Balancing Business and Workers
The Industrial Relations Code, 2020 (“Code”) introduces a structured legal framework to regulate lay-off, retrenchment and closure in large industrial establishments, while also strengthening accountability and worker protection. It balances the employer’s need for operational flexibility with the worker’s right to security and fairness. Through provisions relating to prior governmental permission, compensation, the Worker Re-Skilling Fund, prohibition of unfair labour practices and clearly defined offences and penalties, the Code seeks to promote industrial stability, transparency and responsible conduct in industrial relations.
To which industrial establishments do these special provisions apply?
These provisions apply to industrial establishments other than seasonal establishments or establishments where work is performed only intermittently in which not less than 300 workers, or such higher number as may be notified by the appropriate Government, were employed on an average per working day during the preceding twelve months.
Who decides whether an establishment is seasonal or works intermittently?
If any question arises whether an industrial establishment is seasonal or whether work is performed only intermittently, the decision of the appropriate Government is final.
What is meant by industrial establishment for these provisions?
Industrial establishment means:
(a) A factory,
(b) A mine, or
(c) A plantation.
Is there any judicial observation regarding disputes about number of workers or status of workers?
Yes. It has been observed that findings of the High Court regarding disputes such as whether a unit employs more than the required number of workers, or whether a person is a worker or supervisor, involve questions of fact and ordinarily do not warrant interference.
Can a worker be laid off without prior permission?
No. A worker other than a badli or casual worker whose name is on the muster rolls of an industrial establishment covered under these provisions cannot be laid off without prior permission of the appropriate Government.
Are there any exceptions where prior permission is not required for lay-off?
Yes. Prior permission is not required if the lay-off is due to:
(a) Shortage of power,
(b) Natural calamity,
(c) In the case of a mine: fire, flood, excess of inflammable gas, or explosion.
How must an employer apply for permission to lay off workers?
The employer must apply electronically or in the prescribed manner, clearly stating the reasons for the intended lay-off. A copy of the application must also be served simultaneously on the concerned workers.
What must a mine employer do if workers are laid off due to fire, flood, gas, or explosion?
The employer must apply within 30 days from the commencement of lay-off for permission to continue the lay-off.
How does the Government decide on a lay-off application?
The appropriate Government:
(a) Conducts an enquiry as it thinks fit,
(b) Gives reasonable opportunity of hearing to the employer, workers, and interested persons,
(c) Considers the genuineness and adequacy of reasons,
(d) Considers the interests of workers and other relevant factors,
(e) Passes a written order granting or refusing permission.
A copy of the order must be communicated to both employer and workers.
What happens if the Government does not respond within 60 days?
If no order is communicated within 60 days, permission is deemed to have been granted.
Is the Government’s decision final?
Yes. The order is final and binding on all parties and remains in force for one year, subject to review.
Can the order granting or refusing permission be reviewed?
Yes. The Government may review its order on its own or on application by the employer or worker or refer the matter to a Tribunal. If referred, the Tribunal must pass an award within 30 days.
What if no permission is obtained or permission is refused?
The lay off becomes illegal from the date workers were laid off, and workers are entitled to all benefits as if they had not been laid off.
Can the Government relax the permission requirement in exceptional circumstances?
Yes. In exceptional cases such as accident in the establishment or death of the employer, the Government may direct that prior permission requirements shall not apply for a specified period.
When is a worker not considered laid off?
A worker is not deemed laid off if:
(a) The employer offers alternative employment in the same or another establishment of the same employer,
(b) The job does not require special skill or previous experience,
(c) The establishment is in the same town/village or within reasonable distance,
(d) The transfer does not cause undue hardship,
(e) The same wages are offered.
What are the conditions before retrenching a worker with at least one year of continuous service?
The employer must:
(a) Give three months’ written notice stating reasons, or pay wages in lieu of notice; and
(b) Obtain prior permission from the appropriate Government.
How must an employer apply for retrenchment permission?
The employer must apply electronically or in prescribed manner, stating clear reasons, and serve a copy on the concerned workers.
How does the Government decide on retrenchment?
After enquiry and hearing the employer, workers, and interested persons, the Government may grant or refuse permission considering genuineness, adequacy of reasons, worker interests and other relevant factors.
What if the Government does not respond within 60 days?
Permission is deemed granted.
Is the retrenchment order final?
Yes. It is final and binding for one year, subject to review or reference to Tribunal.
What if no permission is obtained or permission is refused?
Retrenchment becomes illegal from the date of notice, and the worker is entitled to all benefits as if no notice was given.
Can the Government relax retrenchment requirements in exceptional cases?
Yes, in exceptional cases such as accident or death of employer.
What compensation is payable upon retrenchment?
Each worker is entitled to compensation equivalent to 15 days’ average pay (or as notified) for every completed year of continuous service or part exceeding six months.
What must an employer do before closing down an undertaking?
The employer must apply for prior permission at least 90 days before closure, stating reasons and serving a copy on worker representatives.
Are construction undertakings covered?
No. Undertakings set up for construction of buildings, bridges, roads, canals, dams, or similar construction work are excluded.
How does the Government decide on closure?
After enquiry and hearing, considering genuineness of reasons, public interest, and other relevant factors, it may grant or refuse permission in writing.
What if no response is given within 60 days?
Permission is deemed granted.
Is the closure order final?
Yes. It remains binding for one year, subject to review or Tribunal reference.
What if closure is done without permission or permission is refused?
Closure is illegal, and workers are entitled to all benefits as if the undertaking had not closed.
What compensation is payable upon closure?
Workers are entitled to compensation equivalent to 15 days’ average pay (or as notified) for every completed year of service or part exceeding six months.
Is the employer required to maintain muster rolls during lay-off?
Yes. Even during lay-off, the employer must maintain a muster roll and allow workers to mark attendance during normal working hours.
Do certain other provisions apply to these establishments?
Yes. Certain provisions relating to lay-off, retrenchment and related matters also apply to such establishments.
What is the Worker Re-Skilling Fund?
It is a fund set up by the appropriate Government to support retrenched workers.
What does the Fund consist of?
It consists of:
(a) Employer contribution equal to 15 days’ last drawn wages per retrenched worker (or as notified),
(b) Contributions from other prescribed sources.
How is the Fund utilised?
The amount equivalent to 15 days’ last drawn wages must be credited to the retrenched worker’s account within 45 days.
Are unfair labour practices allowed?
No. No employer, worker, or Trade Union (registered or not) may commit any unfair labour practice specified in the Schedule.
Who can impose penalties in certain cases?
The appropriate Government may appoint an officer (not below Under Secretary rank or equivalent) to conduct enquiry and impose penalties.
What powers does the officer have during enquiry?
The officer may summon persons, enforce attendance, require evidence, and impose penalties if satisfied that an offence has been committed.
What if penalty is not paid within 90 days?
The person is punishable with a fine between Rs. 50,000 and Rs. 2,00,000.
What are the penalties for illegal lay-off, retrenchment, or closure?
Fine between Rs. 1 lakh and Rs. 10 lakh. Repeat offence: Fine between Rs. 5 lakh and Rs. 20 lakh, or imprisonment up to 6 months, or both.
What are penalties for unfair labour practices?
Fine between Rs. 10,000 and Rs. 2 lakh. Repeat offence: Fine between Rs. 50,000 and Rs. 5 lakh, or imprisonment up to 3 months, or both.
What are penalties for illegal strikes and lock-outs?
(a) Worker for illegal strike: Fine Rs. 1,000 to Rs. 10,000 or imprisonment up to 1 month or both.
(b) Employer for illegal lock-out: Fine Rs. 50,000 to Rs. 1 lakh or imprisonment up to 1 month or both.
(c) Instigation: Fine Rs. 10,000 to Rs. 50,000 or imprisonment up to 1 month or both.
(d) Financial support for illegal strike/lock-out: Same penalty.
What is punishment for breach of settlement or award?
Fine Rs. 20,000 to Rs. 2 lakh or imprisonment up to 3 months or both.
Continuing breach: Additional fine up to Rs. 1,000 per day and compensation may be awarded.
What is punishment for wilful disclosure of confidential information?
Fine up to Rs. 20,000 or imprisonment up to 1 month or both.
Can offences be compounded?
Yes. Offences (except those punishable with imprisonment only) may be compounded upon payment of:
(a) 50% of maximum fine (for fine-only offences),
(b) 75% of maximum fine (for certain other offences).
The amount is credited to the Social Security Fund.
When cannot offences be compounded?
If a similar offence was compounded or convicted within the previous three years.
What happens if composition order is not complied with?
The person must pay an additional 20% of the maximum fine.
Who can take cognizance of offences?
Courts can take cognizance only upon complaint made by or under authority of the appropriate Government.
Which courts can try these offences?
Only a Metropolitan Magistrate or Judicial Magistrate of the first class or higher.
What happens if a company commits an offence?
The company and persons in charge of its business are deemed guilty unless they prove lack of knowledge and due diligence. Directors, managers, secretaries, or officers are also liable if offence was committed with their consent, connivance, or neglect. Company includes firms, LLPs, and associations of individuals. Director in relation to a firm means a partner.
Therefore, the provisions relating to lay-off, retrenchment, closure, worker re-skilling, unfair labour practices and penalties reflect the Code’s attempt to create a balanced and disciplined industrial environment. By mandating prior permissions, ensuring compensation, facilitating re-skilling, and prescribing deterrent penalties, the law aims to protect workers from arbitrary actions while maintaining industrial growth and public interest. Ultimately, these measures reinforce the principle that industrial development must proceed with fairness, accountability and social responsibility.
Muneeb Rashid Malik is an Advocate. He tweets @muneebmalikrash.
