71, Understanding the Code of Industrial Relations through key highlights
The Code on Industrial Relations is primarily designed to regulate the relationship between employers and workers, with a strong focus on protecting workers’ rights while providing clarity to organisations on issues such as layoffs, retrenchment, trade unions, and dispute resolution.
Who Is Considered a Worker
The Code on Industrial Relations applies specifically to workers and not to employees in managerial, administrative, or supervisory roles. A worker is defined as an individual who is not performing managerial or supervisory duties and whose wages fall below the prescribed threshold.
This distinction is critical, as most protections under this code apply only to workers and not to employees who fall outside this definition.
Fixed‑Term Workers and Equal Benefits
The code formally recognises fixed‑term workers. Fixed‑term workers are entitled to the same benefits as permanent workers, including gratuity, provided they complete the qualifying service period.
This ensures that organisations cannot deny statutory benefits simply because employment is time‑bound.
Understanding Layoff and Retrenchment
A layoff refers to a temporary inability of the employer to provide work to a worker, with the intention of resuming employment later. Retrenchment, on the other hand, is a permanent termination of service.
In case of layoff, eligible workers are entitled to fifty percent of their last drawn wages, subject to conditions such as availability for work and acceptance of alternative employment if offered.
Retrenchment Compensation and Notice
Workers who have completed at least one year of service are entitled to retrenchment compensation. This includes a mandatory notice period or pay in lieu of notice, along with additional compensation calculated at fifteen days’ wages for every completed year of service.
These statutory payments are separate from contractual notice provisions and must be complied with independently.
Additional Obligations for Large Establishments
Organisations employing three hundred or more workers are subject to additional requirements. Prior government approval is required before carrying out layoffs, retrenchments, or closures.
Such establishments are also required to provide longer notice periods, increasing income protection for workers in large organisations.
Works Committees and Grievance Redressal
Organisations with one hundred or more workers must constitute a Works Committee to promote harmony between management and workers.
Separately, organisations with twenty or more workers are required to set up a Grievance Redressal Committee, with adequate representation of women.
Standing Orders and Policy Governance
Standing orders, which define service conditions and disciplinary processes, must be prepared and communicated in English and the official language of the state.
For establishments with three hundred or more workers, standing orders must be prepared in consultation with workers or their representatives and, unless government model standing orders are adopted, must be approved by the appropriate authority.
Trade Unions and Collective Bargaining
The code provides a structured framework for formation and recognition of trade unions. Any seven or more workers can form a trade union, subject to registration requirements.
A recognised negotiating union or negotiating council represents workers in collective bargaining with the employer.
Industrial Disputes, Strikes, and Lockouts
An industrial dispute refers to disputes between employers and workers, or between workers themselves. Employees who are not classified as workers are not covered under this framework.
Strikes and lockouts require prior notice and must be carried out within prescribed timelines, ensuring predictability and procedural fairness.
Arbitration as a Dispute Resolution Tool
The introduction of arbitration provides employers and workers with an alternative mechanism to resolve disputes without prolonged litigation.
Arbitration can be invoked at any stage of an industrial dispute if both parties agree, offering a faster and less adversarial resolution process.
Why This Code Matters
The Code on Industrial Relations brings clarity, structure, and predictability to employer–worker relationships. It balances flexibility for organisations with statutory protection for workers.
Effective implementation requires HR practitioners to translate legal provisions into practical policies, communication, and processes that ensure compliance and workplace stability.
Related Podcast Episode
This article is based on the transcript of the original podcast of the same name featured in India HR Guide.
The transcript has been translated into this article with the support of AI and a human‑in‑the‑loop process.
