Industrial Relations and the Industrial Relations Code, 2020

Definition. Industrial relations (IR) is the system of relationships between employers, workers and their organisations (trade unions), and the State, through which terms and conditions of employment are set, collective interests are represented, and conflicts are resolved.

Industrial relations and employee relations. IR traditionally refers to the collective relationship: unions, collective bargaining, disputes, strikes and settlements. Employee relations (ER) is broader and includes individual and non-union relationships: communication, grievances, discipline, fairness and well-being. In Indian IT and services, ER dominates; in manufacturing, mining, ports, banking, transport and the public sector, collective IR remains central.

Theoretical approaches

Dunlop’s systems theory (John Dunlop, 1958) describes an IR system as having three actors (management, workers and their organisations, government agencies), operating within a context (technology, markets and budgets, distribution of power in society), bound together by a shared ideology, and producing a web of rules: laws, settlements, standing orders and customs that govern the workplace.

What good IR produces. Industrial peace, productivity, predictable costs, faster adoption of change and lower legal risk. Poor IR produces strikes and lockouts, litigation, low morale, absenteeism and, in the worst cases, violence.

Fundamental Rights (enforceable in courts)

Directive Principles of State Policy (guide legislation; not enforceable in courts)

Labour is in the Concurrent List (entries on trade unions, industrial and labour disputes, social security, and welfare of labour), so both Parliament and state legislatures can make laws, and states frame rules under the central Codes. This is why compliance can differ between states.

International standards. India is a founding member of the International Labour Organization and has ratified several core conventions (including those on forced labour, equal remuneration, discrimination and child labour), but not Conventions 87 (freedom of association) and 98 (right to organise and collective bargaining).

The Industrial Relations Code, 2020 consolidated the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 and the Industrial Disputes Act, 1947. It covers four areas: organisation of workers, conditions of employment, settlement of disputes, and workforce restructuring (lay-off, retrenchment and closure).

“Industry”

Most IR provisions apply only to an industry. In Bangalore Water Supply and Sewerage Board v. A. Rajappa (1978), a seven-judge bench of the Supreme Court gave a wide definition through the triple test: an activity is an industry if it is (1) a systematic activity, (2) organised by cooperation between employer and employees, (3) for the production or distribution of goods or services to satisfy human wants. Profit motive and capital investment are irrelevant. Where an organisation carries on several activities, the dominant nature of the activity decides.

The IR Code codifies this broad approach but excludes: institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service; sovereign functions of the government (including defence, atomic energy and space); domestic service; and any other activity notified by the government.

“Worker”

A worker is a person employed to do manual, unskilled, skilled, technical, operational, clerical or supervisory work for wages, and includes working journalists and sales promotion employees. It excludes persons employed mainly in a managerial or administrative capacity, and those in a supervisory capacity drawing wages above ₹18,000 a month (the limit was ₹10,000 under the Industrial Disputes Act). Whether a person is a worker depends on the main nature of their duties, not their title.

“Industrial dispute”

An industrial dispute is a dispute between employers and workers (or between workers) connected with employment, non-employment, terms of employment or conditions of labour. It includes a dispute between an individual worker and the employer over discharge, dismissal, retrenchment or termination, even if no union or group of workers supports it.

Definition. A trade union is an association of workers (or employers) formed primarily to regulate relations between workers and employers and to protect and advance members’ interests.

History. The Madras Labour Union, founded in 1918 with B. P. Wadia’s leadership, is regarded as India’s first organised trade union, and the All India Trade Union Congress (AITUC) was founded in 1920. Most large union federations are affiliated with political parties: Bharatiya Mazdoor Sangh (BMS), the largest, linked to the RSS; INTUC (Congress); CITU (CPI-M); AITUC (CPI); and Hind Mazdoor Sabha (HMS). Plants often have an internal union, a union affiliated with a federation, or several competing unions.

Registration and status

Recognition of negotiating unions

Before the Code, there was no central law requiring an employer to recognise a union for bargaining (some states, such as Maharashtra, had their own provisions). Employers often faced several rival unions with competing demands, or refused to deal with any. The IR Code introduced a recognition framework.

Membership is verified under the rules. Why it matters: the employer has a clear bargaining counterpart, inter-union rivalry is reduced, and settlements are more likely to be accepted across the workforce.

Unfair labour practices

The Code lists unfair labour practices by both sides. Examples by employers: interfering with workers’ right to organise, threatening or victimising union members, establishing or supporting a company-controlled union, refusing to bargain in good faith with the recognised union, and mass transfers to break a union. Examples by workers or unions: coercing workers to join or not join a union, participating in illegal strikes, go-slow, gherao (confining managers) and violence. Unfair labour practices attract penalties.

Definition. Collective bargaining is the process by which employers and workers’ representatives negotiate wages, working conditions and other terms of employment, and the rules that govern their relationship.

Process

Types of bargaining (Walton and McKersie). Distributive bargaining divides a fixed amount: what one side gains, the other loses, typically on wage increases. Integrative bargaining seeks solutions that benefit both: for example, higher wages in exchange for multi-skilling, revised shift patterns or productivity improvements that reduce cost per unit.

Settlements

Settlements in Indian manufacturing are usually long-term settlements for three to four years. Modern settlements are often productivity-linked: wage increases tied to agreed productivity norms, flexible deployment, multi-skilling or acceptance of automation, sometimes with job-security commitments.

Preparing for a negotiation: a worked outline

A cement plant union demands a 30% wage increase over three years. Management’s preparation would include: wages at comparable plants in the region and industry; inflation and consumer price trends; the plant’s cost per tonne, capacity utilisation and profitability (ability to pay); productivity trends and specific improvements management wants (shift flexibility, multi-skilling, manpower norms); the cost of each demand; a negotiation team and mandate; a communication plan for all employees; and contingency plans if talks fail. The likely outcome combines a lower wage increase with productivity commitments.

Definition. Standing orders are written rules defining the conditions of employment of workers in an industrial establishment, so that both employer and workers know their rights and obligations.

Contents typically include: classification of workers (permanent, probationer, badli or substitute, temporary, casual, apprentice, fixed-term); working hours, shifts and holidays; attendance and late arrival; leave; acts of misconduct; the disciplinary procedure, including suspension and punishments; termination and notice; and the grievance procedure.

Many establishments below 300 workers continue to maintain standing orders or equivalent service rules, because clear rules support fair discipline and reduce disputes.

Misconduct is conduct that breaches the standing orders, service rules or the employment relationship. Standing orders list acts of misconduct, typically including wilful insubordination, theft or fraud, wilful damage to property, habitual absence or lateness, assault or threatening behaviour, drunkenness on duty, sexual harassment, participating in an illegal strike, and habitual negligence.

Steps in a domestic enquiry

Principles of natural justice. Audi alteram partem: the accused must be heard, know the evidence and have a fair chance to respond. Nemo judex in causa sua: no one may judge their own case, so the enquiry officer must be impartial and not a witness or complainant. Industrial tribunals can examine whether the enquiry was fair and whether the punishment was proportionate.

Common defects: vague charges, an enquiry officer who was involved in the incident, denial of documents or of the chance to cross-examine, ignoring the worker’s evidence, and punishment out of proportion to the misconduct.

Douglas McGregor’s “hot-stove rule” summarises good disciplinary practice: discipline should be immediate, given with advance warning, consistent and impersonal, like touching a hot stove.

A grievance is an individual’s complaint about employment (pay, leave, transfer, treatment, working conditions). If unresolved it can become a dispute. Effective grievance handling resolves issues early and close to the workplace, which prevents escalation.

Good practice in grievance handling: a written procedure with time limits at each level (supervisor, department head, GRC), listening and investigating before deciding, giving reasons, keeping records, and analysing grievances for patterns that indicate wider problems.

Changes under the IR Code. Labour Courts, Boards of Conciliation and Courts of Inquiry were abolished; adjudication is now by Industrial Tribunals. An individual worker with a dispute over discharge, dismissal, retrenchment or termination can apply directly to the Tribunal after the conciliation period has passed without settlement, rather than waiting for the government to refer the dispute, subject to a limitation period.

Who approaches whom. An individual grievance goes first to the GRC. Day-to-day cooperation issues go to the Works Committee. A collective dispute goes to the conciliation officer. A failed conciliation leads to arbitration (if both agree) or the Industrial Tribunal. Disputes of national scope go to the National Industrial Tribunal.

Definitions. A strike is a cessation of work by a body of workers acting in combination, or a concerted refusal to work. Under the IR Code it includes concerted casual leave by 50% or more of the workers on a given day. A lockout is the temporary closure of a place of employment, suspension of work or refusal by an employer to continue employing workers, used as pressure in a dispute.

Forms of strike. General strike; sit-down or stay-in strike (workers occupy the premises without working); tool-down or pen-down strike; go-slow (deliberately reducing output while remaining at work, generally treated as misconduct); work-to-rule (following every rule exactly to slow work); token strike (short, symbolic); sympathetic strike (supporting other workers); hunger strike. A gherao (physically confining managers) is unlawful.

Conditions for a lawful strike or lockout (all industrial establishments)

Under the Industrial Disputes Act, notice was required mainly in public utility services, so sudden (“flash”) strikes were lawful elsewhere. The Code’s extension to all establishments was welcomed by employers for predictability and criticised by unions as a restriction on protest.

Consequences of an illegal strike: no wages for the strike period (“no work, no pay”), penalties for participants and instigators, and possible disciplinary action. Wages for a legal strike may be awarded only if the strike is found both legal and justified.

Managing a strike: the HR role

Ensure safety and security of people and plant; maintain critical operations lawfully using non-striking staff; open immediate dialogue with union leaders; record facts; inform the conciliation officer and, only where needed, the police; communicate clearly with all employees about the legal position and wages; avoid victimisation; and, after resolution, address the underlying grievances.

Definitions

Lay-off is the failure, refusal or inability of an employer to give employment to a worker on the muster roll because of shortage of coal, power or raw materials, accumulation of stocks, breakdown of machinery, natural calamity or similar reasons. The employment relationship continues.

Retrenchment is termination of a worker’s service by the employer for any reason other than punishment through disciplinary action. It does not include: voluntary retirement; superannuation; non-renewal of a fixed-term contract on expiry; and termination on grounds of continued ill-health.

Closure is the permanent closing down of a place of employment or part of it.

Comparison

The 300-worker threshold for permission was 100 under the Industrial Disputes Act; states may raise it further.

Worker Re-skilling Fund. For each retrenched worker, the employer pays an amount equal to 15 days’ last drawn wages. Under the central rules (May 2026) the employer transfers it within 10 days of retrenchment to a designated government account, and it is credited to the worker within 45 days. It is in addition to retrenchment compensation.

Re-employment. Retrenched workers have preference for re-employment for one year after retrenchment. Vacancies must be displayed at least 15 days before filling, and eligible workers informed.

Worked example. A worker with 8 years and 7 months of continuous service and average pay of ₹26,000 a month is retrenched. Completed years count as 9 (the part year exceeds six months). Retrenchment compensation = 15 ÷ 26 × 26,000 × 9 = ₹1,35,000. Reskilling fund = 15 ÷ 26 × 26,000 = ₹15,000. Plus one month’s notice pay of ₹26,000 if notice is not given.

Voluntary retirement schemes (VRS) are the most common way Indian employers reduce workforces with less conflict: an offer of enhanced compensation for employees who choose to leave, usually negotiated with the union. A VRS exit is not retrenchment.

Definition. Fixed-term employment (FTE) is the engagement of a worker directly by the employer, under a written contract, for a fixed period.

Conditions under the IR Code: hours of work, wages, allowances and other benefits must be no less favourable than those of permanent workers doing the same or similar work; fixed-term workers are eligible for statutory benefits in proportion to their service; and they are eligible for gratuity after one year of service. Non-renewal on expiry is not retrenchment.

Why it matters. FTE gives employers flexibility for seasonal demand, projects and ramp-ups without using contractors, while giving workers parity of pay and benefits. Unions are concerned that it can replace permanent jobs with successive short contracts; repeated renewals for permanent, perennial work carry legal and IR risk.

Workers’ participation in management (WPM) ranges from information sharing, through consultation, to joint decision-making. Indian forms include works committees (statutory), joint management councils and shop councils (introduced through government schemes from the 1950s and 1970s), worker representatives on boards in some public-sector undertakings, and joint committees on safety, productivity and canteens. WPM has had limited success where unions are politically divided or management treats forums as formalities; it works where forums have real decisions to influence, such as safety or shift design.

Early warning signs of IR trouble: rising grievances and absenteeism, go-slow or refusal of overtime, sudden union activity or rival unions, contract workers’ complaints about pay, supervisors’ complaints about indiscipline, and leaflets or social-media campaigns. HR should track these and respond before positions harden.