Introduction

The Industrial Relations Code, 2020 represents a watershed moment in India’s labour law framework, consolidating three major legislations—the Trade Unions Act 1926, the Industrial Employment (Standing Orders) Act 1946, and the Industrial Disputes Act 1947—into a unified code.[1] This legislative consolidation seeks to streamline dispute resolution under the Industrial Relations Code, 2020 through enhanced conciliation, arbitration, and industrial tribunals while balancing the interests of employers and workers in an evolving economic landscape. The Code, passed by the Parliament in September 2020, introduces significant reforms to the adjudicatory and conciliatory frameworks that have governed industrial relations in India for over seven decades.

At the heart of the Industrial Relations Code lies a three-tier dispute resolution architecture designed to address conflicts at various stages before they escalate into protracted legal battles. This system comprises preventive mechanisms through bi-partite forums, conciliatory processes involving government-appointed officers, and adjudicatory bodies empowered to deliver binding awards. Understanding these mechanisms is crucial for employers, workers, trade unions, and legal practitioners navigating the complexities of industrial relations in contemporary India.

Understanding Industrial Disputes Under the Industrial Relations Code, 2020

The Industrial Relations Code defines an industrial dispute as any dispute or difference between employers and employers, between employers and workers, or between workers and workers, which is connected with employment, non-employment, terms of employment, or conditions of labour. Significantly, the Code expands this definition to include disputes relating to the discharge, dismissal, retrenchment, or termination of individual workers, thereby granting them direct access to dispute resolution forums without requiring collective representation.[2] This represents a departure from the previous regime where individual grievances required collective support to be recognized as industrial disputes.

The scope of what constitutes an “industry” under the Code has been shaped significantly by judicial interpretation, particularly the landmark Supreme Court judgment in Bangalore Water Supply and Sewerage Board v. A. Rajappa (AIR 1978 SC 548).[3] In this case, a seven-judge Constitution Bench established the “triple test” to determine whether an entity qualifies as an industry: there must be systematic activity, cooperation between employers and workers, and production or supply of goods or services to satisfy human needs. The Court held that the absence of profit motive or the philanthropic nature of an undertaking does not disqualify it from being classified as an industry. This expansive interpretation ensures that workers across diverse sectors, including governmental bodies providing essential services, educational institutions, and hospitals, are protected under industrial relations laws.

The Three-Tier Dispute Resolution Architecture under the Industrial Relations Code, 2020

Preventive Mechanisms: Bi-Partite Forums

The first tier of dispute resolution under the Industrial Relations Code, 2020 emphasizes prevention through internal mechanisms that encourage dialogue between employers and workers before conflicts escalate. The Code mandates the establishment of two critical bi-partite forums that serve as the first line of defense against industrial unrest.

Works Committees are required in industrial establishments employing one hundred or more workers. These committees consist of equal representation from employers and workers, with worker representatives chosen in consultation with registered trade unions where they exist. The primary duty of Works Committees is to promote measures for securing and preserving amicable relations between employers and workers, commenting on matters of common interest and endeavoring to compose material differences of opinion. This forum provides a structured platform for addressing concerns before they develop into formal disputes requiring external intervention.

Grievance Redressal Committees represent an even more accessible mechanism, mandated for every industrial establishment employing twenty or more workers. These committees must have equal representation from employers and workers, with the chairperson alternating between employer and worker representatives on a rotational basis each year. The Code specifically requires adequate representation of women workers proportionate to their employment in the establishment. An aggrieved worker may file an application before the Grievance Redressal Committee within one year of the cause of action arising, and the committee must complete its proceedings within thirty days of receiving the application. If dissatisfied with the committee’s decision or if no resolution is reached within the stipulated timeframe, a worker may approach the conciliation officer within sixty days, either directly or through their trade union.

Conciliatory Processes: The Role of Conciliation Officers

When preventive mechanisms fail to resolve disputes, the second tier of the dispute resolution framework comes into play through conciliation proceedings. The appropriate government appoints conciliation officers who are charged with the duty of mediating and promoting the settlement of industrial disputes. These officers may be appointed for specified areas, specified industries, or for one or more industries, either permanently or for limited periods, providing flexibility in addressing regional and sectoral needs.

Conciliation proceedings are deemed to have commenced on the date when the first meeting is held by the conciliation officer after receipt of notice of a strike or lockout. The conciliation officer must investigate the dispute without delay and all matters affecting its merits and right settlement, with authority to do all things deemed fit for inducing parties to reach a fair and amicable settlement. The officer possesses significant powers under the Code, including the same powers vested in a civil court for enforcing attendance of persons, examining them under oath, and compelling production of documents.[4]

The Code imposes strict timelines on conciliation proceedings. If a settlement is reached, the conciliation officer sends a report to the appropriate government along with a memorandum of settlement signed by the parties. If no settlement is achieved, the officer must send a full report within forty-five days of commencing proceedings, or within fourteen days if the conciliation relates to a notice of strike or lockout. These time limits may be extended only with the written agreement of the concerned parties and approval of the conciliation officer. Importantly, conciliation officers cannot hold proceedings relating to industrial disputes after two years from the date the dispute arose, ensuring that stale grievances do not burden the system indefinitely.

Adjudicatory Bodies: Industrial Tribunals and National Industrial Tribunals

The third and final tier of dispute resolution involves adjudication by Industrial Tribunals and National Industrial Tribunals. The Industrial Relations Code has abolished Labour Courts and Courts of Inquiry, consolidating adjudicatory functions under a streamlined tribunal system designed to deliver faster and more specialized justice in industrial matters.

Industrial Tribunals are constituted by the appropriate government for adjudication of industrial disputes. Each tribunal consists of two members—a Judicial Member and an Administrative Member—appointed by the appropriate government. The qualifications, recruitment methods, terms of office, and other service conditions are specified through rules, with the proviso that only persons who have held posts at the rank of Joint Secretary or above in government are eligible for appointment as Administrative Members. A bench of the tribunal may consist of both members sitting together, or a single Judicial Member or Administrative Member sitting alone, depending on the nature of the dispute.

Complex cases involving standing orders, discharge or dismissal of workers, legality of strikes or lockouts, retrenchment and closure, and trade union disputes are heard by a two-member bench consisting of both Judicial and Administrative Members. Other disputes may be decided by a single-member bench, facilitating expeditious disposal. The Judicial Member presides over benches where both members sit together. Decisions are made by consensus, but if members differ in opinion, the matter is referred to the appropriate government, which appoints a Judicial Member from another tribunal to hear the point in dispute. The decision is then made according to the majority view of all members who have heard the case.

National Industrial Tribunals are constituted by the Central Government for adjudication of disputes involving questions of national importance or where industrial establishments in more than one state are likely to be interested or affected. These tribunals also consist of two members—a Judicial Member who must be or have been a High Court Judge, and an Administrative Member who must be or have been a Secretary to the Government of India or an equivalent rank with adequate experience in labour matters. The National Industrial Tribunal follows procedures similar to Industrial Tribunals but addresses disputes with wider ramifications across state boundaries.

Voluntary Arbitration as an Alternative

Recognizing the benefits of alternative dispute resolution, the Industrial Relations Code introduces provisions for voluntary reference of disputes to arbitration. Where an industrial dispute exists or is apprehended, and both the employer and workers agree, they may refer the dispute to arbitration through a written agreement specifying the arbitrator or arbitrators. If an even number of arbitrators is appointed, the agreement must provide for an umpire who will decide if the arbitrators are equally divided.

A copy of the arbitration agreement must be forwarded to the appropriate government and the conciliation officer. If the appropriate government is satisfied that the persons making the reference represent the majority of each party, it may issue a notification giving non-parties concerned with the dispute an opportunity to present their case before the arbitrator. The Code specifically excludes the application of the Arbitration and Conciliation Act 1996 to arbitrations conducted under its provisions, maintaining a specialized regime for industrial disputes distinct from commercial arbitration.

Arbitration awards become enforceable thirty days after communication to the parties and the appropriate government, unless the government declares that giving effect to the award would be inexpedient on public grounds affecting national economy or social justice. Such declarations must be followed by an order accepting, rejecting, or modifying the award within ninety days, with the order laid before the legislature. This provision, while controversial, balances industrial autonomy with broader public policy considerations.

Regulatory Framework and Procedural Safeguards

Strikes and Lockouts: Enhanced Restrictions

The Industrial Relations Code introduces stricter regulations governing strikes and lockouts compared to its predecessor legislation. Workers must provide notice of strike at least fourteen days but not more than sixty days before striking. Strikes are prohibited during conciliation proceedings and for seven days thereafter, during proceedings before tribunals or arbitrators and for sixty days after conclusion of such proceedings, and during any period when a settlement or award is in operation. Employers face parallel restrictions on lockouts, requiring them to give similar notice and observe the same prohibition periods.

The Code expands the definition of “strike” to include “concerted casual leave on a given day by fifty per cent or more workers employed in an industry,” addressing a practice that previously fell into a grey area of the law. This provision has generated debate regarding its impact on workers’ fundamental right to freedom of association, particularly when proceedings extend for prolonged periods. In B.R. Singh v. Union of India (1989) 4 SCC 710, the Supreme Court had observed that the right to strike is an important weapon in the workers’ armory and that restrictions on this right could considerably reduce the bargaining power of trade unions.[5] The expanded prohibitions under the Code must be viewed against this constitutional backdrop.

Powers and Procedures of Adjudicatory Bodies

Industrial Tribunals and National Industrial Tribunals possess extensive powers to ensure effective adjudication. They have the same powers as civil courts regarding enforcement of attendance, compelling production of documents, issuing commissions for examination of witnesses, and other prescribed matters. All inquiries before these bodies are deemed judicial proceedings within the meaning of sections 193 and 228 of the Indian Penal Code, providing serious consequences for false evidence or interference with proceedings.

Where a tribunal finds that discharge, dismissal, or termination of a worker was unjustified, it may set aside the order and direct reinstatement on such terms as it deems fit, or grant other relief including award of lesser punishment. During pendency of disputes, tribunals may grant interim relief in the interest of justice, relying only on materials on record without taking fresh evidence. This power ensures that workers are not left in financial distress during prolonged adjudication processes.

The Code mandates that where a tribunal orders reinstatement and the employer appeals to higher courts, the employer must pay the worker full wages last drawn during the pendency of proceedings in the High Court or Supreme Court, provided the worker files an affidavit that he was not employed elsewhere during this period. This provision, upheld in various judicial pronouncements, protects workers from the hardship of prolonged litigation while maintaining an employer’s right to appeal.

Settlements and Awards: Binding Nature and Enforcement

Settlements arrived at during conciliation proceedings or through written agreements between employers and workers outside conciliation proceedings have binding effect once properly recorded and communicated. Similarly, arbitration awards and tribunal awards become enforceable thirty days after communication unless the appropriate government exercises its power to defer enforcement on grounds of national economy or social justice.

Awards remain in operation for one year from the date they become enforceable, though the appropriate government may reduce this period or extend it for additional periods not exceeding one year at a time, with total operation not exceeding three years. Settlements continue in operation for the period agreed by parties, or if no period is specified, for six months from signing, continuing thereafter until sixty days after one party gives notice of intention to terminate.

Both settlements and awards bind all parties to the industrial dispute, parties summoned to appear in proceedings (unless the tribunal records they were summoned without proper cause), successors and assigns of employers, and all workers employed in the establishment on the date of dispute and those subsequently employed. This comprehensive binding nature ensures industrial peace and prevents individual workers from subsequently challenging collective agreements or awards.

The Code provides mechanisms for recovery of money due to workers under settlements or awards. Workers may apply to the appropriate government for recovery, which issues a certificate to the Collector who recovers the amount as an arrear of land revenue. Applications must be made within one year of the money becoming due, though this period may be extended for sufficient cause. Where disputes arise regarding the amount due or the money value of benefits, the tribunal decides such questions within three months, extendable for recorded reasons.

Special Provisions: Individual Worker Disputes

One of the most significant innovations in the Industrial Relations Code, 2020 is the recognition that disputes relating to discharge, dismissal, retrenchment, or termination of individual workers constitute industrial disputes regardless of whether any trade union is party to the dispute. This provision democratizes access to justice for individual workers who previously required collective support to invoke industrial adjudication machinery.

An individual worker aggrieved by termination may first approach the Grievance Redressal Committee in their establishment. If dissatisfied with the committee’s decision or if no decision is reached within thirty days, the worker may approach the conciliation officer within sixty days. Significantly, the worker may directly approach the Industrial Tribunal for adjudication after forty-five days from making an application for conciliation, without waiting for the conciliation process to conclude or requiring the appropriate government to make a reference. This provision removes governmental discretion from individual termination disputes, expediting access to adjudication.

The application to the tribunal must be made within two years from the date of discharge, dismissal, retrenchment, or termination. This limitation period balances the need for timely dispute resolution with workers’ practical difficulties in arranging legal and financial resources immediately after termination. Where workers are represented by negotiating unions or councils, such representatives present the case; in their absence, trade unions represent workers, and if no union exists, workers choose representatives in the prescribed manner.

Critical Analysis and Emerging Jurisprudence

The Industrial Relations Code, 2020 attempts to modernize dispute resolution while retaining proven features of earlier legislation. The abolition of Labour Courts and consolidation under Industrial Tribunals aims to reduce forum shopping and accelerate adjudication. However, concerns have been raised about whether the two-member tribunal structure with both judicial and administrative members might lead to conflicts in decision-making, particularly given the diversity of perspectives such members bring.

The provision allowing the appropriate government to defer or modify tribunal awards on grounds of national economy or social justice has been criticized as potentially violating the separation of powers doctrine. The Madras High Court had struck down similar provisions in the Industrial Disputes Act on constitutional grounds, holding that executive power to modify judicial determinations amounts to sitting in appeal over tribunals and violates the basic structure of the Constitution. The Industrial Relations Code replicates this provision, potentially inviting similar constitutional challenges.

The expanded restrictions on strikes raise questions about compliance with international labour standards, particularly ILO Convention 87 on Freedom of Association. Requiring advance notice of fourteen to sixty days, prohibiting strikes during conciliation and for seven days thereafter, and for sixty days after tribunal proceedings may be seen as excessively restrictive, particularly when proceedings drag on for years. Balancing industrial peace with workers’ constitutional right to freedom of association remains a delicate challenge.

The Code’s recognition of fixed-term employment and increase in thresholds for various provisions (such as standing orders applying to establishments with 300 workers instead of 100, and retrenchment permissions required for establishments with 300 workers instead of 100) reflect efforts to provide greater flexibility to employers. Critics argue this dilutes worker protection, while proponents contend it will encourage formal employment by reducing compliance burdens on smaller establishments.

Conclusion

The Industrial Relations Code, 2020 represents a significant attempt to rationalize and modernize India’s industrial dispute resolution framework. By consolidating three major laws and introducing structured bi-partite forums, streamlined conciliation processes, and specialized tribunals, the Code seeks to balance efficiency with fairness. The recognition of individual worker disputes as industrial disputes, introduction of voluntary arbitration, and emphasis on time-bound resolution are progressive features that could reduce pendency and improve access to justice.

However, the Code’s success will ultimately depend on effective implementation, adequate training of adjudicatory personnel, and development of supporting infrastructure. Ensuring that tribunals function efficiently, conciliation officers are skilled mediators, and grievance redressal committees operate fairly will be crucial. The legal framework, however well-designed, can only be as effective as the institutions and individuals who implement it.

As India continues its economic transformation, the industrial relations system must adapt to accommodate diverse employment forms, technological changes, and evolving worker expectations while maintaining core protections that ensure dignity and fairness in the workplace. The Industrial Relations Code provides a foundation for this evolution, but continuous monitoring, assessment, and refinement based on practical experience will be essential to ensure it serves the interests of both employers and workers in building a harmonious and productive industrial ecosystem.

References

[1] Industrial Relations Code, 2020, Bill No. 120 of 2020. Available at: https://labour.gov.in/sites/default/files/ir_as_introduced_in_lok_sabha.pdf 

[2] PRS Legislative Research, “The Industrial Relations Code, 2020” (2020). Available at: https://prsindia.org/billtrack/the-industrial-relations-code-2020 

[3] Bangalore Water Supply and Sewerage Board v. A. Rajappa, AIR 1978 SC 548. Available at: https://www.casemine.com/commentary/in/defining-‘industry’-under-the-industrial-disputes-act:-comprehensive-analysis-of-bangalore-water-supply-and-sewerage-board-v.-a.-rajappa-and-others/view 

[4] Aditya Gaggar, “Decoding the Industrial Relations Code, 2020,” SCC Times (October 25, 2020). Available at: https://www.scconline.com/blog/post/2020/10/25/decoding-the-industrial-relations-code-2020/ 

[5] B.R. Singh v. Union of India, (1989) 4 SCC 710. Available at: https://www.livelaw.in/columns/the-industrial-relations-code-2020-implications-for-workers-rights-164921 

[6] Lakshmikumaran & Sridharan, “Industrial Relations Code, 2020 – An overview” (2020). Available at: https://www.lakshmisri.com/insights/articles/industrial-relations-code-2020-an-overview/ 

[7] Lexology, “Industrial Relations Code, 2020 – An overview” (October 2, 2020). Available at: https://www.lexology.com/library/detail.aspx?g=9b788606-d4bd-4197-b27f-468ab93f0797 

[8] PMC, “Imbalancing Act: India’s Industrial Relations Code, 2020” National Centre for Biotechnology Information. Available at: https://pmc.ncbi.nlm.nih.gov/articles/PMC9409614/ 

[9] Legal Service India, “Dispute Resolution Mechanisms: Enhancements In The Industrial Relations Code, 2020” (2024). Available at: https://www.legalserviceindia.com/legal/article-21149-dispute-resolution-mechanisms-enhancements-in-the-industrial-relations-code-2020.html 

The post Dispute Resolution Under Industrial Relations Code, 2020: Conciliation, Arbitration, and Industrial Tribunals appeared first on Bhatt & Joshi Associates.

Introduction

The framework of industrial relations in India stands at a transformative juncture with the introduction of the Industrial Relations Code, 2020, which brings forth the concept of a single negotiating union for industrial establishments. This landmark legislation consolidates three major pre-existing labour laws and introduces statutory mechanisms for union recognition that were previously governed largely by voluntary codes and state-specific legislation. The single negotiating union concept represents a fundamental shift in how workers’ collective bargaining rights are structured and exercised in Indian workplaces, moving from a fragmented system of multiple competing unions to a more streamlined approach aimed at reducing industrial conflicts and facilitating effective dialogue between management and labour.

The recognition of trade unions has been a contentious issue in Indian labour jurisprudence for decades. While the Trade Unions Act, 1926 provided for the registration of unions, it remained conspicuously silent on the critical matter of recognition, leaving employers with no statutory obligation to engage with registered unions. This gap created an imbalanced power dynamic where workers’ constitutional right to form associations under Article 19(1)(c) of the Constitution of India could be exercised in theory but rendered ineffective in practice without employer recognition. The Industrial Relations Code, 2020 seeks to address this historical deficit by introducing clear provisions for the recognition of negotiating unions and negotiating councils, thereby providing workers with not just the right to organize but also the right to meaningful collective bargaining.

Historical Context and Evolution of Trade Union Recognition

The journey toward statutory recognition of trade unions in India has been long and arduous. Trade unionism in the country emerged during the late nineteenth century with the establishment of the Bombay Mill-Hands Association in 1890, followed by the formation of the All India Trade Union Congress in 1920.[1] The Trade Unions Act, 1926 was enacted to provide legal recognition and protection to trade unions, marking the first formal legislative framework for labour organization in India. However, this Act focused primarily on registration procedures and did not address the crucial question of recognition by employers.

The deficiency in the Trade Unions Act, 1926 regarding recognition was acknowledged early on. The Indian Trade Unions (Amendment) Act, 1947 attempted to introduce provisions for mandatory recognition of trade unions by inserting Chapter III-A into the principal Act. This amendment required unions to be representative of all workers employed in an industry to qualify for recognition. However, this Amendment Act was never brought into force, leaving the issue of recognition unresolved at the central level.[2]

In the absence of central legislation, various states took the initiative to enact their own recognition laws. Maharashtra pioneered this effort with the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, which provided detailed mechanisms for union recognition and defined unfair labour practices by both employers and unions.[3] Other states including Madhya Pradesh, West Bengal, Kerala, and Rajasthan followed suit with their own legislative frameworks. These state laws varied in their criteria for recognition, creating a patchwork of different standards across the country.

At the national level, recognition of trade unions has been primarily governed by the voluntary Code of Discipline, which was ratified by representatives of employers and central trade union organizations at the sixteenth session of the Indian Labour Conference held at Nainital in May 1958.[4] The Code of Discipline established criteria for union recognition based on membership strength and functioning period, providing guidelines that could be mutually adopted by employers and unions. While influential, the voluntary nature of this code meant that its enforcement remained inconsistent and subject to the goodwill of management.

The Industrial Relations Code, 2020: A Statutory Framework

The Industrial Relations Code, 2020, which received presidential assent on September 28, 2020, represents a watershed moment in Indian labour law. This Code consolidates and amends three central labour laws: the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947. The Code introduces several transformative provisions, with the concept of negotiating unions and negotiating councils being among the most significant innovations.[5]

Definition and Scope of Negotiating Union

Section 14 of the Industrial Relations Code, 2020 provides the statutory basis for the recognition of negotiating unions and negotiating councils. A negotiating union is defined as a registered trade union that has been recognized as having the statutory right to negotiate with the employer of an industrial establishment on prescribed matters. These matters, as outlined in the Draft Industrial Relations (Central) Recognition of Negotiating Union or Negotiating Council and Adjudication of Disputes of Trade Unions Rules, 2021, include classification of worker grades, wages and allowances, leave entitlements, hours of work, disciplinary procedures, and safety, health and working conditions.[6]

The scope of negotiation under the Code is comprehensive and encompasses the fundamental aspects of the employment relationship. This statutory recognition of negotiating rights marks a departure from the previous system where such rights existed only through voluntary agreements or state-specific legislation. By providing a clear legal framework, the Code aims to strengthen collective bargaining mechanisms and reduce ambiguity in employer-union relations.

Single Union Recognition Criteria

Section 14(2) of the Industrial Relations Code, 2020 addresses the situation where only one registered trade union exists in an industrial establishment. In such cases, the employer must recognize this union as the sole negotiating union if it meets the prescribed criteria. The Draft Recognition Rules specify that a single union must have at least thirty percent of the total workers employed in the industrial establishment as its members to qualify for recognition.[7]

This thirty percent threshold has been a subject of considerable debate. Critics argue that allowing a union with only thirty percent membership to represent the entire workforce is insufficiently democratic and creates a representational deficit for the remaining seventy percent of workers. The threshold is borrowed from the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971, where thirty percent serves as the eligibility threshold for applying for recognition rather than the threshold for actual recognition. Some commentators have argued for increasing this threshold to fifty-one percent to ensure institutional legitimacy and bring it into alignment with the criteria applicable in multiple-union scenarios.

Multiple Union Scenario and Negotiating Council

The more complex situation arises when multiple trade unions operate within a single industrial establishment. Section 14(3) of the Code provides that where more than one registered trade union functions in an establishment, the union having the support of fifty-one percent or more of the workers on the muster roll shall be recognized as the sole negotiating union. This fifty-one percent threshold ensures that the recognized union genuinely represents the majority of workers and can claim a democratic mandate to negotiate on their behalf.[8]

The verification of membership is conducted through a prescribed manner as set out in the Draft Recognition Rules. The verification process involves multiple stages, including physical verification of union records, muster roll checking to confirm that members are actually on the establishment’s rolls, and potentially secret ballot elections. This rigorous verification mechanism aims to prevent fraudulent claims of membership and ensure that recognition is based on authentic worker support.

When no single union commands fifty-one percent support, Section 14(4) mandates the constitution of a negotiating council. This council comprises representatives of all registered trade unions that have the support of at least twenty percent of the total workers on the muster roll. The representation in the council is proportional, with one representative for each twenty percent of workers, and an additional representative for any remainder after calculating membership on each twenty percent basis. This proportional representation model ensures that minority unions retain a voice in collective bargaining while preventing excessive fragmentation that could paralyze negotiations.[9]

Tenure of Recognition

An important feature of the recognition system under the Industrial Relations Code is the specified tenure of recognition. Section 14(6) provides that any recognition made under subsections (2) or (3), or any negotiating council constituted under subsection (4), shall be valid for three years from the date of recognition or constitution. This period can be extended for up to five years in total through mutual agreement between the employer and the trade union. This fixed-tenure approach brings much-needed stability to industrial relations by preventing constant challenges to recognition and allowing recognized unions adequate time to deliver on their commitments to workers.[10]

The three-year validity period represents an increase from the two-year period that was prevalent under the voluntary Code of Discipline. This extension acknowledges the time and resources required to conduct membership verification exercises and provides unions with greater security of tenure. The option to extend recognition up to five years through mutual agreement introduces flexibility and rewards productive union-management relationships.

State-Level Recognition Frameworks

Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971

Maharashtra has been at the forefront of trade union recognition legislation in India. The Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971 was enacted following the report of the Committee on Unfair Labour Practices appointed by the Government of Maharashtra in 1968. This Act provides for the recognition of trade unions to facilitate collective bargaining, defines unfair labour practices, and establishes independent judicial machinery in the form of Labour Courts and Industrial Courts to implement its provisions.[3]

Under this Act, a trade union seeking recognition must apply to the Industrial Court if it has maintained a membership of not less than thirty percent of the total workers in the undertaking for a continuous period of six calendar months immediately preceding the application. The Industrial Court, after satisfying itself about the union’s compliance with statutory requirements, issues a certificate of recognition. Recognized unions enjoy several rights including the right to collectively bargain, display notice boards, hold discussions with management, inspect the undertaking, appear on behalf of workers in domestic inquiries, and participate in works committees.

The Maharashtra Act also comprehensively defines and prohibits unfair labour practices by both employers and trade unions. Schedule IV of the Act enumerates specific acts that constitute unfair labour practices, including discrimination against workers for union membership, refusal to bargain collectively, interference with union formation, and coercion of workers. The Act provides for complaints to be filed before Labour Courts, which can grant appropriate relief including reinstatement and compensation. This comprehensive framework has made Maharashtra a model that other states have sought to emulate.

Other State Legislations

Several other states have enacted their own recognition laws, though with varying degrees of comprehensiveness. The Kerala Recognition of Trade Unions Act, 2010 provides for the recognition of trade unions and establishes criteria similar to those in Maharashtra. West Bengal has the West Bengal Trade Union Rules, 1998, which require applications to be submitted for recognition based on membership criteria. Madhya Pradesh and Rajasthan have also enacted provisions for trade union recognition, though these frameworks have seen less consistent implementation than the Maharashtra model.

The multiplicity of state laws creates challenges for industrial establishments operating across multiple states, as they must navigate different recognition criteria, procedures, and union rights. This fragmentation was one of the key motivations for introducing uniform provisions at the central level through the Industrial Relations Code, 2020. However, as labour falls under the Concurrent List of the Constitution, both central and state governments retain the power to legislate on this subject, meaning that state laws will continue to coexist with the central Code.

Judicial Interpretation of Trade Union Recognition

The Indian judiciary has played a crucial role in shaping the legal landscape of trade union recognition through its interpretations of constitutional provisions and labour statutes. The courts have had to balance the fundamental right to form associations guaranteed under Article 19(1)(c) of the Constitution with the practical realities of industrial relations and the absence of comprehensive statutory recognition provisions.

In the landmark case of All India Bank Employees’ Association v. National Industrial Tribunal, the Supreme Court held that the rights of members of trade unions are encompassed within the fundamental right to freedom of speech and expression under Article 19(1)(c) of the Constitution. However, the Court clarified that this right does not automatically include a right to achieve all the objectives for which the trade union was formed, and that strikes by trade unions can be regulated or restricted through appropriate industrial legislation.[11]

The Supreme Court in Balmer Lawrie Workers’ Union, Bombay and Another v. Balmer Lawrie & Co. Ltd. and Others made the important observation that a recognized union represents all workers in an industrial undertaking or industry, not merely its own members. This principle establishes the representative character of recognized unions and imposes upon them a duty to act in the interests of all workers, creating a fiduciary-like relationship between the union and the entire workforce.[12]

In Kalindi and Others v. Tata Locomotive and Engineering Co. Ltd., the Supreme Court concluded that there is no inherent right to representation unless the employer explicitly recognizes such a right through its standing orders or through a voluntary agreement. This judgment emphasized the discretionary nature of recognition in the absence of statutory compulsion. The Court held that management has no legal obligation to establish unions, recognize them, or engage in collective bargaining unless required to do so by specific legislation or contractual commitments.[13]

The case of Food Corporation of India Staff Union vs. Food Corporation of India and Others established important guidelines for assessing the representative character of trade unions through the secret ballot system. The Supreme Court laid down elaborate norms and procedures to be followed when conducting verification of union membership through secret ballot, providing a framework that has been widely adopted for membership verification exercises. The Court emphasized the importance of ensuring that the verification process is fair, transparent, and conducted under neutral supervision to accurately reflect worker preferences.[14]

In B. Srinivasa Reddy vs. Karnataka Urban Water Supply and Drainage Board Employees Association, the Supreme Court reiterated that an unregistered trade union has no rights whatsoever under the Trade Unions Act, 1926. The Court clarified that even rights under the Industrial Disputes Act, 1947 are generally restricted to unions registered under the Trade Unions Act, as per the definition of trade union in Section 2(qq) of the Industrial Disputes Act. This judgment underscored the importance of registration as a prerequisite for claiming any statutory rights.

Advantages and Criticisms of the Single Negotiating Union Concept

The single negotiating union concept introduced by the Industrial Relations Code, 2020 has generated substantial debate among stakeholders in industrial relations. Proponents argue that this system brings several significant advantages to the collective bargaining process. First, it eliminates the problem of multiple unions with conflicting demands negotiating simultaneously with management, which often led to prolonged disputes and industrial unrest. A single recognized union can present a unified voice for workers, making negotiations more efficient and productive.

Second, the single negotiating union concept provides clarity and stability to industrial relations. Employers know exactly which union they need to engage with for collective bargaining purposes, reducing ambiguity and the potential for one union to undermine agreements reached with another. The fixed tenure of recognition for three to five years further enhances this stability by preventing constant challenges to recognition that could disrupt ongoing negotiations and implementation of agreements.

Third, the system encourages unions to build and maintain genuine grassroots membership rather than relying on political affiliations or employer sponsorship. Since recognition depends on verifiable membership support, unions must demonstrate that they actually represent workers’ interests and command their loyalty. This democratic element strengthens the legitimacy of recognized unions and ensures that they remain accountable to their membership.

However, critics raise several concerns about the single negotiating union model. The most significant criticism relates to the potential suppression of minority interests and reduction of workers’ choice. In diverse workforces where different categories of workers may have different interests and priorities, a single union may not adequately represent all sections. Workers who do not support the majority union may find their voices marginalized, particularly on issues specific to their category or department.

The thirty percent threshold for single union recognition has been particularly controversial. Critics argue that allowing a union with only minority support to represent the entire workforce violates democratic principles and creates a legitimacy deficit. While the Industrial Relations Code requires fifty-one percent support when multiple unions exist, the lower threshold for single-union scenarios creates an inconsistency that some view as unjustifiable.

There are also concerns about the potential for employer manipulation of the recognition process. Management might support a compliant or “pocket union” and use various means to ensure it achieves the required membership threshold, thereby excluding more militant unions that genuinely fight for workers’ rights. The verification process, while detailed, may still be vulnerable to manipulation through coercion, inducements, or fraudulent documentation.

Comparison with International Practices

Different countries have adopted varying approaches to trade union recognition and collective bargaining structures. The United States follows a system of exclusive representation where a union that wins a majority in a secret ballot election becomes the exclusive bargaining representative for all workers in the bargaining unit, even those who did not vote for it or who are not union members. This is similar to the single negotiating union concept, though the threshold for recognition is typically above fifty percent.

The United Kingdom has historically followed a voluntarist approach where union recognition depended primarily on employer willingness. However, the Employment Relations Act, 1999 introduced statutory recognition procedures that allow unions to apply to the Central Arbitration Committee for recognition if they have at least ten percent membership in the bargaining unit and there is likely to be majority support. This framework balances voluntary recognition with statutory intervention when necessary.

Many European countries operate under sectoral collective bargaining systems where unions negotiate industry-wide agreements that cover all workers in that sector, regardless of individual union membership. Germany’s system of works councils, which are separate from trade unions but work alongside them, provides another model where worker representation is institutionalized at the workplace level while unions focus on industry-level bargaining.

The Indian approach under the Industrial Relations Code, 2020 draws elements from various international models while attempting to address the specific challenges of the Indian context, including the prevalence of multiple competing unions, political affiliation of unions, and the need to balance flexibility for employers with protection for workers. Whether this hybrid approach will prove successful depends significantly on how effectively the rules are implemented and enforced.

Implementation Challenges and Future Outlook

The implementation of the Industrial Relations Code, 2020 faces several practical challenges that will determine its effectiveness in achieving its stated objectives of promoting industrial peace and protecting workers’ rights. While the Code was passed in September 2020, it has not yet been notified and brought into force as of the time of writing, pending the finalization of various state rules and achieving consensus among different stakeholders.

One major implementation challenge relates to the verification of union membership. The Draft Recognition Rules outline an elaborate verification process, but conducting such verification across thousands of industrial establishments will require significant administrative capacity and resources. The appointment and training of verification officers, development of electronic systems for secret ballot voting, and ensuring the neutrality and integrity of the process will all demand careful attention. Past experiences with membership verification have shown that these exercises can be time-consuming, expensive, and contentious.

The transition from the existing system to the new framework will also pose challenges. Many establishments currently have recognition arrangements under the Code of Discipline or state laws that may not automatically comply with the new criteria under the Industrial Relations Code. Determining how existing recognized unions will be treated, whether fresh verification will be required, and how to manage the transition period will require clear guidelines and potentially transitional provisions.

Resistance from trade unions is another significant challenge. Many established unions, particularly those with political affiliations or those representing specific categories of workers, view the single negotiating union concept as a threat to their existence and relevance. These unions argue that the new system will concentrate power in the hands of larger unions while marginalizing smaller unions that may represent vulnerable or minority groups within the workforce. Building consensus and addressing these concerns through dialogue and potentially through refinements to the rules will be important for smooth implementation.

Employer preparedness and willingness to engage with negotiating unions in good faith is equally critical. The Code imposes obligations on employers to recognize unions meeting the statutory criteria and to negotiate with them on prescribed matters. However, without corresponding provisions ensuring that employers bargain in good faith and implement negotiated agreements, recognition rights may remain hollow. The enforcement mechanisms under the Code, including penalties for non-compliance, will need to be effectively utilized to ensure that recognition translates into meaningful collective bargaining.

Looking ahead, the success of the Industrial Relations Code, 2020 in reforming India’s industrial relations landscape will depend on several factors. First, the rules must be finalized in a manner that addresses legitimate concerns while maintaining the core objectives of the Code. The Draft Recognition Rules are still at the proposal stage and may undergo modifications based on stakeholder feedback. Second, adequate infrastructure and administrative mechanisms must be established to implement the verification and recognition processes efficiently and fairly. Third, capacity building among employers, unions, and government officials regarding the new provisions and procedures will be essential. Finally, monitoring and evaluation mechanisms should be put in place to assess the impact of the Code and make necessary adjustments based on practical experience.

Conclusion

The introduction of the single negotiating union concept through the Industrial Relations Code, 2020 represents a significant evolution in India’s labour law framework. By providing statutory recognition to negotiating unions and establishing clear criteria for such recognition, the Code addresses a long-standing gap in Indian labour legislation. The system aims to streamline collective bargaining, reduce multiplicity of unions and conflicting demands, and provide stability to industrial relations while maintaining democratic principles through majority support requirements and proportional representation in negotiating councils.

However, the effectiveness of this reform will ultimately be determined by its implementation on the ground. Balancing the interests of different stakeholders including workers seeking genuine representation, unions concerned about their institutional survival, employers desiring industrial peace and flexibility, and the government’s developmental objectives requires careful navigation. The verification processes must be conducted fairly and transparently, minority interests must be adequately protected through the negotiating council mechanism, and enforcement mechanisms must ensure that recognition translates into effective collective bargaining.

As India’s economy continues to evolve with increasing informalization of labour, growth of the gig economy, and changing nature of work, the labour law framework will need to remain adaptable. The Industrial Relations Code, 2020 provides a foundation that can potentially address current challenges while remaining flexible enough to accommodate future developments. Whether this legislative initiative succeeds in achieving its ambitious goals of modernizing industrial relations while protecting workers’ rights will be evident only after the Code is fully implemented and has operated for a reasonable period. What is certain is that trade union recognition and collective bargaining will remain central to the discourse on labour rights and industrial relations in India for years to come.

References

[1] Wikipedia Contributors. (2025). Trade unions in India. Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Trade_unions_in_India 

[2] National Law Review. (2021). Proposed Developments in India’s Law on Labor Unions. Retrieved from https://natlawreview.com/article/proposed-developments-india-s-law-labor-unions 

[3] India Code. (1972). Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1971. Retrieved from https://www.indiacode.nic.in/handle/123456789/15922?view_type=browse 

[4] Ministry of Labour and Employment, Government of India. (1958). Code of Discipline. Retrieved from https://labour.gov.in/sites/default/files/code_of_discipline.pdf 

[5] Wikipedia Contributors. (2025). Industrial Relations Code, 2020. Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Industrial_Relations_Code,_2020 

[6] National Law Review. (2020). India’s New Labor Codes: Concept of Negotiating Union. Retrieved from https://natlawreview.com/article/india-s-new-labor-codes-concept-negotiating-union 

[7] The Leaflet. (2021). Trade Union Recognition (Central) Rules, 2021 – A Critical Analysis and Some Recommendations. Retrieved from https://theleaflet.in/trade-union-recognition-central-rules-2021-a-critical-analysis-and-some-recommendations-part-i/ 

[8] Indian Kanoon. (2020). Section 14 of the Industrial Relations Code, 2020. Retrieved from https://indiankanoon.org/doc/196989237/ 

[9] PRS Legislative Research. (2020). The Industrial Relations Code, 2020. Retrieved from https://prsindia.org/billtrack/the-industrial-relations-code-2020 

Published and Authorized by Prapti Bhatt

The post Trade Union Recognition: Single Negotiating Union Concept under the Industrial Relations Code, 2020 appeared first on Bhatt & Joshi Associates.

Introduction

Industrial relations in India have undergone significant transformation with the enactment of the Industrial Relations Code 2020, which introduces new restrictions and notice requirements for strikes and lockouts across all industries. This landmark legislation consolidates three major labour laws into a single framework, fundamentally altering how strikes and lockouts are regulated in Indian industries. The Code represents one of the most ambitious labour law reforms in recent decades, introducing stricter notice requirements and expanded restrictions that affect both workers and employers. Understanding these changes to strike and lockout regulations is crucial for maintaining industrial harmony while protecting the rights of all stakeholders in the employment relationship.

The regulation of strikes and lockouts has always been a delicate balancing act between protecting workers’ collective bargaining rights and ensuring industrial stability. The new Code attempts to strike this balance by imposing mandatory notice periods, prohibiting industrial action during certain proceedings, and extending restrictions beyond public utility services to all industrial establishments. These provisions mark a departure from the earlier regime under the Industrial Disputes Act, 1947, which had more limited application [2].

Historical Context and Legislative Evolution

The regulation of strikes in India dates back to the Trade Disputes Act of 1929, which first introduced restrictions on the right to strike in public utility services. The Industrial Disputes Act, 1947 further developed this framework by establishing detailed procedures for industrial dispute resolution and placing conditions on when workers could legally resort to strikes. Under the old regime, restrictions on strikes without prior notice applied primarily to establishments classified as public utilities, leaving other industrial establishments with greater flexibility.

The judiciary has consistently held that the right to strike is not a fundamental right under the Indian Constitution. In the landmark case of Kameshwar Prasad v. State of Bihar [3], decided in 1962, the Supreme Court clarified that while peaceful demonstrations fall within the protections of freedom of speech and assembly under Articles 19(1)(a) and 19(1)(b), the right to strike itself does not enjoy constitutional protection. The Court upheld restrictions on strikes by government employees, noting that such limitations serve the larger public interest.

This principle was reinforced in T.K. Rangarajan v. Government of Tamil Nadu [4], where the Supreme Court emphatically stated that government employees have no fundamental, statutory, or moral right to resort to strikes. The Court observed that strikes as a weapon are often misused, resulting in chaos and administrative breakdown, and that the interests of society cannot be held ransom to employee demands. These judicial precedents established the foundation for legislative restrictions on industrial action, recognizing strikes as a statutory right subject to reasonable regulations rather than an absolute entitlement.

The Industrial Relations Code 2020: Consolidation and Reform

The Industrial Relations Code, 2020 consolidates and repeals three central labour laws: the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946, and the Industrial Disputes Act, 1947 [1]. Receiving Presidential assent on September 28, 2020, the Code aims to simplify compliance, promote ease of doing business, and create a more balanced framework for employer-employee relations. Despite its enactment, the Code awaits notification for its implementation, with the Central Government retaining discretion to bring different provisions into force at different times.

The Code comprises 106 sections organized into 14 chapters, covering various aspects of industrial relations including trade union registration, dispute resolution mechanisms, standing orders, and provisions relating to strikes and lockouts. One of the most significant changes involves redefining key terms and expanding the scope of regulations to encompass all industrial establishments, not merely those classified as public utilities.

The definition of strike under the Code includes cessation of work by a body of persons employed in any industry acting in combination, and significantly, it now encompasses concerted casual leave taken by fifty percent or more workers on a given day. This expanded definition addresses a common tactic where workers would simultaneously take casual leave to exert pressure on employers while technically not engaging in a strike. By bringing such coordinated absences within the ambit of strikes, the Code ensures that these actions are subject to the same notice requirements and restrictions.

Mandatory Notice Requirements for Strikes

One of the most substantial changes introduced by the Industrial Relations Code concerns the notice requirements for strikes. Workers planning to go on strike must now provide their employers with at least fourteen days’ advance notice before commencing any strike action [5]. This notice must specify the intended date of the strike and remain valid for a maximum period of sixty days from the date of notice. If workers wish to strike after the sixty-day validity period expires, they must issue fresh notice and wait another fourteen days.

The notice requirement serves multiple purposes within the industrial relations framework. First, it provides employers with adequate time to prepare for potential disruptions to production and services, allowing them to make alternative arrangements or take mitigating measures. Second, it creates a mandatory cooling-off period during which parties can attempt to resolve their differences through negotiation or conciliation. Third, it ensures that strikes do not occur impulsively but only after deliberate consideration and formal communication.

Under the previous regime of the Industrial Disputes Act, 1947, similar notice requirements existed but applied primarily to public utility services. Public utility services were defined narrowly to include railways, postal services, airports, hospitals, and other essential services where interruption would cause public hardship. The Industrial Relations Code extends these notice requirements to all industrial establishments, regardless of their classification, thereby subjecting a much broader range of employers and workers to these procedural safeguards [2].

The requirement of fourteen days’ notice represents a balance between providing workers sufficient time to organize collective action and giving employers reasonable warning. During this period, conciliation proceedings often commence, with conciliation officers appointed by the government attempting to mediate between the disputing parties. The notice period thus becomes an integral part of the dispute resolution mechanism, encouraging dialogue before resorting to direct action.

Parallel Notice Requirements for Lockouts

The Industrial Relations Code applies symmetrical notice requirements to lockouts initiated by employers. Just as workers must provide fourteen days’ notice before striking, employers must give fourteen days’ advance notice before declaring a lockout [5]. This parallel requirement ensures fairness in the regulation of industrial action, recognizing that lockouts can be as disruptive to workers as strikes are to employers.

A lockout, defined as the temporary closing of a place of employment or suspension of work by an employer, serves as management’s counterpart to a worker’s strike. Historically, employers have used lockouts to pressure workers into accepting management’s terms or to respond to threatened or actual strikes. The notice requirement prevents employers from suddenly closing establishments without warning, thereby protecting workers from unexpected loss of livelihood.

The principle of reciprocal obligations reflects a fundamental tenet of industrial relations law: both parties to the employment relationship bear responsibilities toward maintaining industrial peace. By imposing equivalent notice periods on both strikes and lockouts, the Code acknowledges that industrial harmony requires restraint and good faith from employers and workers alike.

Employers who receive notice of a strike or who issue notice of a lockout must report this fact to the appropriate government authority and the conciliation officer within five days. This reporting requirement enables government authorities to monitor industrial disputes and intervene through conciliation machinery before situations escalate. The involvement of conciliation officers at this early stage increases the likelihood of disputes being resolved through negotiation rather than through protracted strikes or lockouts.

Prohibited Periods for Industrial Action

Beyond the notice requirements, the Industrial Relations Code, 2020 establishes specific periods during which strikes and lockouts are absolutely prohibited. These prohibitions aim to protect the integrity of dispute resolution processes and prevent industrial action from undermining formal mechanisms for settling disputes.

Workers and employers are prohibited from engaging in strikes or lockouts during the pendency of conciliation proceedings before a conciliation officer and for a period of seven days after the conclusion of such proceedings [6]. Under the Industrial Relations Code 2020, these notice requirements and restrictions on strikes and lockouts ensure that parties give conciliation a genuine opportunity to succeed without the threat or actuality of industrial action. Conciliation represents a structured attempt by a neutral third party to help disputing parties reach a voluntary settlement, and this process cannot function effectively if either party can resort to strikes or lockouts while talks are ongoing.

.Similarly, strikes and lockouts are prohibited during proceedings before a Labour Court, Industrial Tribunal, or National Industrial Tribunal, and for sixty days after the conclusion of such proceedings [6]. When disputes are formally referred to adjudication, parties submit themselves to a legal process for determining their rights and obligations. Allowing strikes or lockouts during this period would undermine the authority of these tribunals and create a parallel pressure tactic alongside the legal process.

The prohibition extends to periods when an arbitration proceeding is pending before an arbitrator, and for two months after the arbitration concludes, provided the parties have agreed to arbitration under the Code. Arbitration represents a voluntary dispute resolution mechanism where parties agree to submit their differences to a neutral arbitrator whose decision binds them. Maintaining industrial peace during arbitration respects the parties’ choice to resolve disputes through this alternative forum.

These temporal restrictions on strikes and lockouts existed in the Industrial Disputes Act, 1947, but applied primarily to public utility services and specific categories of disputes. The Industrial Relations Code 2020 significantly expands these prohibitions on strikes and lockouts to all industrial establishments, broadening the circumstances under which industrial action is illegal. This expansion reflects the legislature’s judgment that dispute resolution mechanisms deserve protection from disruptive industrial action across all sectors of the economy.

Consequences of Illegal Strikes and Lockouts

The Industrial Relations Code, 2020 prescribes significant penalties for violations of its strike and lockout provisions. Workers who commence, continue, or participate in illegal strikes face punishment including imprisonment for up to one month, fines up to fifty thousand rupees, or both. Employers who declare or continue illegal lockouts face imprisonment for up to one month, fines ranging from fifty thousand to one lakh rupees, or both [7].

These penalties represent a substantial increase from those prescribed under the Industrial Disputes Act, 1947, where fines for illegal strikes by workers could extend only to fifty rupees, and for employers, to one thousand rupees. The enhanced penalties in the new Code reflect inflation over the decades and signal a stronger deterrent intent. The legislature clearly aims to discourage parties from bypassing legal procedures and resorting to illegal industrial action.

Beyond criminal penalties, illegal strikes and lockouts carry civil consequences. Workers participating in illegal strikes and lockouts under the Industrial Relations Code 2020 lose their entitlement to wages for the strike period and may face disciplinary action, including dismissal from service. The Supreme Court in India General Navigation and Railway Company Ltd v. Their Workmen held that when workers engage in illegal strikes and lockouts, they forfeit any claim to wages or compensation and become subject to punishment through discharge or dismissal [8].

Persons who instigate, incite, or encourage others to participate in illegal strikes or lockouts commit a separate offense punishable with imprisonment for up to six months, fines up to one thousand rupees, or both. This provision addresses the role of union leaders, political activists, or other instigators who may not directly participate in industrial action but who play a crucial role in organizing and promoting it. By making instigation a distinct offense, the Code seeks to deter external interference in employer-employee relations.

The concept of illegality in strikes and lockouts depends on compliance with the statutory framework established by the Industrial Relations Code 2020. A strike or lockout becomes illegal if commenced or declared in contravention of the notice requirements for strikes and lockouts, if continued in violation of government orders, or if initiated during prohibited periods such as conciliation or tribunal proceedings. However, a lockout declared in consequence of an illegal strike, or a strike declared in consequence of an illegal lockout, does not automatically become illegal, recognizing the reactive nature of such actions under the Code [9].

Recognition of Negotiating Unions and Collective Bargaining

The Industrial Relations Code introduces important innovations in trade union recognition and collective bargaining. The Code establishes the concept of negotiating unions and negotiating councils, providing a structured framework for employer-union interactions. Where a single trade union exists in an industrial establishment, the employer must recognize that union as the sole negotiating union if it represents workers employed in the establishment. Where multiple unions exist, a union with support from fifty-one percent or more of the workers on the muster roll gains recognition as the negotiating union [5].

This recognition threshold of fifty-one percent ensures that the negotiating union represents a clear majority of the workforce, thereby strengthening its legitimacy in collective bargaining. Where no single union achieves this threshold, the Code provides for the formation of a negotiating council. Trade unions with support from at least twenty percent of the workers receive representation in the negotiating council, with the number of seats allocated proportionate to their membership strength.

The recognition of negotiating unions and councils creates a formal structure for collective bargaining, reducing confusion about which union or unions have the authority to negotiate with management. This clarity benefits both employers and workers by establishing predictable channels for discussing wages, working conditions, and other employment terms. The negotiating union or council becomes the primary voice of workers in dealings with the employer, including in situations involving potential strikes.

The relationship between union recognition and strike regulation is significant. Recognized negotiating unions typically serve as the entities that issue strike notices on behalf of workers. Their formal status gives them greater responsibility for ensuring that strikes comply with legal requirements, including notice periods and prohibitions during conciliation or adjudication. This institutional framework aims to make strikes more organized and less spontaneous, aligning with the Code’s overall emphasis on structured dispute resolution.

Threshold Changes for Government Approval

The Industrial Relations Code makes significant changes to the threshold at which employers must obtain government approval before implementing layoffs, retrenchment, or closure of establishments. Under the Industrial Disputes Act, 1947, establishments employing one hundred or more workers required prior government permission for these actions. The new Code raises this threshold to three hundred workers, substantially expanding the number of establishments that can implement such measures without government approval [5].

This threshold increase represents one of the most controversial aspects of the Industrial Relations Code. Proponents argue that it provides employers with greater flexibility to respond to market conditions, reducing bureaucratic delays and promoting ease of doing business. They contend that the previous threshold of one hundred workers was too low, particularly for medium-sized enterprises, and that raising it to three hundred workers allows more businesses to make necessary restructuring decisions without government interference.

Critics express concern that the higher threshold reduces protections for workers in establishments employing between one hundred and three hundred workers, who previously enjoyed the security of government scrutiny before layoffs or retrenchment. They argue that this change tilts the balance too far in favor of employers and may lead to increased job insecurity. The debate reflects the ongoing tension between promoting business flexibility and protecting worker rights.

For establishments employing three hundred or more workers, the requirement for prior government approval before layoffs, retrenchment, or closure remains in place. Employers must apply to the appropriate government authority, providing justification for the proposed action and complying with procedural requirements. During the approval process, the government considers factors including the reasons for the proposed action, its impact on workers, and whether the employer has complied with all legal obligations including notice periods and compensation.

Re-skilling Fund for Retrenched Workers

The Industrial Relations Code introduces an innovative provision requiring the creation of a re-skilling fund to support workers who face retrenchment. Employers must contribute to this fund an amount equal to fifteen days’ wages last drawn by each retrenched worker [5]. The fund aims to provide financial support and training opportunities to help displaced workers transition to new employment.

This provision represents a progressive approach to managing the social costs of economic restructuring. Rather than simply allowing employers to retrench workers with payment of statutory compensation, the Code creates a mechanism for investing in workers’ future employability. The re-skilling fund acknowledges that job loss often requires workers to acquire new skills to remain competitive in the labour market, particularly in industries undergoing technological change or economic transformation.

Implementation of the re-skilling fund requires clarification regarding its management, administration, and the specific programs it will support. The Code authorizes the appropriate government to prescribe rules regarding contributions from sources other than employers and the purposes for which the fund may be utilized. Questions remain about how workers will access re-skilling opportunities, what types of training programs will be offered, and how the effectiveness of these programs will be measured.

The creation of the re-skilling fund reflects a shift toward active labour market policies that focus not only on protecting workers from unfair dismissal but also on equipping them with tools for adaptation and mobility. This approach recognizes that in a dynamic economy, some degree of workforce adjustment is inevitable, but that society has an obligation to help workers navigate these transitions successfully.

Increased Penalties and Enhanced Enforcement

The Industrial Relations Code significantly increases penalties for various violations compared to the Industrial Disputes Act, 1947. First-time offenses relating to important provisions such as those governing layoffs, retrenchment, standing orders, and unfair labour practices attract fines up to ten lakh rupees [1]. Repeated offenses may result in fines up to twenty lakh rupees or imprisonment for up to six months, or both.

These enhanced penalties reflect the legislature’s determination to ensure compliance with industrial relations law. The substantial financial consequences of violations create strong incentives for employers to follow proper procedures, particularly regarding notice requirements, government approvals, and payment of compensation. For larger employers, the penalties remain proportionate to their size while for smaller establishments, they represent a significant deterrent.

The Code also addresses enforcement mechanisms by empowering labour inspectors to investigate complaints, examine records, and recommend prosecution for violations. The strengthened enforcement regime aims to move beyond the often-criticized weak implementation of labour laws, where statutory protections existed on paper but received inadequate enforcement in practice. Effective enforcement requires not only strong penalties but also adequate inspection infrastructure and political will to apply sanctions consistently.

However, questions persist about enforcement capacity, particularly given the large number of industrial establishments across India and the limited number of labour inspectors available to monitor compliance. The success of the enhanced penalty regime will depend substantially on whether governments invest in building enforcement capacity and whether they resist pressures to grant exemptions or look the other way when violations occur.

Impact on Industrial Harmony and Worker Rights

The Industrial Relations Code, 2020 provisions on strikes and lockouts generate diverse perspectives regarding their impact on industrial harmony and worker rights. Supporters argue that the Code promotes stability by establishing clear procedures, reducing ambiguity about when strikes are legal, and ensuring that both employers and workers follow structured dispute resolution processes. They contend that mandatory notice periods and prohibitions during conciliation or adjudication protect the integrity of these processes and encourage parties to resolve disputes through dialogue rather than confrontation.

Critics raise concerns that the extensive restrictions on strikes tilt the balance too far in favor of employers, potentially weakening workers’ bargaining power. They point out that extending strike prohibitions to all industrial establishments, rather than limiting them to public utilities, constrains workers’ ability to use collective action effectively. The requirement of fourteen days’ notice, while reasonable in principle, may allow employers to take preemptive measures such as hiring replacement workers or building inventory in anticipation of strikes, thereby reducing the effectiveness of this traditional labour weapon.

The inclusion of concerted casual leave within the definition of strike addresses a real problem where workers would collectively take leave to disrupt production while claiming they were not on strike. However, this provision also raises concerns about potential misuse, where legitimate simultaneous leave-taking by workers due to genuine reasons might be characterized as an illegal strike. The distinction between coordinated leave intended to pressure employers and coincidental leave-taking for legitimate purposes may not always be clear-cut.

From the perspective of industrial harmony, the Code’s emphasis on structured processes and negotiating unions has the potential to channel industrial conflict into more institutionalized and less disruptive forms. By creating clear procedures for union recognition, negotiation, and dispute resolution, the Code may reduce spontaneous or wildcat strikes in favor of more organized industrial action that follows legal requirements. This could benefit employers, workers, and society by making industrial relations more predictable and less prone to sudden disruptions.

Comparative Analysis with International Standards

International labour standards, particularly those established by the International Labour Organization, recognize workers’ right to organize and bargain collectively, including the right to strike as a means of defending their interests. ILO Convention 87 on Freedom of Association and Protection of the Right to Organise and Convention 98 on the Right to Organise and Collective Bargaining establish fundamental principles regarding workers’ collective rights, though they do not explicitly mention strikes.

The ILO’s Committee on Freedom of Association has consistently recognized the right to strike as a corollary of freedom of association, while acknowledging that this right is not absolute and may be subject to certain limitations. Acceptable restrictions include prohibiting strikes in essential services where interruption would endanger life, health, or safety, requiring advance notice and conciliation procedures, and prohibiting strikes during the term of collective agreements.

The Industrial Relations Code’s approach to strikes reflects some alignment with international standards by maintaining notice requirements and prohibiting strikes during dispute resolution processes. However, the expansion of restrictions to all industrial establishments, rather than limiting them to truly essential services, raises questions about compatibility with ILO principles that emphasize limiting strike restrictions to services where interruption would endanger the public.

India has ratified numerous ILO conventions but not Conventions 87 and 98, the core freedom of association conventions. The Industrial Relations Code’s provisions on strikes and collective bargaining should ideally be evaluated against both domestic constitutional principles and international best practices. Achieving an appropriate balance requires recognizing workers’ legitimate interests in collective action while accommodating employers’ need for operational stability and society’s interest in avoiding unnecessary disruption.

Conclusion

The Industrial Relations Code, 2020 represents a significant reform of India’s industrial relations framework, introducing new restrictions and notice requirements for strikes and lockouts that apply across all industrial establishments. By consolidating three major labour laws into a unified framework, the Code aims to simplify compliance, promote ease of doing business, and create clearer procedures for managing industrial conflict.

The mandatory fourteen-day notice requirement for strikes and lockouts, the prohibition on industrial action during conciliation and adjudication, and the enhanced penalties for violations reflect the legislature’s emphasis on structured dispute resolution and industrial stability. These provisions, combined with innovations such as negotiating union recognition and the re-skilling fund, create a modernized framework that seeks to balance the interests of employers, workers, and society.

However, the practical impact of these reforms will depend on implementation, enforcement, and how courts interpret the new provisions when disputes arise. The tension between protecting workers’ collective bargaining rights and promoting industrial harmony will continue to generate debate and require careful balancing in individual cases. As the Code awaits full implementation, stakeholders across the industrial relations landscape must prepare to adapt to this new regulatory environment while advocating for interpretations and applications that serve the ultimate goal of fair and productive workplace relations.

References

[1] Neeti Niyaman. (2025). Industrial Relations Code, 2020 Explained. Available at: https://neetiniyaman.com/industrial-relations-code-2020/ 

[2] iPleaders. (2021). Industrial Relations Code 2020: an overview. Available at: https://blog.ipleaders.in/industrial-relations-code-2020-an-overview/ 

[3] Supreme Court of India. (1962). Kameshwar Prasad and Others vs The State of Bihar and Another, AIR 1962 SC 1166. Available at: https://indiankanoon.org/doc/687159/ 

[4] Supreme Court of India. (2003). T.K. Rangarajan vs Government Of Tamil Nadu & Others, AIR 2003 SC 3032. Available at: https://indiankanoon.org/doc/88909580/ 

[5] Lawrbit. (2025). The Industrial Relations Code, 2020. Available at: https://www.lawrbit.com/article/industrial-relations-code-2020/ 

[6] Lakshmikumaran & Sridharan Attorneys. Industrial Relations Code, 2020 – An overview. Available at: https://www.lakshmisri.com/insights/articles/industrial-relations-code-2020-an-overview/ 

[7] Our Legal World. (2020). Strikes and Lockouts under Industrial Disputes Act, 1947. Available at: https://www.ourlegalworld.com/strikes-and-lockouts-under-industrial-disputes-act-1947/ 

[8] LawBhoomi. (2024). Strike and Lockout. Available at: https://lawbhoomi.com/strike-and-lockout/ 

[9] Legal Service India. Strike And Lock-Out Under Industrial Dispute Act 1947. Available at: https://www.legalserviceindia.com/legal/article-12602-strike-and-lock-out-under-industrial-dispute-act-1947.html 

Authorized and Published by Sneh Purohit

The post Strikes and Lockouts under Industrial Relations Code 2020: New Notice Requirements and Restrictions appeared first on Bhatt & Joshi Associates.

Introduction

The landscape of employment in India has undergone a fundamental transformation with the recent notification of the four Labour Codes on November 21, 2025. Among the various reforms introduced, the provisions relating to gratuity for fixed-term employees represent one of the most significant departures from traditional employment law. While the Payment of Gratuity Act, 1972 has governed retirement benefits for over five decades, the newly implemented Code on Social Security, 2020 and the Industrial Relations Code, 2020 have introduced provisions that fundamentally alter gratuity entitlements for workers engaged on fixed-term contracts. This change reflects the evolving nature of work in modern India, where temporary and contractual employment has become increasingly prevalent across sectors. The tension between providing adequate social security to temporary workers and maintaining flexibility for employers has created what can only be described as a gratuity conundrum, one that requires careful examination of both legislative frameworks and their practical implications for India’s workforce.

The Traditional Gratuity Framework Under the Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 was enacted by Parliament on August 21, 1972 and came into force on September 16, 1972[1]. The Act established a mandatory framework requiring employers to provide a lump-sum gratuity payment to employees as a reward for long-term service upon termination of employment. Under Section 4 of the Act, gratuity becomes payable to an employee on the termination of employment after rendering continuous service for not less than five years. The termination can occur due to superannuation, retirement or resignation, death or disablement due to accident or disease. However, the completion of continuous service of five years is not required where termination results from death or disablement. The Supreme Court of India in Indian Hume Pipe Co Ltd v Its Workmen held that the general principle underlying a gratuity scheme is that by service over a long period, the employee is entitled to claim a certain amount as a retirement benefit[2]. This landmark judgment established gratuity as distinct from retrenchment compensation, recognizing it as a legitimate claim arising from sustained employment rather than a discretionary payment.

The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port, and railway company. For shops and establishments, the Act applies to those organizations employing ten or more persons on any day during the preceding twelve months. Once an establishment becomes covered under the Act, it continues to be governed even if the number of employees subsequently falls below ten. Gratuity is calculated at the rate of fifteen days’ wages for every completed year of service or part thereof in excess of six months, based on the wages last drawn by the employee. The formula for calculation is derived by dividing the last drawn wages by twenty-six and multiplying the result by fifteen. Under Section 4(3) of the Act, the maximum gratuity payable was originally capped, and this ceiling was revised to twenty lakh rupees through the Payment of Gratuity (Amendment) Act, 2018. This calculation methodology has remained consistent since the Act’s inception, providing a clear and predictable framework for both employers and employees to determine retirement benefits.

Fixed-Term Employment and the Changing Nature of Work

The concept of fixed-term employment represents a significant evolution in Indian labour law. Fixed-term employment was first introduced through a Central Government Notification in February 2017, initially applicable only to employees working in Apparel Manufacturing Units. The provision was subsequently extended to leather industries and other sectors in January 2018, and eventually to all sectors through the Industrial Employment (Standing Orders) Central Amendment Rules, 2018. The Industrial Relations Code, 2020 formally codifies fixed-term employment and defines it as “the engagement of a worker on the basis of a written contract of employment for a fixed period,” with the proviso that the worker’s hours of work, wages, allowances and other benefits shall not be less than that of a permanent employee doing the same work or work of a similar nature[3]. This definition marked a deliberate policy shift towards formalizing temporary employment relationships that had previously operated in grey zones, where employers frequently used short-term contracts to avoid extending statutory benefits to workers.

The rationale for introducing fixed-term employment stems from economic realities facing Indian businesses, particularly in sectors characterized by seasonal demand, project-based work, or fluctuating market conditions. Before the formal recognition of fixed-term employment, employers often relied on contract labour supplied through intermediaries to maintain workforce flexibility. However, this arrangement frequently resulted in exploitation of workers who were denied basic statutory benefits despite performing work identical to permanent employees. The formalization of fixed-term employment under the Industrial Relations Code, 2020 aims to eliminate this disparity by mandating that fixed-term employees receive statutory benefits including provident fund, employee state insurance, bonus, and wages on par with permanent workers. The Code specifically provides that fixed-term employees will be eligible for gratuity if they render service under the contract for a period of one year. Importantly, the termination of service resulting from completion of the tenure of fixed-term employment is explicitly excluded from the definition of retrenchment, meaning such employees do not receive retrenchment compensation when their contracts naturally expire.

The Code on Social Security, 2020 and Gratuity Provisions for Fixed-Term Employees

The Code on Social Security, 2020 consolidates nine existing labour laws related to social security, including the Payment of Gratuity Act, 1972. Section 53 of the Code on Social Security, 2020 sets forth the conditions for payment of gratuity, largely replicating the framework of the 1972 Act but with crucial modifications for fixed-term employees. Under Section 53(1), gratuity shall be payable to an employee on the termination of employment after rendering continuous service for not less than five years, upon superannuation, retirement or resignation, death or disablement due to accident or disease, or termination of contract period under fixed-term employment, or upon happening of any event as may be notified by the Central Government[4]. The second proviso to this subsection explicitly states that the completion of continuous service of five years shall not be necessary where the termination of employment of any employee is due to death, disablement, or expiration of fixed-term employment.

Section 53(2) of the Code on Social Security, 2020 provides that for an employee employed on fixed-term employment or a deceased employee, the employer shall pay gratuity on a pro-rata basis. This pro-rata calculation represents a fundamental departure from the traditional gratuity framework, which required completion of five years of service except in cases of death or disability. The practical effect of this provision is that a fixed-term employee who completes even one year of service becomes entitled to receive gratuity proportionate to the period worked. For instance, a fixed-term employee who works for two years would receive gratuity calculated as fifteen days’ wages multiplied by two years divided by twenty-six, without needing to complete the traditional five-year threshold. This change significantly expands the pool of employees eligible for gratuity and imposes additional financial obligations on employers who engage workers on fixed-term contracts. The Code further stipulates that the amount of gratuity payable to an employee shall not exceed such amount as may be notified by the Central Government, though the specific ceiling under the Code remains to be clarified through subordinate legislation.

The Intersection of Two Codes and Regulatory Ambiguity

A significant source of confusion arises from the interaction between the Code on Social Security, 2020 and the Industrial Relations Code, 2020, both of which contain provisions relating to gratuity for fixed-term employees. The Industrial Relations Code, 2020 defines fixed-term employment and explicitly states that such workers will be eligible for gratuity if they complete a one-year contract. Meanwhile, the Code on Social Security, 2020 provides that gratuity is payable on expiration of fixed-term employment on a pro-rata basis, without specifically mentioning a one-year threshold. This apparent discrepancy has led to interpretative challenges regarding whether a fixed-term employee with a contract of less than one year would be entitled to gratuity under the Code on Social Security, 2020[5]. The PRS Legislative Research analysis of the Code on Social Security, 2020 highlighted this inconsistency, noting that the two Bills contain different provisions on gratuity for fixed-term workers and it is unclear whether a fixed-term employee with a contract of less than one year will be entitled to gratuity.

The resolution of this ambiguity likely requires harmonious construction of both Codes, reading them together to give effect to the legislative intent. A reasonable interpretation would suggest that the one-year threshold mentioned in the Industrial Relations Code, 2020 should apply as a minimum qualifying period for fixed-term employees to claim gratuity, while the pro-rata calculation methodology prescribed in the Code on Social Security, 2020 would determine the quantum of payment for those who satisfy the one-year requirement. This interpretation aligns with the overall policy objective of providing social security to fixed-term employees while maintaining some threshold to prevent administrative complexity and excessive compliance burden for very short-term contracts. However, until the Central Government issues clarificatory rules or judicial precedents emerge from disputes arising under these provisions, employers and employees navigate this uncertainty with limited guidance. The Draft Industrial Relations (Central) Rules, 2020 and related subordinate legislation will play a crucial role in resolving these interpretative questions when they are finalized and notified.

Judicial Precedents on Gratuity and Their Relevance to Fixed-Term Employment

While specific judicial pronouncements on gratuity for fixed-term employees under the new Codes are yet to emerge, given their recent implementation, the extensive jurisprudence developed under the Payment of Gratuity Act, 1972 provides valuable guidance for interpreting the new provisions. The Supreme Court’s decision in Indian Hume Pipe Co Ltd v Their Workmen established foundational principles distinguishing gratuity from other forms of compensation. The Court held that gratuity is a kind of retirement benefit akin to provident fund or pension, intended to help employees after retirement whether due to superannuation or physical disability. The judgment emphasized that by length of service, workmen are entitled to claim a certain amount as a retirement benefit, establishing gratuity as a legitimate right rather than an ex gratia payment subject to employer discretion. This precedent remains relevant to understanding gratuity for fixed-term employees, as it establishes that even temporary workers who render service over a period should be entitled to retirement benefits proportionate to their tenure.

The Karnataka High Court’s judgment in Bharat Gold Mines Ltd v Regional Labour Commissioner (1986) addressed the circumstances under which gratuity can be forfeited[6]. The Court examined whether theft, being an offence involving moral turpitude, justified complete forfeiture of gratuity under Section 4(6)(b)(ii) of the Payment of Gratuity Act, 1972. The Court held that when an employee is found guilty of theft, which involves dishonest conduct, it constitutes an offence involving moral turpitude, and the gratuity payable stands wholly forfeited. However, subsequent judicial developments have clarified that forfeiture of gratuity requires adherence to principles of natural justice. Courts have consistently held that before passing an order forfeiting gratuity, whether wholly or partially, the employee must be given notice and an opportunity to be heard. This procedural safeguard ensures that the statutory right to gratuity, once vested, cannot be arbitrarily denied without due process. These principles apply equally to fixed-term employees, protecting them from unjust forfeiture of their pro-rata gratuity entitlements.

Calculation Methodology and Practical Implementation for Fixed-Term Employees

The calculation of gratuity for fixed-term employees follows the same basic formula as permanent employees but with pro-rata adjustment for the shorter service period. Under Section 53 of the Code on Social Security, 2020, gratuity is calculated at the rate of fifteen days’ wages or such number of days as may be notified by the Central Government, based on the rate of wages last drawn by the employee, for every completed year of service or part thereof in excess of six months. For a fixed-term employee who has worked for one year and eight months, the calculation would be as follows: the last drawn monthly wages divided by twenty-six, multiplied by fifteen, multiplied by two years (since eight months exceeds six months and counts as a completed year). For piece-rated employees engaged on fixed-term contracts, the Code provides that daily wages shall be computed on the average of the total wages received for a period of three months immediately preceding the termination of employment, excluding wages paid for overtime work.

Employers engaging fixed-term employees must maintain accurate records of contract periods, wages paid, and service rendered to correctly calculate gratuity obligations. The requirement to pay gratuity on a pro-rata basis means that employers can no longer rely on the five-year threshold to avoid gratuity liability for short-term workers. This change has significant financial implications, particularly for sectors that extensively use fixed-term contracts for project-based work or seasonal operations. From an administrative perspective, employers must implement systems to track fixed-term contract expirations and ensure timely payment of gratuity. Under Section 7 of the Payment of Gratuity Act, 1972, which continues to apply through the Code on Social Security, 2020, the employer must determine the amount of gratuity and pay it within thirty days from the date it becomes payable. Failure to make timely payment attracts interest at the rate notified by the Central Government, and the Controlling Authority can issue recovery certificates to enforce payment through the Collector as arrears of land revenue.

Impact on Employers and Compliance Challenges

The extension of gratuity benefits to fixed-term employees after completion of just one year of service substantially increases the cost of engaging workers on temporary contracts. For small and medium enterprises, which comprise over ninety percent of India’s business establishments and often face constrained cash flows, the mandatory gratuity payments for fixed-term employees add to deferred compensation liabilities that must be provisioned in financial planning. While the policy objective of ensuring social security for all workers is laudable, critics argue that increasing the financial burden on employers may paradoxically discourage formal employment and push businesses toward more informal arrangements. The requirement to maintain parity in wages, allowances, and benefits between fixed-term and permanent employees performing similar work further constrains the cost advantages that employers previously enjoyed through temporary hiring arrangements.

Compliance with the new gratuity provisions requires employers to revise their human resource policies, payroll systems, and financial accounting practices. The Code on Social Security, 2020 mandates that employers issue wage slips to all employees and file returns with authorized officers. For organizations managing large numbers of fixed-term employees with varying contract periods and expiration dates, implementing systems to track gratuity eligibility and calculate pro-rata payments adds administrative complexity. The Draft Rules under the Code on Social Security, 2020 circulated in November 2020 provide detailed procedures for application and payment of gratuity, including prescribed forms for employees to claim their entitlements. Employers must familiarize themselves with these procedural requirements to ensure compliance and avoid penalties for non-payment. The increase in penalties under the new Codes, though accompanied by provisions for compounding certain offences, creates additional compliance risk for organizations that fail to accurately calculate and timely disburse gratuity to fixed-term employees.

Benefits and Protections for Fixed-Term Employees

From the perspective of workers engaged on fixed-term contracts, the new gratuity provisions represent a significant advancement in social security protection. Prior to these reforms, contractual and temporary workers were systematically excluded from gratuity benefits due to the five-year continuous service requirement, despite often performing the same work as permanent employees. The reduction of the eligibility threshold to one year for fixed-term employees recognizes the legitimate expectation that all workers, regardless of their employment status, should receive some form of retirement benefit proportionate to their service. This change particularly benefits workers in industries characterized by project-based employment, such as construction, information technology, and manufacturing sectors where the nature of work does not always permit long-term permanent employment relationships.

The pro-rata calculation method ensures that even workers engaged for relatively short periods receive fair compensation for their service. For example, a fixed-term employee working for two years at a monthly wage of fifty thousand rupees would receive gratuity calculated as follows: fifty thousand divided by twenty-six, multiplied by fifteen, multiplied by two, resulting in approximately fifty-seven thousand six hundred ninety-two rupees. While this amount may seem modest compared to gratuity received by permanent employees with decades of service, it provides meaningful financial support to workers transitioning between jobs or facing unemployment after contract expiration. The mandatory nature of these payments, backed by enforcement mechanisms through Controlling Authorities and appellate forums, ensures that employers cannot arbitrarily deny benefits to fixed-term workers. The statutory framework creates enforceable rights that workers can pursue through labour authorities without depending on employer goodwill or discretion.

Comparative Analysis with Permanent Employment

The new gratuity regime for fixed-term employees achieves near-parity with permanent workers in terms of benefit calculation methodology while maintaining some distinctions based on the temporary nature of the employment relationship. Both categories of employees receive gratuity calculated at fifteen days’ wages per completed year of service. The key difference lies in the qualifying period: permanent employees must complete five years of continuous service, while fixed-term employees become eligible after one year. This differential treatment reflects the legislative recognition that fixed-term contracts by their nature involve shorter tenure and greater job insecurity for workers. However, fixed-term employees do not receive retrenchment compensation when their contracts expire, since contract termination is not classified as retrenchment under the Industrial Relations Code, 2020. This distinction partially offsets the enhanced gratuity entitlement, as permanent employees facing retrenchment receive both statutory retrenchment compensation and gratuity.

Another important distinction relates to job security and conversion to permanent status. Under the previous legal framework, the Industrial Employment Standing Orders Central Rules, 1946 provided for conversion of temporary employees to permanent status after completion of three months of service in certain circumstances. However, the new Codes do not incorporate similar provisions for automatic conversion of fixed-term employees to permanent status upon completion of contract periods[7]. Employers retain the discretion to renew fixed-term contracts or allow them to lapse without creating permanent employment relationships. Critics argue that this flexibility, while beneficial for employers managing workforce fluctuations, creates a category of perpetually temporary workers who receive statutory benefits but lack long-term job security. The absence of limits on the number of times fixed-term contracts can be renewed potentially enables employers to maintain workers in temporary status indefinitely through repeated contract renewals, denying them the enhanced protections and career advancement opportunities associated with permanent employment.

Future Outlook and Policy Considerations

The implementation of gratuity provisions for fixed-term employees under the new Labour Codes represents an ongoing experiment in balancing worker welfare with employer flexibility in India’s evolving labour market. As businesses and workers adapt to these new requirements, several policy considerations warrant attention. The Central Government must issue clear and comprehensive rules clarifying ambiguities in the interaction between the Code on Social Security, 2020 and the Industrial Relations Code, 2020, particularly regarding the minimum qualifying period for gratuity eligibility. The Draft Rules under both Codes should harmonize provisions to eliminate interpretative disputes and provide certainty to stakeholders. Additionally, the government should consider establishing sector-specific guidelines recognizing that different industries face distinct challenges in managing fixed-term employment relationships.

From a broader policy perspective, the extension of gratuity to fixed-term employees aligns with international labour standards emphasizing equal treatment for all workers regardless of employment status. The International Labour Organization has consistently advocated for eliminating discrimination between temporary and permanent workers in access to social security benefits. However, the effectiveness of these provisions in achieving their intended objectives will depend on robust enforcement mechanisms and adequate resources for labour administration. The appointment of sufficient numbers of Controlling Authorities and Appellate Authorities, along with capacity building for labour officers, will be essential to ensure that fixed-term employees can effectively assert their rights under the new framework. The success of these reforms will ultimately be measured not merely by the statutory provisions enacted, but by the extent to which they translate into tangible improvements in the living standards and economic security of India’s temporary workforce.

Conclusion

The gratuity conundrum for fixed-term employees reflects broader tensions inherent in modern labour regulation: how to protect workers’ rights and ensure social security while maintaining sufficient flexibility for businesses to respond to market dynamics. The Code on Social Security, 2020 and the Industrial Relations Code, 2020 attempt to navigate this challenge by extending gratuity benefits to fixed-term employees on a pro-rata basis after one year of service, while preserving employers’ ability to engage workers on temporary contracts without creating permanent employment relationships. This represents a significant advancement in social security protection for temporary workers, who have historically been excluded from retirement benefits despite performing work equivalent to permanent employees. However, the regulatory framework remains incomplete, with ambiguities in the interaction between the two Codes and pending rules that will shape practical implementation. The coming years will reveal whether this balance struck by the new Labour Codes succeeds in achieving the twin objectives of worker welfare and economic efficiency, or whether further refinements will be necessary to address emerging challenges in India’s dynamic labour market. What remains clear is that the days of treating fixed-term employment as a means to evade statutory obligations have ended, and employers must now factor gratuity costs into their decisions regarding temporary hiring arrangements.

References

[1] Wikipedia. (2025). The Payment of Gratuity Act, 1972. Retrieved from https://en.wikipedia.org/wiki/The_Payment_of_Gratuity_Act,_1972

[2] Indian Kanoon. (1959). Indian Hume Pipe Co. Ltd vs The Workmen And Another. Supreme Court of India. Retrieved from https://indiankanoon.org/doc/1154235

[3] GreytHR. (2025). Industrial Relations Code, 2020. Retrieved from https://www.greythr.com/wiki/acts/industrial-relations-code-2020/

[4] GreytHR. (2025). The Code on Social Security, 2020. Retrieved from https://www.greythr.com/wiki/acts/code-on-social-security-2020/

[5] PRS Legislative Research. (2025). The Code on Social Security, 2020. Retrieved from https://prsindia.org/billtrack/the-code-on-social-security-2020

[6] Indian Kanoon. (1986). Bharath Gold Mines Ltd. vs Regional Labour Commissioner. Karnataka High Court. Retrieved from https://indiankanoon.org/doc/32629/

[7] Centre for Labour Laws. Fixed-Term Employment Under the Industrial Relations Code: Analysing the Legal Flaws and Limitations. National Law Institute University. Retrieved from https://cll.nliu.ac.in/fixed-term-employment-under-the-industrial-relations-code-analysing-the-legal-flaws-and-limitations/

The post The Gratuity Conundrum for Fixed-Term Employees appeared first on Bhatt & Joshi Associates.