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Part I – Labour Code 2020

On September 23, 2020, the Parliament of India passed 3 (three) long awaited labour codes, namely (a) the Industrial Relations Code Bill, 2020; the Code on Social Security Bill, 2020; and the Occupational Safety, Health and Working Conditions Code Bill, 2020. The labour codes subsequently received the Presidential assent on September 29, 2020, marking a major milestone in ushering reforms in the labour sector.

Some of the key changes/additions introduced by the Industrial Relations Code Bill, 2020 are discussed in the first series (Part I) hereunder. Changes introduced through the Code on Social Security Bill, 2020 will be discussed in second series (Part II) of the Labour Code article.

Industrial Relations Code, 2020

The Industrial Relations Code Bill, 2020 (“IR Code”) was first introduced in November 2019 and was thereafter referred to the Standing Committee on Labour 2019-2020 (Standing Committee) for its evaluation and comments.

Legislations Repealed

The IR Code will repeal the following legislations (“Erstwhile Legislations”) from the dates to be notified by the Central Government:

1.         The Industrial Disputes Act, 1947 (“ID Act”);

2.         The Industrial Employment (Standing Orders) Act, 1946 (“SO Act”); and

3.         The Trade Unions Act, 1926 (“TU Act”).

Key Provisions

Some of the key provisions/changes under the IR Code are as follows:

I.          Industrial Disputes

i.          Definition of Industry:

The definition of ‘industry’ has been replaced under the IR Code. The term ‘industry’ now means any systematic activity carried on by co-operation between an employer and worker (whether employed directly or by or through any agency, including a contractor) for the production, supply or distribution of goods or services with a view to satisfy human wants or wishes (not being wants or wishes which are merely spiritual or religious in nature) but does not include the following:

a.             institutions owned or managed by organisations wholly or substantially engaged in any charitable, social or philanthropic service;

b.             activities of the appropriate Government relatable to the sovereign functions of the appropriate Government including all activities carried on by the Central Government departments dealing with defence research, atomic energy and space;

c.             any domestic service; or

d.             any other activity as may be notified by the Central Government.

ii.          Fixed Term Employment:

The IR Code has introduced a new term ‘fixed term employment’ which means engagement of a worker for a fixed period based on a written contract. A worker employed for a fixed term would be (a) entitled to the same benefits available to a permanent worker doing the same or similar work; (b) eligible for statutory benefits available to a permanent worker proportionate to the service period rendered and irrespective of whether the employment period does not fulfil the qualifying period under the statute; and (c) eligible for gratuity if service is rendered for a period of one (1) year.

Termination of employment by way of expiry of the fixed term would not qualify as retrenchment under the IR Code.

iii.          Applicability of Special Provisions – Lay-off, Retrenchment and Closure in Certain Establishments:

The ID Act and the Industrial Relations Code, 2019 (“Previous IR Bill”) had certain special provisions, which inter alia required employers to obtain prior permission of the appropriate government in order to lay off/retrench any employees or close down an establishment and were applicable to specified kinds of establishments employing hundred (100) or more workers on an average in the preceding twelve (12) months. In line with amendments made by various states in this regard recently, IR Code has increased this threshold to three hundred (300) or more workers i.e., no prior permission of the appropriate government is needed to lay off/retrench any employees or close down an establishment if the number of workmen in the establishment is less the above threshold.

Further, while the Previous IR Bill permitted the appropriate government to increase or decrease the threshold as it deemed fit, the IR Code provides for the notification of a higher number of workers by the Government, thereby ensuring a minimum applicability threshold of three hundred (300) workers across India.

iv.          Increase in Wage Ceiling for Worker:

Under the ID Act, ‘workman’ did not include persons employed in a supervisory capacity, drawing wages exceeding INR 10,000/- per month or exercises functions mainly of managerial nature. Under the IR Code, the wage ceiling of a ‘worker’ employed in a supervisory capacity has been increased to INR 18,000/- or such amount as may be notified by the Central Government.

v.          Wages

The IR Code has re-defined the term ‘wages’ to mean all remuneration whether by way of salary, allowances or otherwise, which would, if the terms of employment (express or implied) are fulfilled, be payable to a person employed in respect of his/her employment, and includes basic pay, dearness allowance and retaining allowance but doesn’t inter alia include any bonus, which doesn’t form part of the remuneration, value of any house accommodation, or the supply of light, water, medical attendance, any conveyance allowance, overtime allowance etc. A proviso to the definition however stipulates that in the event the excluded components under the definition, exceed fifty (50) percent of the entire remuneration paid, then the amount in excess of this fifty (50) percent, shall be construed within the ‘wages’. This change is to ensure that the wage proportion remains at fifty (50) percent.

vi.          Strikes and Lockouts:

Under the IR Code, no person employed in an industrial establishment can go on strike or an employer of an industrial establishment lock-out any workers inter alia:

a.             without giving notice within sixty (60) days before the strike/lock-out to the other person/party; or

b.             within fourteen (14) days of such notice; or

c.             before expiry of the date of strike specified in the notice; or

d.             during the pendency of any proceedings including conciliation proceedings and litigation and arbitration proceedings and sixty days after the conclusion of such litigation and arbitration proceedings; or

e.             during any period in which a settlement or award is in operation, in respect of any of the matters covered by the settlement or award; etc.

Under the ID Act, provisions related to strikes and lock-out were restricted to public utility service as defined under the ID Act. The IR Code has made the provision applicable to all industrial establishments.

vii.        Notice of Change in Conditions of Service:

IR Code has introduced a new provision whereby an advance notice of any change in conditions of service of a worker will not be required if ‘such change is effected in accordance with the orders of the appropriate government’. This clause may be particularly useful to employers in a situation akin to a government-mandated lockdown or imposition of any other such embargo on conducting of business.

viii.        Termination on the ground of Continued Ill Health:

The IR Code provides for the exclusion of ‘continued ill health’ of a workman from the definition of ‘retrenchment’. In view thereof, the termination of an employee/workman on such ground would not entail payment of retrenchment compensation to such an employee/workman.

II.          Worker Re-skilling Fund

The IR Code prescribes for the creation of a worker re-skilling fund by the appropriate Government which shall consist of (a) an amount to be contributed by the employer of an industrial establishment equal to fifteen (15) days wages last drawn by the worker immediately before the retrenchment, or such other number of days as may be notified by the Central Government, for every retrenched worker in case of retrenchment only; and (b) contribution from such other sources as may be prescribed by the appropriate Government.

III.           Change in Penalties

There have been change in the penalties prescribed for various offences under the IR Code as compared to the Erstwhile Legislations. For instance, the penalty for contravention of provision related to retrenchment of workmen under Chapter VB of the ID Act was imprisonment for a term which may extend to one (1) month and/or with fine which may extend to INR 1,000/- (Rupees One Thousand) whereas under the IR Code, a similar contravention is punishable with fine only which may range between INR 1,00,000/- to INR 10,00,000/-.

IV.        Compounding of Offences

The IR Code allows for compounding of offences provided such offences are not punishable under the IR Code with imprisonment only, or with imprisonment and fine. For offences punishable with fine only, the offence may be compounded for a sum of fifty (50) per cent of the maximum fine. For offences punishable with imprisonment for a term which is not more than one year or with fine, compounding is allowed for a sum of seventy-five (75) per cent of the maximum fine. This rule will however not apply to offences repeated within three (3) years of the commission of the first violation.

Interestingly, the Industrial Relations Code Bill, as introduced in 2019, stipulated that the offences punishable with fine only could be compounded. From a review of the penalty provisions, it appears that the maximum duration of imprisonment for offences under the IR Code is six (6) months or fine and therefore, it appears that all offences under the IR Code are compoundable. Additionally, all amounts realized from the compounding of offences are required to be credited to the social security fund which is to be created under the Code on Social Security Bill, 2020.

V.          Employment Standing Orders


Every industrial establishment where three hundred (300) or more workers are employed or were employed on any day of the preceding twelve (12) months, are required to frame standing orders i.e., industrial establishments with up to three hundred (300) workers will not be required to frame a standing order.

This is a relaxation from the Previous IR Bill which prescribed that every industrial establishment where one hundred (100) or more workers were employed would be required to frame standing orders. Additionally, the appropriate Government was also empowered to apply the provisions to industrial establishments employing less than one hundred (100) workers. The aforesaid provisions have been removed from the IR Code.

Continuing Coverage:

The Previous IR Bill also provided that once the standing orders became applicable on an industrial establishment, the provisions would continue to be applicable in case of reduction in the number of workers below the stipulated threshold. This provision has been removed from the IR Code.

Certification of Standing Orders:

IR Code provides that the certifying officer must complete the procedure of certification of the draft standing orders/modifications thereof within sixty (60) days from its receipt, failing which the draft standing orders/modifications will be deemed to have been certified.

Additionally, in case an establishment simply adopts the model standing orders framed by the Central Government, then such standing orders will also be considered as certified, upon the establishment forwarding the information to the certifying officer in this regard.

Time Limit for Completion of Disciplinary Proceedings:

The IR code provides that investigation/inquiry to be ordinarily completed within a period of ninety (90) days from the date of suspension where any worker is suspended on complaint/charges of misconduct.

VI.        Trade Unions

i.          Negotiating Union and Negotiating Council:

The IR Code has introduced a new concept for granting recognition to negotiating unions and councils with respect to registered trade union(s) by an industrial establishment for the purposes of negotiations.

Recognition of a sole negotiating union

If only one (1) registered trade union of workers is functioning in an industrial establishment, then the industrial establishment will, subject to such criteria as may be prescribed, recognise such a trade union as the negotiating union.

In the event that more than one (1) registered trade union of workers are functioning in an industrial establishment, then the trade union having fifty one (51) per cent or more workers on the muster roll of that industrial establishment will be recognised by the industrial establishment as the negotiating union. Under the Previous IR Bill, trade unions having seventy-five (75) per cent or more workers were recognised as the sole negotiating union.

Representation in the negotiating council

In case the aforesaid criteria are not fulfilled, then the employer is required to constitute a negotiating council comprising of the representatives of such registered trade unions which have the support of not less than twenty (20) per cent of the total workers on the muster rolls. One (1) representative shall be included for each such trade union. Under the Previous IR Bill, the threshold for representation was one (1) representative each on behalf of a trade union having the support of at least (10) per cent of the total workers on the muster rolls.

Recognition of a negotiating union/negotiating council will be valid for a period of three (3) years from the date of recognition/constitution but will not exceed a period of five (5) years.

ii.          Membership of Minors:

The IR Code has lowered the age criteria for membership of minors in trade unions from fifteen (15) years to fourteen (14) years.

iii.          Appeal

Appeals against an order of the Registrar of Trade Unions, refusing registration of trade union or cancellation of certificate of registration, shall lie before the Industrial Tribunal required to be constituted under the IR Code. Under the TU Act, an appeal could be made before the High Court or the concerned Labour Court or Industrial Tribunal, depending upon the location of the head office of a trade union.

iv.          Adjudication of Disputes

Under the IR Code, in case a dispute arises between (a) two trade unions; or (b) worker(s) of a trade union and the concerned trade union, regarding registration, administration or management or election of office bearers of the trade union; or (c) workers who are refused admission as members of a trade union and the concerned trade union; or where a dispute is in respect of a trade union which is a federation of trade unions and office-bearer authorised in this behalf by the concerned trade union, an application for adjudication can be made before the Industrial Tribunal constituted under the IR Code having jurisdiction over the registered office of such trade union(s).

v.          Central and State Recognition of Trade Unions

The IR Code empowers the Central Government and State Governments to recognise a trade union or a federation of trade unions as a central trade union or state trade union, respectively.

Considering that the IR Code has raised the threshold for lay-off/retrenchment requiring prior government approval from the existing one hundred (100)  workmen to three hundred (300) workmen industry, it is likely to provide more flexibility to employers for hiring and firing workers without government permission. Also, by raising the threshold for requirement of a standing order in industrial establishments to over three hundred (300) workers imply that industrial establishments with up to three hundred (300) workers will not be required to furnish a standing order. The IR Code also has also introduced new conditions for carrying out a legal strike. The changes introduced through the IR Code is intended to provide much needed flexibility of operation to industry. However, many trade unions have expressed displeasure on the new IR Code asserting that the new code will promote hire and fire policy by industries and would enable industries to introduce arbitrary service conditions for workers and is therefore anti-workmen.