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The labour code consolidating India's laws on trade unions, standing orders and industrial disputes, and raising the retrenchment approval threshold to 300 workers.
The Industrial Relations Code, 2020 is one of the four labour codes, consolidating three central laws that governed the relationship between employers and workers: the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947. It received the President's assent on 28 September 2020 and the labour codes were brought into force in 2025. The Code governs trade union recognition, conditions of service, the procedure for strikes and lockouts, layoffs, retrenchment and closure, and the machinery for resolving industrial disputes. It is the most contested of the four codes because it directly alters the balance between employer flexibility and worker protection.
Type: LawConsolidates three laws — the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946 and the Industrial Disputes Act 1947
Raises the threshold requiring prior government permission for layoff, retrenchment or closure from establishments with 100 workers to those with 300 workers
Requires standing orders — written conditions of service — for industrial establishments employing 300 or more workers
Introduces the 'negotiating union': a trade union with 51% or more of the workers as members becomes the sole negotiating union; otherwise a negotiating council is formed
Requires 14 days' prior notice before a strike or lockout in all industrial establishments, extending a rule that earlier applied only to public utility services
Recognises fixed-term employment in statute, with the same benefits as permanent workers on a pro-rata basis
Provides for a re-skilling fund for retrenched workers, to which the employer contributes fifteen days' wages
Establishes Industrial Tribunals and a National Industrial Tribunal in place of the earlier multi-tier machinery
Frequency: A standard UPSC Mains GS-III topic on labour reform and employment, and a regular SSC and Banking General Awareness item.
Under the old Industrial Disputes Act, an industrial establishment employing 100 or more workers needed prior government permission before it could lay off, retrench or close down. Employers argued this made hiring risky: a firm that could not reduce its workforce in a downturn would avoid crossing the threshold in the first place, which discouraged expansion and pushed firms towards contract labour. Trade unions argued the opposite — that the requirement was the only real protection against arbitrary job loss, and raising it to 300 leaves the great majority of establishments free to retrench at will. Both positions rest on the same empirical claim about what the threshold does to firm behaviour; they differ on whether the cost falls more heavily on employment growth or on job security.
Making a door easier to exit through: it encourages more people to come in, but also makes it easier to be shown out.
| Aspect | Earlier position | Under the 2020 Code |
|---|---|---|
| Permission for layoff, retrenchment, closure | Required for establishments with 100 or more workers | Required for establishments with 300 or more workers |
| Standing orders | Required at a lower worker threshold | Required for establishments with 300 or more workers |
| Strike notice | 14 days' notice only in public utility services | 14 days' notice in all industrial establishments |
| Trade union recognition | No uniform statutory criterion for a sole negotiating agent | Union with 51% or more membership is the sole negotiating union; otherwise a negotiating council |
| Fixed-term employment | Not comprehensively recognised in central law | Recognised, with pro-rata benefits equal to permanent workers |
The Code is the sharpest expression of a long-running policy argument about why Indian manufacturing has not absorbed labour on the scale expected. One view holds that rigid retrenchment rules made firms deliberately stay small or rely on contract workers, so easing them will encourage formal hiring at scale. The other holds that job insecurity, not regulation, is the binding constraint, and that a workforce which can be dismissed easily has little bargaining power to raise wages. Two features of the Code cut across this divide and are worth noting on their own. The statutory recognition of fixed-term employment with pro-rata benefits gives a legal identity to workers previously hired through contractors on worse terms. And the re-skilling fund, financed by fifteen days' wages from the employer, is an attempt — modest in size — to make retrenchment carry a transition obligation rather than simply ending at the gate.
One of four labour codes; assent 28 September 2020
Merges three laws: Trade Unions 1926, Standing Orders 1946, Industrial Disputes 1947
Retrenchment and closure permission threshold: 100 raised to 300 workers
Standing orders needed at 300 or more workers
Negotiating union at 51% membership; otherwise a negotiating council
14 days' strike or lockout notice in all industrial establishments
Re-skilling fund: fifteen days' wages from the employer
Three central laws — the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947.
Establishments employing 300 or more workers must obtain prior government permission for layoff, retrenchment or closure. The earlier threshold was 100 workers.
A trade union whose membership covers 51% or more of the workers in an establishment becomes the sole negotiating union. Where no union meets that threshold, a negotiating council is constituted from eligible unions.
Fourteen days' prior notice, now required in all industrial establishments. Earlier this obligation applied only to public utility services.
A fund for retrenched workers to which the employer contributes fifteen days' wages, intended to support the worker's transition to new employment.
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