Restructuring Industrial Relations
The Industrial Relations Code, 2020 consolidates the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947 into a unified framework. This consolidation affects every aspect of employer-employee collective relations, from union formation to strike procedures to dispute resolution.
For employers operating in India, understanding these changes is not merely academic. The Code's provisions on strikes, lockouts, retrenchment, and closure directly impact operational flexibility. Its provisions on negotiating unions and trade union recognition reshape collective bargaining dynamics.
Trade Union Framework
The Code maintains the right of workers to form and join trade unions. Seven or more workers can form a trade union, with at least 10 per cent or 100 workers (whichever is less) as minimum membership for registration. This threshold prevents proliferation of unrepresentative unions while preserving the fundamental right to organise.
A significant innovation is the concept of the negotiating union. Where multiple registered trade unions exist in an establishment, the union with majority membership becomes the sole negotiating union. If no union commands majority, a negotiating council comprising representatives of unions with at least 20 per cent membership handles collective bargaining.
Recognition and Verification
The appropriate government will verify membership claims to determine the negotiating union. This verification process, still being operationalised in various states, introduces a structured approach to union recognition that replaces the often-contentious informal processes that prevailed earlier.
Employers should prepare for a more formalised collective bargaining environment. The sole negotiating union or council becomes the exclusive interlocutor for matters covered under collective agreements. Parallel negotiations with unrecognised unions create legal risk.
The Strike and Lockout Framework
Perhaps no aspect of the Code has attracted more attention than the strike provisions. Workers in all industrial establishments must give at least 14 days' advance notice before striking. This extends the notice requirement, previously applicable only to public utility services, to all industrial establishments.
Strikes during pendency of proceedings before a Tribunal or National Industrial Tribunal are prohibited, as are strikes within 60 days of conclusion of such proceedings. Similar restrictions apply to lockouts. Violation can result in penalties for workers and employers alike.
Practical Implications
The 14-day notice requirement provides employers with advance warning and time for negotiation. Use this window constructively. Engage with the union to understand grievances and explore resolution. A strike avoided through negotiation serves everyone's interests better than a strike that proceeds to confrontation.
Maintain documentation of all communications during the notice period. If a strike proceeds despite good faith negotiation, this record supports your position in subsequent proceedings. If agreement is reached, formalise it in writing with clear terms.
Standing Orders Revolution
The Code requires every industrial establishment with 300 or more workers to have standing orders governing conditions of employment. This threshold, raised from 100 in some states, expands coverage while reducing compliance burden for smaller establishments.
More significantly, the Code provides for model standing orders that apply by default until an establishment certifies its own. These model orders cover matters including classification of workers, manner of intimating working hours, attendance and late coming, conditions for applying for leave, and procedure for termination.
Drafting Custom Standing Orders
Establishments may draft standing orders suited to their specific circumstances, but these must be certified by the certifying officer. The certification process involves employer submission, worker objection opportunity, and officer approval. Certified orders take effect from certification date.
When drafting custom standing orders, balance operational requirements with fairness and statutory compliance. Orders that appear unduly harsh or that conflict with statutory protections face rejection or challenge. Engage with worker representatives during drafting to build consensus.
Fixed-Term Employment
The Code formally recognises fixed-term employment as a distinct category. Fixed-term workers are entitled to working conditions, wages, and benefits on par with permanent workers performing similar work. This includes statutory benefits like gratuity, calculated proportionately to the term served.
Importantly, fixed-term contracts cannot be terminated before the agreed term except for disciplinary reasons. The fixity works both ways: workers committed for a term cannot leave prematurely without consequence, and employers cannot terminate without cause before term completion.
This creates genuine flexibility without exploitation. Employers can hire for genuine time-bound needs. Workers receive fair treatment during their engagement. But the framework prevents using fixed-term as a device to avoid permanent employment obligations indefinitely.
Retrenchment and Closure
Establishments with 300 or more workers require prior government permission for layoff, retrenchment, or closure. This threshold, raised from 100 in most states, provides larger employers with greater flexibility while maintaining protections for workers in the largest establishments.
Where permission is required, the application must specify reasons and provide supporting documentation. The government's decision timeline and criteria are prescribed. Non-compliance renders the action void and attracts penalties.
Retrenchment Compensation
Workers retrenched after continuous service of at least one year are entitled to compensation equivalent to 15 days' average pay for every completed year of service or part thereof exceeding six months. This compensation is in addition to any notice pay required.
Calculate retrenchment compensation carefully. Errors in calculation create liability and invite challenge. Maintain clear records of service duration and compensation paid.
Dispute Resolution Mechanism
The Code establishes a tiered dispute resolution mechanism. Grievance redressal committees at establishment level address individual grievances. Conciliation officers attempt mediated resolution of industrial disputes. Industrial tribunals and the National Industrial Tribunal adjudicate disputes that resist settlement.
Engage with this mechanism proactively. Early resolution through grievance committees or conciliation costs less and damages relationships less than protracted litigation. But know when escalation is necessary and prepare thoroughly for tribunal proceedings when they arise.
