New Labour Codes and Its Impact

The new Labour Codes proposes to expand the social security spectrum by incorporating gig workers and inter-state migrant workers, while steps have also been proposed to provide employers with greater freedom to recruit and fire workers without approval from the government. Let us look at the impact these labour codes could have on industry in India.

Fri Jul 01 2022 | Employment, Criminal and Labour | Comments (0)


On September 29, 2020, India's existing labor laws, i.e. the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 ('SO Act'), and the Industrial Disputes Act, 1947, were replaced by the Government of India under a new legislation enacted as 'the Industrial Relations Code, 2020.

As industry in India is battling the ongoing COVID-19 pandemic, the Code aims to pursue benefits for both employers and their employees. The new labor codes streamline dispute resolution procedures, protect fixed-term workers, ensure that standing orders are followed by all large industrial institutions, build a re-skilling fund for retrenched workers, and raise fines to ensure that non-compliance is minimized. It ensures that an industry-friendly approach to fostering market harmony is followed by establishing a single bargaining body and allwing employers more autonomy to take operational decisions.

Overview of the changes introduced by the Code:

  • Reinforcing the Redressal Machinery of Grievance: As a prerequisite to create a grievance redress committee ('GRC'), the new code permits a maximum of 10 members as opposed to the maximum of 6 members required under the current law. Adequate representation of women employees is also expected by the GRC. To present complaints to the GRC, a limitation period of 1 year has now been prescribed. Even, if a grievance remains unresolved by the GRC or a worker is aggrieved by the judgment of the GRC, the process is no longer internal to the industrial establishment since the worker has access to conciliation proceedings.
  • Increased wage limit for supervisory employee coverage among workers: The criterion for the inclusion of supervisory personnel within the scope of "workers" was raised from INR 10,000 to INR 18,000. From now on, supervisory personnel receiving a monthly salary between INR 10,000 and INR 18,000 would automatically qualify as "workers" and their employers may need to meet the conditions of retrenchment to terminate their services, among other items.
  • New Definition of 'Industry': Under the Code,' industry' means any systemic operation for the production, supply, or distribution of products or services between employers and employees in order to fulfill human desires or wishes that are not solely spiritual or religious, regardless of whether the activity is undertaken for profit or capital expenditure. The term explicitly excludes entities conducting charitable, social or philanthropic roles and the sovereign functions of government and domestic services. In addition, the Central Government was allowed to exempt any other operation from the 'industry' scope.
  • Enhancement in Threshold for Standing Orders: Only industrial establishments defined under the SO Act are required, if they have 100 or more employees, to formulate standing orders and get them certified ('CSO'). This applicability threshold was lowered to 50 employees by some governments. The Code introduces a wider concept of 'industrial establishment' and raises it to 300 or more employees for  applicability requirement for CSO. For new smaller manufacturing establishments, this will introduce uniformity and eliminate the CSO requirement. Industrial establishments which have CSOs will, however, continue to be subject to the same rules insofar as their provisions are not inconsistent with the Code. Therefore, Information Technology (IT)/Information Technology-enabled Services (ITeS) units would need to provide CSOs unless a special or conditional exemption is provided under the Code.
  • Permanent Employee Benefits extended to More Fixed-Term Workers: Actually, only industrial enterprises that have, or need to have, CSOs are allowed to offer such benefits available to permanent workers doing the same/similar job to their fixed-term employees. The new labor codes suggest that fixed-term employees of commercial establishments, who require CSOs are eligible for fixed-term employment benefits, including gratuity, if they operate for a duration of one year. Employers who employ fixed-term workers will now have to shoulder an extra financial strain in the future.
  • Deterrence of Arbitrary Strikes/Lockouts: As of now, only public utility service employees are permitted to go on strike after their 42-day advance notice of strike on the 14th day. However, the Code allows employees in all industrial establishments to send a notice of strike 60 days in advance and does not allow them to go on strike within 14 days of that notice. In addition, the concept of "strike" has been extended by the Code and now requires coordinated or mass casual leave on a given day by 50 percent or more employees. Thus, the Code seeks to prevent employees and employers from indulging in arbitrary strikes and lock-outs by extending the reach of strikes and enforcing a prior notice clause.
  • Single Body to Negotiate with Management: The Code provides for the identification as the sole bargaining body of a negotiating union/council to negotiate with the industrial establishment employer on matters to be prescribed. As the sole bargaining body of such an institution, a registered trade union, which is the sole trade union in an establishment or has a membership of at least 51 per cent of the workforce shall be recognised. However, where there are numerous trade unions and no single trade union commands such a majority, the leaders of all major trade unions with at least 20% of workers as members must create a bargaining council to act as the sole negotiating body.
  • Increased Threshold for Closure, Lay-off and Retrenchment in Certain Establishments: Under the Code, industrial establishments operating as factories, mines and plantations need sufficient government approval for the closing of their facilities or the lay-off/retrenchment of their employees only if, on average, 300 or more employees per working day were employed in the previous year. In addition, the relevant government is empowered to lift this threshold. Under the new regulations, the threshold is 100 employees, and some states have increased it to 300 workers. Not only will this reform bring uniformity to all states, but it will also allow employers greater operational independence, which, in turn, will enable them to hire more staff.
  • Time Limit of Disciplinary Proceedings for Misconduct by Workers: The Code sets a time limit of 90 days for the completion of a worker's investigation or investigation into any wrongdoing concerning his dismissal by the employer. It is assumed that this will protect the rights of employees.

Comparison of previous provisions and changes proposed by NCL for lay-offs, retrenchment and closure

FeatureID Act 1947NCL Recommendations

Prior Permission

  • Needed for lay-offs in establishments with 100 or more employees, closure and retrenchment.
  • Not required for retrenchment and lay-offs.
  • Needed for closure in places with 300 or more employees

Clearance of dues as a pre-condition

  • No
  •  Yes

Notice period 

  • One month
  • Two months


  • At the 15-day rate (for closure and retrenchment)
  • Fifty percent of salaries for lay offs
  • Based on whether the company is profitable or causing losses:
  • Closure for facilities of more than 100 employees: 30 days (for sick businesses with losses of three years and filed for bankruptcy/winding-up) and 45 days (for profit making enterprises)
  • Retrenchment for facilities with more than 100 employees: 45 days (for sick companies trying to become viable by retrenchment) and 60 days (for profit making one enterprises)
  • For companies with 100 or fewer staff, 50 percent of the above is payable.
  • 50 per cent of lay-off salaries. Government approval should be sought if the lay-off reaches one month in establishments with 300 or more staff.


Some of the main acts relating to labor law, but not subsumed by the codes,

Additional Central LawsDescription of the Act
Labour Laws (Simplification of Procedure for Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988 Enables institutions with up to 19 employees and up to 40 employees to file cumulative annual reports and consolidated registrations in compliance with 16 central laws (covering wages, factories and contract labour)
Apprentices Act, 1961Provides for the supervision of apprentice instruction.
Bonded Labour System (Abolition) Act, 1976Provides for the training of apprentice supervision.
Child and Adolescent Labour (Prohibition and Regulation) Act 1986Provides for the management of apprentice instruction.
Public Liability Insurance Act 1991 Provides public liability insurance provisions to provide relief to those affected by injuries that have happened while handling any hazardous material.
Dock Workers (Regulation of Employment) Act 1948Makes provisions for the framing of a framework for the control of dock workers' jobs. Develop a board for the management of the system.
Dock Workers (Regulation of Employment) (Inapplicability to Major Ports) Act 1997.Provides for the Dock Workers (Employment Regulation) Act, 1948 to be inapplicable to dock workers at major ports in India.
Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 Provides for the framing of the provident fund, pension, related deposit-insurance and bonus schemes for individuals working in coal mines.
Provident Funds Act, 1925Provident funds are mostly dealt with by the government, local authorities, railways and some other bodies.
Seamen's Provident Fund Act, 1966Makes provisions for the framing of a Seamen Provident Fund Program.
Sexual Harassment at Workplace Act, 2013Establishes a system to correct allegations of sexual abuse in the workplace.
Boilers Act, 1923Regulates the manufacture of steam boilers and their use.
Employment of Manual Scavengers and Construction of Dry Latrines (Prohibition) Act, 1993 Prohibits work for such activities of manual scavengers. Regulates the building and maintenance of latrines for water seals.
Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013Prohibits the use of manual scavengers, manual cleaning without protective equipment of sewers and septic tanks, and construction of insanitary latrines.


What are the changes to the hiring-firing laws according to the new Labour Codes in Industry?

The GOI has allowed companies with up to 300 employees to fire staff or shut down plants without the prior approval of the GOI under the Economic Relations Code. Prior approval has been needed so far. Companies with nearly 300 employees also have to apply for approval. However, if the authorities do not respond to their appeal, the plans for retrenchment will be considered to have been accepted. Earlier, labor legislation mandated a period of notice of 30 to 90 days before retrenching "workmen," who could be a class of workers exclusively in the workplace. Lay-offs often require government approval in the case of processing units, farms, and mines with 100 or more workmen.

How does it affect workers' right to strike?

The Industrial Connection Code sets new conditions for workers to travel on strike on their own. Unions will now have to send notice of a strike for 60 days. While cases are pending before a labor tribunal or the National Industrial Tribunal, employees will not be able to continue a 60-day strike after they have been dismissed. Such standards apply to all or most sectors. Earlier, by giving between a fortnight and 6 weeks of notice, employees could continue the strike. There are now outlawed light hits.

What do these new labour codes mean for India's industries and economy?

Economists in India have long argued that for the industry to grow, India's obsolete labor laws need reform. Strict hiring-firing laws applicable to businesses with more than 100 employees made it nearly impossible for employees to get off. This adversely served as an opportunity to remain small for smaller businesses so that they could avoid the principles. Consistent with World Bank estimates, India could add approximately "2.8 million more good-quality formal sector jobs" on an annual basis with less restrictive legislation.

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