What is the National Industrial Relations Code?

Objectives of the National Industrial Relations Code (NIRC)

In 14 chapters with 104 sections and 3 schedules, the Code consolidates and simplifies three Acts:

• The Trade Unions Act, 1926;
• The Industrial Employment (Standing Orders) Act, 1946
• The Industrial Disputes Act, 1947

By enacting the NIR Code, the Indian Parliament and Lok Sabha aimed to reform these laws to increase trade unions’ role in protecting employees’ rights and improving employment conditions in industrial establishments. The Code also established guidelines for better employer-employee relationships and investigation and resolution of industrial disputes.

Who does the NIR Code apply to?

The Code applies to establishments and undertakings in the private and state sectors, including mines, factories, plantations, and enterprises involved in manufacturing, production and services.

It also applies to all workers—any individual employed in any industry to perform unskilled, skilled, manual, technical, operational, or clerical work, including working journalists and sales promotion employees, under permanent, fixed-term, or temporary contracts. 

The Code also protects trade unions registered under it and their members, regardless of their engagement in collective bargaining activities. 

Key provisions of the Code

Five key provisions of the Code cover:

Definition and registration of trade unions

According to the Act, a trade union is any group formed primarily for ‘’regulating the relations between workers and employers or between workers and workers, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business.’’

Registration requirements 

Under the NIR Code, a trade union must have at least seven members from the industry or establishment it aims to represent in order to initiate the registration process. By the time the application for registration is submitted to the Ministry of Labour, the union must have at least 10% of the total members of the industry or establishment, or 100 workers, whichever is less.

For example, if an establishment has 1,000 workers who want to form a union, seven of them must come together to start collecting the necessary documentation they will submit to the authorized body. As they collect their documentation, they must also work on growing their member base. Because, at the moment when they submit the application with all the necessary documentation, they must have at least 100 members (10% out of 1,000 workers).

Once registered, a trade union formally represents only its members. However, the outcomes of the collective negotiations trade unions participate in—such as improved working conditions or better wages—often apply to the entire workforce, regardless of individual union memberships.

Conditions for strikes and lockouts

Workers in an industrial establishment are prohibited from going on strike:

• If they haven’t given their employer at least 60 days’ notice before starting the strike.
• Within 14 days of giving the notice.
• While conciliation talks are ongoing and for seven days after they end.
• While a dispute case is being handled by Tribunal or National Industrial Tribunal and for 60 days after it’s resolved
• During arbitration and for 60 days after it concludes
• While any settlement or decision (award) is in effect, no matter its type

An employer in an industrial establishment is prohibited from imposing a lockout on their employees: 

• Without submitting a notice to employees within 60 days before locking them out
• Within 14 days of giving the notice
• While conciliation talks are ongoing and for seven days after they end
• While the case is being handled by Tribunal or National Industrial Tribunal and for 60 days after it’s resolved
• During arbitration and for 60 days after it concludes
• While any settlement or decision (award) is in effect, no matter its type

Once the notice of a strike or lockout is received, employees or employers must report it to the appropriate government or the establishment authorized by the government within five days, and include the conciliation officer in charge of resolving disputes. 

Illegal strikes or lockouts are those that:

• Are declared or begin in violation of section 62, which outlines the rules for strikes, such as providing notice
• Continue despite an order of the government prohibiting the strike or lockout because the dispute has been referred to a tribunal or arbitration for resolution 

Provisions related to layoffs, retrenchment, transfer of ownership, and closure

Layoffs: If an employer decides to lay off an employee listed on the muster roll (a record of all workers employed in the establishment) who has been employed for at least one year, the employer is required to pay the worker 50% of their basic wage and dearness allowance for up to 45 days after they’re laid off. A retrenched worker may continue receiving compensation after the 45th day if they have an agreement with the employer.

This provision does not apply to badli workers (those temporarily replacing another permanent employee for less than a year) or casual workers.

Retrenchment: An employee with at least one year of continuous service cannot be retrenched unless:

• They have received a one-month notice outlining the reasons for retrenchment
• The notice is served on the appropriate government authority
• They are paid in lieu of notice

If retrenchment is inevitable and multiple employees are in the same category, the most recently employed employee is retrenched unless the employer provides reasons for retrenching another employee.

Transfer of ownership: If an establishment changes ownership, workers with at least one year of service are entitled to notice and compensation as if they were retrenched, unless their service was uninterrupted, they receive a better offer from a new employer, or the new employer is legally liable to compensate the worker as if their service was continuous.

Closure: Employers are required to give at least 60 days’ notice if they plan to close an establishment and explain the reasons for closure, unless:

• The establishment had fewer than 50 workers in the previous 12 months
• It’s a construction project, like roads, bridges, or buildings

The government can waive the closure notice in exceptional circumstances, such as natural disasters or accidents.

Employees with at least one year of continuous service in an establishment about to close are entitled to notice and compensation as if retrenched. However, the compensation is limited to three months' average pay if the closure is due to unavoidable circumstances beyond an employer’s control. 

Unavoidable circumstances don’t include:

• Expiry of lease or license
• Financial difficulties or losses
• Accumulation of un-disposed stocks
• Exhaustion of minerals in mining operations

Dispute resolution mechanisms

When industrial disputes exist or are likely to arise, employers and employees are encouraged to refer them to arbitration. The NIR Code outlines the following mechanisms for resolving disputes:

• Conciliation officers: The appropriate government appoints conciliation officers to mediate and facilitate the resolution of industrial disputes. Officers may be assigned to specific areas, particular industries within these areas, or certain sectors in general, either permanently or for a limited period. 
• Industrial Tribunals: The appropriate government may establish Industrial Tribunals for the adjudication of strikes and lockouts, trade union disputes, discharge, dismissal of employees (including reinstatement or relief), retrenchment, closure of establishments, and interpretation of standing orders.
• National Industrial Tribunal: The central government may establish one or more National Industrial Tribunals to handle disputes of national importance or those affecting establishments in more than one state. 

Standing orders and their applicability

Standing orders are regulations that govern the conduct of workers and employers and the terms of employment in a workplace. They apply to industrial establishments with 300 or more employees, except those covered by specific government rules such as the Civil Services and Indian Railway Establishment Code. 

The Central Government sets model standing orders for conditions of service. Then, employers, in consultation with a registered trade union or recognized negotiating union, are required to prepare a draft standing order within six months of the Code’s effective dates and submit it to the Certifying Officer for certification. The Certifying Officer must complete and notify the union regarding the certification process within 60 days. If not, the draft will be deemed certified.

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Changes introduced by the NIRC

The NIRC introduced major changes affecting businesses of all sizes and employees across industries.

Labour law reform

The Industrial Relations Code consolidated and simplified various labour laws. The new framework provides a more streamlined approach to protecting employees’ rights and resolving disputes. 

While the NIRC wasn’t passed until 2020, its journey began in 2002, when the Second National Commission on Labour defined existing legislation as “complex with archaic provisions and inconsistent definitions.” The Commission’s suggestion was to consolidate central labour laws into border categories to improve compliance and clarity.

As a result, the Ministry of Labour and Employment introduced four labour Codes to merge 29 central laws, covering:

• Wages
• Industrial Relations
• Social Security 
• Occupational Safety, Health and Working Conditions

The Parliament of India passed the Code on wages in 2019. The other three were replaced with new Bills based on the report of the Standing Committee on Labour in September 2020. The bill on Industrial Relations became the NIRC.

Aside from guaranteeing more rights to employees, the NIRC enables more flexibility to employers in managing their workforce. 

Fixed-term employment

The Code introduced fixed-term contracts, and makes sure fixed-term employees have access to similar benefits as permanent employees, including Employee State Insurance (ESI), Provident Fund (PF), and gratuity. However, fixed-term employees are not eligible for retrenchment compensation or notice period benefits when their contracts end. 

Changes to thresholds for layoffs and retrenchments

The new IR Code raises the threshold for companies to seek government approval for retrenchments and layoffs. Previously, every business with 100 or more employees was required to ask for approval. Now, the threshold is raised to 300 or more workers. With this change, businesses have more flexibility to manage their workforces.

New definitions and classifications of workers

The Code streamlines definitions and classifications of employment types, including fixed-term and part-time employees. These classifications help clarify the entitlements and rights of various employee groups. By clearly defining different types of workers, the Code ensures employees across all sectors are adequately represented and receive appropriate treatment and benefits based on their work arrangements. 

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Impact on employers

Here’s how the NIRC has impacted India’s employers:

Compliance requirements

The new Code has made it easier for employers to navigate various labour laws and stay compliant, as they are now combined into one. While the NIRC reduces complexity for employers, they still need to meet all requirements related to wages, hours of work, benefits, dispute resolution, and worker welfare. Noncompliance can result in penalties and legal issues, so it is crucial for employers to know the law and keep up with changes. 

Flexibility in hiring and firing

Fixed-term employment is one of the most significant changes under the Code, as it provides more flexibility in hiring and firing. Under the 2020 Code, employers can hire workers for fixed-term periods, giving them more options for workforce management, especially during peak seasons. 

The Code also simplified rules around layoffs and retrenchment, making it easier for employers to reduce their workforce when needed. Still, employers must adhere to due process when terminating an employee to avoid legal consequences resulting from unfair labour practices, such as unlawful dismissals. 

Implications for industrial disputes

The NIRC introduced structured guidelines for resolving industrial disputes, establishing mechanisms such as tribunals, arbitration, and conciliation officers. It also codified rules for strikes, lockouts, union negotiations, and other important parts of the employer-employee relationship.

Works Committees

Under the NIRC, industrial establishments with 100 or more workers are required to form a Works Committee. The appropriate Government may also mandate the constitution of the Works Committee within a workplace. This two-party forum allows open discussion of issues that could lead to disputes.

Impact on employees

Here’s how the Code impacts employees:

Job security and protection

The Code provides greater security to employees by protecting them from unfair termination. It outlines clear procedures employers must follow for layoffs—as well as penalties for failure to adhere to the established procedures. It also ensures compensation entitlements, such as severance pay, in case of wrongful retrenchment. 

Rights to unionize and bargain collectively

The Code strengthens employees’ right to join unions and participate in collective bargaining. It encourages employees to form and join unions to negotiate better working conditions. It also simplifies the process of getting a union recognized, allowing unions that represent a majority of workers in the establishment to engage in collective bargaining.

Collective bargaining remains a key mechanism for resolving workplace disputes. 

Implications for contract and gig workers

Contract and gig workers receive greater protection under the NIRC. While the Code expanded the scope of their rights—for example, giving them the ability to join trade unions and participate in collective bargaining—things like their ability to obtain social security coverage and other employment benefits may vary between states in how they interpret and implement labour laws.

Grievance Redressal Committees

The Code promotes early conflict resolution, encouraging employees to address grievances proactively. As a result, under the NIRC, industrial establishments with 20-100 workers are required to set up Grievance Redressal Committees where employees can voice their concerns. 

These committees are composed of up to 10 members, with equal representatives from the employer and employees. A Grievance Redressal Committee is like a Works Committee but for smaller organizations. 

Implementation and enforcement

The NIRC is implemented and enforced by India’s Central and state governments, supported by other designated authorities and compliance mechanisms described below.

Role of Central and state governments

The Central and state governments enforce the provisions of the IR Code, oversee the establishment and work of the relevant authorities, provide guidelines, and ensure compliance with legal requirements on regional and national levels. 

Establishment of authorities and tribunals

The Code requires the formation of various authorities, including industrial tribunals on state and central levels. Their job is to handle disputes and address grievances related to industrial relations, ensuring employees across industries are treated fairly.

Monitoring and compliance mechanisms

Central and state governments share the responsibility of monitoring employers’ compliance with the Code’s provisions. Both levels of government conduct regular inspections to ensure employers adhere to labour laws, dispute resolution mechanisms, and workplace standards. 

Penalties for noncompliance

Violation of the Code may lead to penalties, including legal action and fines. 

FAQ about NIRC

What is a Worker Re-skilling Fund? 

A Worker Re-skilling Fund supports retrenched workers. The Code governs its creation and the appropriate government manages the fund. 

The fund comprises:

• Employer contributions equal to 15 days’ wages last drawn by the worker before retrenchment
• Contributions from other sources required by the government

The fund credits 15 days’ wages directly to the retrenched worker’s account within 45 days of retrenchment. 

How does the NIRC affect dispute resolution between employees and employers?

NIRC offers various mechanisms for resolving workplace disputes, such as conciliation, arbitration, and the involvement of industrial tribunals. These processes aim to ensure fair and timely resolutions.

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