The Industrial Relations Code, 2020 fundamentally reshapes how employers and employees interact in India. While the Code on Wages affects salary and PF, this code focuses on job security, hiring and firing rules, layoffs, strikes, trade unions, and standing orders.
For employers and HR teams, this law determines:
- How easily employees can be hired or terminated
- When government approval is required for layoffs
- How trade unions function
- What rules apply during strikes
For employees, it defines:
- Job protection
- Rights related to termination and retrenchment
- Rules around strikes and collective bargaining
This guide explains the Industrial Relations Code in simple, practical terms, without legal jargon.
In short: What is the Industrial Relations Code, 2020?
The Industrial Relations Code, 2020 is a central labour law that:
- Consolidates multiple industrial relations laws into one code
- Governs hire and fire, layoffs, retrenchment, and closure
- Regulates trade unions and strikes
- Introduces a uniform framework for standing orders
Its biggest impact is on medium and large establishments, especially those with 100 or more workers.
Which old laws does the Industrial Relations Code replace?
The Industrial Relations Code merges and replaces these laws:
- Industrial Disputes Act, 1947
- Trade Unions Act, 1926
- Industrial Employment (Standing Orders) Act, 1946
Earlier, these laws operated independently, often leading to:
- Overlapping provisions
- Conflicting interpretations
- Long-running industrial disputes
The new code aims to bring clarity and predictability.
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Why was the Industrial Relations Code introduced?
To understand this code, you need to understand the problem with the old system.
Problems under earlier industrial laws
- Terminating employees was legally complex
- Layoffs required multiple approvals
- Startups and growing companies feared compliance risk
- Industrial disputes took years to resolve
- Standing orders applied inconsistently
As a result, many companies:
- Hesitated to expand workforce
- Preferred contract labour
- Avoided formal employment growth
What the new code aims to achieve
The Industrial Relations Code was introduced to:
- Balance worker protection with business flexibility
- Encourage formal employment
- Reduce prolonged industrial disputes
- Standardise standing orders
- Improve ease of doing business
In simple words:
The law tries to protect workers without discouraging job creation.
Hire and fire rules under the Industrial Relations Code
This is the most searched and most misunderstood aspect of the code.
What changed in hire and fire rules?
Under the Industrial Relations Code:
- Government approval for layoffs, retrenchment, and closure is required only if the establishment has 300 or more workers
- Earlier, this threshold was 100 workers
This threshold can be modified by state governments, but the central code sets the default at 300.
What this means in real life
For companies with fewer than 300 workers
- No prior government approval required for layoffs or retrenchment
- Termination must still follow legal procedure
- Notice and compensation rules still apply
For companies with 300 or more workers
- Prior government approval is mandatory
- Layoffs without approval are illegal
- Stronger job protection for employees
This change is particularly relevant for startups and mid-sized companies.
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Does this mean employers can fire employees freely?
No. This is a common misconception.
Even without government approval:
- Termination must follow due process
- Notice period applies
- Retrenchment compensation applies
- Employment contracts must be honoured
The code reduces administrative barriers, not employee rights.
Layoff rules under the Industrial Relations Code
Layoffs are temporary suspensions of work due to:
- Shortage of raw materials
- Power cuts
- Economic slowdown
Key layoff rules
- Layoff compensation must be paid
- Maximum layoff period is regulated
- Government approval depends on establishment size
The code clarifies definitions and procedures, reducing ambiguity.
Retrenchment rules explained simply
Retrenchment refers to termination of service for reasons other than misconduct.
What the law requires
- Notice period must be given
- Retrenchment compensation must be paid
- Procedural fairness is mandatory
The formula for retrenchment compensation remains largely similar to earlier laws, ensuring continuity for employees.
Standing orders under the Industrial Relations Code
Standing orders define:
- Work hours
- Leave rules
- Termination procedures
- Code of conduct
What changed?
- Standing orders now apply to establishments with 300 or more workers
- Earlier threshold was 100 workers
This reduces compliance burden for smaller businesses while retaining protections for larger workplaces.
Why standing orders matter
Clear standing orders:
- Reduce disputes
- Improve transparency
- Protect both employer and employee
- Provide predictable workplace rules
For HR teams, this simplifies policy management.
Strike rules under the Industrial Relations Code, 2020
Strike-related provisions are one of the most sensitive areas of industrial relations. The new code introduces uniform rules to reduce sudden disruptions while preserving workers’ rights.
What the law defines as a strike
A strike includes:
- Cessation of work by employees
- Refusal to work collectively
- Work stoppage as a pressure tactic
The definition is now uniform across sectors, unlike earlier laws where different rules applied to different industries.
New notice period for strikes
Under the Industrial Relations Code:
- Employees must give 14 days’ prior notice before going on strike
- Strikes cannot be started within:
- 14 days of giving notice
- 7 days after conciliation proceedings conclude
This applies to all industrial establishments, not just public utility services.
What this changes in practice
Earlier:
- Notice requirement mainly applied to public utility services
- Private sector strikes could begin with shorter notice
Now:
- Advance notice is mandatory across sectors
- Employers get time to respond
- Government authorities can attempt conciliation
This aims to reduce sudden work stoppages, not eliminate strikes.
Are strikes banned under the new code?
No. Strikes are not banned.
The law:
- Regulates the process
- Encourages dialogue before escalation
- Protects public interest
Employees still retain the right to collective action, but within a defined legal framework.
Lockouts and employer obligations
Just as strikes are regulated, lockouts by employers are also covered.
Key points
- Employers must give advance notice before declaring a lockout
- Lockouts during conciliation proceedings are restricted
- Illegal lockouts can attract penalties
This creates a balanced approach where both sides follow defined rules.
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Trade unions under the Industrial Relations Code
Trade unions play a central role in industrial relations, and the code introduces important changes in how they function.
Recognition of negotiating union
One of the biggest changes is the introduction of the concept of a “negotiating union”.
- If a trade union has 51% or more workers as members, it becomes the sole negotiating union
- If no union reaches 51%, a negotiating council is formed
This removes confusion caused by:
- Multiple unions negotiating simultaneously
- Conflicting demands
- Prolonged disputes
Why this matters
For employees:
- Clear representation
- Stronger collective voice
For employers:
- One recognised negotiation channel
- Faster resolution of issues
- Reduced uncertainty
This change significantly improves industrial harmony.
Registration and functioning of trade unions
The Industrial Relations Code also standardises:
- Trade union registration
- Membership requirements
- Compliance obligations
Key intent:
- Prevent misuse of union registration
- Ensure genuine worker representation
- Improve transparency
Trade unions must now meet clear eligibility criteria to operate.
Dispute resolution mechanism under the Code
The code strengthens dispute resolution through:
- Conciliation officers
- Industrial tribunals
- Time-bound procedures
What improves
- Faster resolution
- Reduced backlog
- Less prolonged litigation
This benefits both employees and employers by avoiding years-long disputes.
Impact on startups vs large companies
This is where the real-world impact diverges.
Impact on startups and small companies
For establishments with fewer than 300 workers:
- No requirement for prior government approval for layoffs
- Standing orders not mandatory
- Lower compliance burden
This provides:
- Operational flexibility
- Reduced fear of expansion
- Encouragement for formal hiring
Impact on large companies
For establishments with 300 or more workers:
- Government approval required for layoffs and closure
- Mandatory standing orders
- Stronger employee protection
Large companies must:
- Plan workforce changes carefully
- Maintain robust HR compliance
- Engage actively with unions
Does this encourage hire-and-fire culture?
This is a common concern.
The answer is no.
The code:
- Removes bureaucratic delays
- Does not remove legal protections
- Still mandates compensation and due process
The intent is to:
Encourage hiring by reducing fear, not enable arbitrary firing.
Compliance responsibilities for HR and employers
HR teams must focus on:
- Updated termination policies
- Standing order applicability
- Union engagement strategy
- Strike notice tracking
- Dispute documentation
Ignoring these can lead to serious legal exposure.
Closure rules under the Industrial Relations Code, 2020
Closure refers to the permanent shutting down of an establishment or part of it.
What the law says about closure
Under the Industrial Relations Code:
- Establishments with 300 or more workers require prior government approval for closure
- Establishments with fewer than 300 workers do not require prior approval
This threshold can be changed by states, but 300 is the default limit under the central code.
What this means in practice
For smaller establishments
- Business decisions can be taken faster
- Reduced administrative delays
- Still required to:
- Give notice
- Pay closure compensation
- Follow due process
For large establishments
- Closure without approval is illegal
- Employee interests receive stronger protection
- Government scrutiny applies
This maintains a balance between flexibility and job security.
Compensation rules (still employee-protective)
Even where approval is not required, employee compensation rules remain intact.
Key protections that continue
- Retrenchment compensation
- Notice period or pay in lieu
- Settlement of dues
- Gratuity and statutory benefits
The Industrial Relations Code does not remove compensation rights.
Penalties and enforcement under the Code
The Industrial Relations Code introduces clearer and stricter penalties to improve compliance.
Types of violations
- Illegal strikes or lockouts
- Non-payment of compensation
- Failure to follow standing orders
- Violation of closure or retrenchment rules
Penalty approach
- Monetary fines
- Higher penalties for repeated offences
- Accountability for serious violations
This pushes employers toward preventive compliance rather than reactive defence.
Role of state governments (very important)
Industrial relations is a concurrent subject.
This means:
- Central code sets the framework
- States notify detailed rules
- Thresholds and procedures may vary by state
Employers must:
- Track state-specific notifications
- Update HR policies accordingly
This is critical for companies operating across multiple states.
Common myths vs reality
Myth 1: Companies can now fire employees freely
Reality: Due process, notice, and compensation remain mandatory.
Myth 2: Strikes are banned
Reality: Strikes are regulated, not banned. Notice and procedure are required.
Myth 3: Only employees benefit
Reality: The code balances worker protection with employer flexibility.
Myth 4: Startups are exempt from all rules
Reality: Startups get flexibility, not exemption from labour law obligations.
Compliance checklist for employers and HR teams
To stay compliant under the Industrial Relations Code:
- Identify workforce size category
- Review termination and retrenchment policies
- Track strike notice requirements
- Update standing orders (if applicable)
- Align union engagement strategy
- Monitor state-specific rule changes
Proactive compliance reduces disputes and legal exposure.
Who benefits the most from the Industrial Relations Code?
Major beneficiaries
- Startups and mid-sized companies
- HR teams seeking clarity
- Employees through predictable processes
- Industrial relations as a whole
The biggest benefit is certainty.
Final takeaway
The Industrial Relations Code, 2020 is not about removing worker rights or enabling unchecked employer power.
It is about:
- Creating predictable hiring and termination rules
- Reducing fear of expansion for businesses
- Ensuring workers receive due process and compensation
- Preventing prolonged industrial disputes
By clearly defining thresholds, procedures, and responsibilities, the code aims to create stable and balanced industrial relations in India.
What to read next
To understand how this fits into the broader labour law framework, read:
- Code on Wages 2019 guide
- Occupational Safety, Health and Working Conditions Code guide
- Social Security Code 2020 guide
Together, these four pillars explain the entire new labour law system in India.
FAQ
What is the Industrial Relations Code, 2020?
The Industrial Relations Code, 2020 is a labour law that regulates hiring, termination, layoffs, strikes, trade unions and standing orders by merging three earlier industrial laws.
Is government approval required for layoffs under the Industrial Relations Code?
Government approval is required only for establishments with 300 or more workers, unless a state government notifies a different threshold.
Does the Industrial Relations Code allow companies to fire employees easily?
No. Employers must still follow due process, notice requirements and pay retrenchment compensation as per law.