new requirements in the Code and the applicable Rules going forward.
• Recognition inside an establishment as a negotiating union or negotiating council is a separate question, and depends on membership numbers and rules.

7. How does a union become the "negotiating union" in an establishment?

The IR Code introduces a formal mechanism for recognition.

In brief:

If there is only one registered trade union in an establishment and it has at least the prescribed percentage of workers as its members(for example, more than 50 percent, as set out in Rules), it will normally be treated as the negotiating union.

If there are multiple registered unions, then:

• either the largest union with the required majority is recognized as the negotiating union, or
• if no union crosses that majority, a negotiating council is formed, with union representation in proportion to membership.

Example: Factory with 800 workers and three registered unions:

• Union A - 420 members
• Union B - 260 members
• Union C - 120 members

If rules require more than 50 per cent membership, Union A (52.5 percent) becomes the negotiating union. If no union crosses the threshold, then a negotiating council with representatives from A, B and C is formed.

8. What is the difference between registration and recognition of a union?

• Registration makes a union a legal entity - it can hold property, sue and be sued, and enjoy certain protections and immunities.
• Recognition under the IR Code (as negotiating union or part of negotiating council) gives a union the formal status to bargain on behalf of workers inside a particular establishment.

Several unions may be registered in a region, but only one union (or a council) in a particular establishment will be the negotiating agent for that establishment.

9. When are standing orders mandatory under the IR Code?

The Code requires standing orders in every industrial establishment:

• where 300 or more workers are employed, or
• as otherwise notified by the appropriate government.

Key points:

• The 300 figure is applied per industrial establishment, not on total company strength.
• Many establishments had standing orders earlier under the 100-worker threshold. Those certified standing orders continue by the savings clause even if the current headcount is below 300.

So:

• If a unit today has 280 workers and no certified standing orders, the Code does not mandate standing orders solely on headcount.
• If it grows to 320 workers, standing orders become mandatory for that unit.
• If the unit already had certified standing orders from earlier days, those continue until lawfully modified or replaced.

10. Can a company policy manual replace certified standing orders?

No, a unilateral HR policy manual is not the same as certified standing orders.

Certified standing orders are:

• drafted,
• shared with workers / unions,
• tested before a Certifying Officer,
• and then formally certified under the Code.

After certification, they have statutory force and become binding conditions of service.

A policy manual can be:

• A useful internal document, but by itself, it does not have the legal status of certified standing orders.
• Internally, many companies align their policy manual with the Model Standing Orders or their certified standing orders, so there is no conflict.

11. Is a Grievance Redressal Committee (GRC) compulsory in all establishments?

The IR Code requires a Grievance Redressal Committee in establishments with a prescribed minimum number of workers (for example, 20 or more, as specified in Rules).

Key features:

• It has representatives of employers and workers.
• There must be adequate representation of women in proportion to women workers.
• It deals with individual grievances - transfer, leave, interpretation of service conditions, etc.
• It does not replace trade unions or collective bargaining; it provides first-level internal resolution.

Even where not strictly compulsory (for example, very small units), many employers choose to create an internal grievance mechanism on the same lines to show good faith and reduce disputes.

12. Are all strikes now illegal unless these Code procedures are followed?

No, the Code does not declare all strikes illegal. It does, however, make procedure and timing critical.

Broadly:

Strike notice is required in the form and time limit prescribed.

Workers cannot go on strike:

• during the notice period before the permitted date,
• beyond the validity window of the notice,
• during conciliation proceedings and a specified cooling-off period thereafter,
• during the pendency of Tribunal or National Tribunal proceedings on that dispute and a specified period thereafter,
• during the operation of a settlement or award on the same subject.

If these conditions are violated, a strike can be treated as illegal, with consequences for wages and discipline.

Example:

Workers give strike notice on 1 March. If the law requires a 14-day waiting period and a 60-day validity:

• A strike on 8 March (before 14 days) is at risk of being illegal.
• A strike on 20 May after the 60-day window can also be illegal.
• A strike during conciliation on the same dispute may be illegal even if within the 60-day window.

13. Do strike rules apply only above 300 workers?

No.

• Strike and lockout provisions apply to all covered industrial establishments, irrespective of 300 headcounts, unless specifically excluded by Rules.
• The 300 threshold is relevant mainly for standing orders and for prior permission for lay off, retrenchment and closure, not for basic strike procedures.

So:

• A 120-worker unit that is an industrial establishment must still follow notice and timing rules for strikes and lockouts.
• A smaller size does not mean there is a free hand to walk out without the process.

14. What is "retrenchment" and when does the Code treat something as retrenchment?

Retrenchment under the IR Code is a termination by the employer of a worker's service for any reason other than:

• punishment by way of disciplinary action;
• voluntary retirement;
• retirement on superannuation;
• non-renewal of a fixed term contract on expiry;
• termination on continued ill health;
• situations specifically excluded in the definition.

Important differences:

• Resignation by the worker is not retrenchment.
• Expiry of a clearly worded fixed-term contract at the agreed date is not retrenchment.
• Termination for misconduct, after proper enquiry, is not retrenchment, though it can still be challenged on fairness and procedure.

In most other cases where a worker is asked to go, including "role redundancy" or "business reasons", it is treated as retrenchment, and the Code's retrenchment rules apply.

15. How is retrenchment compensation calculated? Can you give a simple example?

Retrenchment compensation is generally: 15 days' wages for every completed year of continuous service, or part thereof in excess of six months, based on last drawn wages.

Example: A worker has 7 years and 8 months of continuous service. Last drawn wages (for this purpose) are Rs 30,000 per month.

• Service of 7 years and 8 months is counted as 8 completed years (because the "part in excess of six months" rule applies).
• One day wage = 30,000 ÷ 26 = Rs 1,153.85 (if the 26 working days method is followed as per applicable practice / rules).
• 15 days wages = 15 × 1,153.85 ≈ Rs 17,307.75.
• For 8 years, compensation ≈ 8 × 17,307.75 ≈ Rs 1,38,462 (rounded as per company practice).

This is in addition to:

• notice pay (if notice not served), and
• any other contractual or policy-based payments.

16. When do we need prior government permission for retrenchment or closure?

Prior permission is required only for larger industrial establishments:

Factories, mines and plantations with 300 or more workers (or other number notified by the appropriate government) for:

• lay off,
• retrenchment, and
• closure.

Key points:

• Threshold is applied per industrial establishment.
• These units must be applied in the prescribed form, stating reasons and details.
• Retrenchment or closure cannot go ahead without permission (or deemed permission if the law so provides after expiry of the decision period).

Smaller units:

• Must still give notice and pay compensation for retrenchment and closure,
• But need not obtain prior government permission under this special chapter.

17. What is the "reskilling fund" and how does it work?

The IR Code introduces a reskilling fund concept to support retrenched workers:

• For every retrenched worker, the employer must deposit an amount equal to 15 days' wages last drawn (or such amount as notified) into a designated reskilling fund.
• The amount must be transferred to the bank account of the retrenched worker within the prescribed time (for example, within 45 days of retrenchment).
• This is intended to give the worker a small buffer to manage the transition and invest in reskilling.

This is over and above:

• statutory retrenchment compensation, and
• other dues.

18. How does the Code treat fixed term employment in relation to IR issues?

Fixed term employment (FTE) is recognized formally:

• FTE workers must get wages, allowances, hours, leave and benefits on par with permanent workers doing similar work.
• For gratuity, FTE workers who complete one year of continuous service become eligible under CoSS, even if total service is less than five years.
• When a fixed term contract expires on the agreed date, and the contract clearly says employment ends on that date, non-renewal is not treated as retrenchment.

However:

• Repeated back-to-back FTE contracts for many years can be challenged as an attempt to avoid permanency.
• Terminating an FTE worker before contract expiry without proper cause and process may still be treated as illegal termination or disguised retrenchment.

Example: A worker is hired on a 1-year fixed term for a seasonal project, with clear start and end dates. He works the entire year, gets the same pay as permanent workers. At the end of 12 months, the contract expires and is not renewed. This is not retrenchment, but if he has completed one year of continuous service, gratuity for that year becomes payable.

19. How are disputes involving contract workers handled under the IR Code?

Contract labour is mainly regulated by the OSH Code and relevant contract labour rules. However, the IR Code can still apply in disputes involving contract workers.

Scenarios:

• A dispute about retrenchment, non-payment of wages or unfair labour practice by a contractor can be raised as an industrial dispute between the contractor as employer and his workers.
• In some cases, where the principal employer is deeply involved in engaging, supervising and controlling contract workers, and the contractor is merely a paper arrangement, tribunals may treat the principal employer as the real employer.

In addition:

• If contract workers raise issues capable of affecting industrial peace in the principal employer's establishment (for example, common gate agitation), disputes may involve both the principal employer and the contractor.
• The IR Code does not by itself abolish contract labour; it provides the dispute resolution and IR framework around it.

20. What are "unfair labour practices" under the IR Code?

The Code lists unfair labour practices for both employers and workers / trade unions.

Examples for employers:

• Interfering with, restraining or coercing workers in the exercise of their right to form or join a union.
• Dominating or maintaining a "puppet union" under employer control.
• Discriminating against workers for union membership or activities (transfers, promotions, punishments).
• Refusing to bargain in good faith with the recognised negotiating union or council.

Examples for workers / unions:

• Coercive picketing, gherao and wrongful confinement of managers.
• Preventing willing workers from entering or leaving the workplace.
• Indulging in go-slow or work-to-rule in a manner that is listed as unfair.
• Violence, damage to property and intimidation during industrial action.

Engaging in unfair labour practices can:

• lead to orders directing parties to cease and desist,
• attract penalties under the Code, and
• affect recognition or legitimacy of unions

21. What happens to cases already pending under the old Industrial Disputes Act?

The savings clause preserves all pending cases.

Disputes already referred to Labour Courts or Industrial Tribunals under the Industrial Disputes Act continue, even after the IR Code commencement date.

They may:

• continue in the same forum, or
• be transferred to the new Industrial Tribunal constituted under the Code, as per government notification.

Rights and liabilities that arose before the Code commenced are not wiped out. New disputes after the commencement date are raised and handled under the IR Code framework.

22. Are old awards and settlements still valid after the IR Code starts?

Yes. Awards and settlements made under the Industrial Disputes Act continue to bind the parties for the period mentioned.

Even after their initial period of operation ends, certain parts may continue until replaced by:

• a new settlement, or
• a new award, or
• a change legally brought about through due process.

The IR Code does not automatically cancel old awards and settlements; it carries them forward, and they get read as if made under the Code.

23. How far back can workers raise disputes after the IR Code commencement?

The Code itself does not impose a strict uniform limitation period for all disputes, but:

• Certain types of disputes and references may be subject to time limits in Rules or special provisions.
• Tribunals and courts often apply the principle that disputes should be raised within a reasonable time, and may decline stale claims where there is a delay without explanation.

Position in simple terms:

• Disputes about events that happened before the IR Code commencement are not automatically barred; they can still be raised under the saved provisions, subject to specific limitation rules and reasonable delay principles.
• For events after commencement, users must follow IR Code procedures and any limitation rules prescribed therein or in Rules.

24. For a company with multiple small units (each below 300), what are the key IR Code compliance priorities?

Consider a company with:

• Four plants / offices, each with 150-250 workers,
• Total workforce is about 900.

Key priorities:

• Identify appropriate government for each unit (Central or State).
• Map status of unions in each unit and whether any union is close to negotiating union numbers.
• Set up a Grievance Redressal Committee where the threshold for GRC is crossed.
• Align HR policy manual with Model Standing Orders, even if standing orders are not yet compulsory, to reduce disputes.
• Create clear SOPs for discipline, enquiry and termination consistent with Code principles.
• Put in place strike and lockout protocols, including tracking notices and conciliation.
• For any reduction in headcount, follow retrenchment rules on notice, compensation, last in, first out and preference in re-employment, even though prior permission may not be required.

25. For a larger factory with more than 300 workers, what does the IR Code change in practice?

For an industrial establishment with 300+ workers:

Standing orders become compulsory (if not already in place), and must be:

• drafted or aligned with Model Standing Orders,
• certified and properly communicated.

Prior permission may be needed for:

• lay off (beyond prescribed limits),
• retrenchment, and
• closure.

Negotiating union or council will be central to all major changes in service conditions.

Reskilling fund payments will apply to retrenched workers.

IR work in such units becomes far more process-heavy and must be carefully aligned with both the Code and the detailed Central / State Rules.