The Industrial Relations Code, 2020: Key changes

Introduction

The Industrial Relations Code, 2020 is an important piece of legislation aimed at amending the laws relating to trade unions, conditions of employment in industrial establishment or undertaking, investigation and settlement of industrial disputes, and matters connected therewith or incidental thereto. Our article titled, ‘The Industrial Relations Code, 2020: Key changes’ lists out the changes that organizations need to note and ensure compliance with.

Key Definitions and Changes

• Definition of Worker: The definition of a worker will be based on the wages being drawn by him. Workers/employees with a salary up to Rs 18,000 will fall under the category of worker.
• Fixed Term Employment: Fixed Term Employment, now employer can keep Fixed Term Employees (FTE) for specific duration and retrenchment compensation need not be paid. These FTE will be entitled to the same salary or social security as regular Employee.
• Industrial Dispute: Employee can raise an industrial dispute with the employer within the time limit of only 2 years instead of 3 years.
• Strikes: Trade unions have to give notice of 14 days before going on strike.
• Lay-off & Retrenchment: An establishment with less 300 workmen can lay-off, be retrenched, or closed without government approval, earlier this limit was 100 employees.
• Grievance Redressal Committee: The number of members in the Grievance Redressal Committee has been increased from 6 to 10.
• Appropriate Government: The definition of “Appropriate Government” has been modified by including the establishments of the contractors. Thus, the contractor’s appropriate government shall be that of the establishment where the contract labour has been deployed.
• Reskilling Fund: The Appropriate Government shall set up a reskilling fund and the fund shall consist of a contribution by an employer equal to fifteen days wages last drawn by the worker immediately before the retrenchment. The fund shall be utilised by crediting fifteen days wages last drawn by the worker to his account who is retrenched, within forty-five days of such retrenchment, in such manner as may be prescribed.

Definitions of Employee and Employer

• Definition of Employee: The definition of “Employee” has been added in the code and the term ’employee’ has been used invariably with the term worker. (e.g., ’employee/worker’ or ’employee and worker’) with a view to ensure that there is no discrimination in the applicability of labour laws to the employee/worker.
• Definition of Employer: The definition of “Employer” has been completely modified under section 2 (m) and as per the new definition employer means
  • Head of the department
  • The occupier of the factory
  • Manager of the factory under clause (f) of sub-section (1) of sec 7 of the Factories Act
  • The person who, or the authority which has ultimate control over the affairs of the establishment and where the said affairs
  • are entrusted to a manager or managing director, such manager or managing director
  • Contractor
  • The legal representative of a deceased employer.

Provisions for Fixed-Term Employment

Fixed Term Employment has been incorporated, which is a major change introduced in the code:-

• The code provides that the fixed term employee will get all statutory benefits like ESI, EPF, bonus, wages, etc at par with regular employees who are doing work of the same or similar nature. The termination of the service of a worker as a result of completion of tenure of fixed term employment would not be considered retrenchment.

• The employee would be eligible for gratuity if he renders service under the contract for a period of one year.

Definition of Industry

The definition of “industry” has been modified and provides that any systematic activity carried on by cooperation between an employer and his workers, whether such workers are employed by such employer directly or by or through any agency including a contractor. The definition has specifically excluded institutions owned or managed by organizations wholly or substantially engaged in any charitable, social, or philanthropic services; sovereign functions; or domestic services.

Industrial Disputes and Trade Unions

• Industrial Dispute: The definition of Industrial Dispute has been modified to include the dispute arising out of the discharge, dismissal, retrenchment, or termination of such worker.
• Metro railway has been included in the definition of railways.
• Trade Union Dispute: The maximum number of members in the Grievance Redressal Committee has been increased from 6 to 10 in an industrial establishment employing 20 or more workers.

Read our other article Labour Law Compliance Calendar 2025 – India

Recognition of Negotiating Union

• Negotiating Union or Negotiating Council has been inserted in the definition.
• Trade Union dispute has been added, which provides dispute relating to trade union arising between two or more trade unions or between the members of a trade union inter se.
• The definition of wages has been revised:-
  • The first part includes all salary components expressed in terms of money, like basic salary, all reimbursements, all allowances, and all benefits. The second part of the definition provides specific exclusions like:- bonuses payable under any law, conveyance allowance, house rent allowance, overtime allowance, house accommodation, supply of light, water, medical attendance, other amenities/services excluded by a general or special order of the appropriate government, commission, contribution to provident fund/pension, any sum paid to defray special expenses, gratuity, retrenchment compensation, remuneration payable under any award or settlement between the parties.
  • Third part of the definition provides that the total excluded components should not exceed 50% of the total remuneration. The third part of the definition provide limit as the definition very clearly specifies the list of exclusions so anything which is paid to the employees other than the exclusion would be covered and the exclusion limit cannot be more than 50%.
• A new feature of “Recognition of Negotiating Union” has been introduced. The Code provides for a negotiation union in an industrial establishment, having registered trade unions, for negotiating with the employer.
  • If there is only one trade union in an industrial establishment, the employer is required to recognise such trade union as the sole negotiating union of the workers.
  • In case of multiple trade unions, the trade union with support of at least 51% of workers on the muster roll of that establishment will be recognised as the sole negotiating union by the employer.
• The provisions of Standing Orders on Industrial establishments will be applicable having 300 or more than 300 workers as notified by the appropriate Government.
• The Code prohibits strikes or lock-outs in any establishment unless a prior notice of 14 days is provided. Similar provisions existed in the Industrial Disputes Act, 1947 for public utility services (such as, railways and airlines). The Code expands these provisions to apply to all industrial establishments. This will impact the ability of workers to strike and employers to lock-out.

Industrial Disputes Resolution

• Voluntary Arbitration: An industrial disputes can be voluntarily referred to arbitration by the employer as well as the workers. The parties to the dispute are required to execute a written agreement referring the dispute to an arbitrator.
• Industrial Tribunal: The worker may approach the Industrial Tribunal for adjudication of the dispute related to dismissal, retrenchment or termination within 45 days after the application for the conciliation of the dispute was made.

Lay-Off, Retrenchment, and Closure

• Employers of industrial establishments such as mines, factories, and plantations with at least 300 workers are mandatorily required to obtain prior permission from the central or state government before lay-off, retrenchment, or closure. A fine of INR 1,00,000, which may extend up to INR 10,00,000, is leviable on any person who contravenes this provision.
• In case any worker is suspended by the employer pending investigation or inquiry. The amount of subsistence allowance payable will be 50% of the wages for the first 90 days of suspension; and at the rate of 75% of such wages for the remaining period of suspension.

Corrida Legal is equipping companies with processes for ensuring due compliance through audits and implementation and this article provides the precise set of key compliances under the Industrial Relations Code, 2020.

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