Managing employees is not only about hiring and payroll. Every growing company also needs clear rules for employee relations, dispute handling, trade unions, and workplace discipline. This is where the Industrial Relations Code becomes important for startups and growing businesses in India.
The Government of India introduced the Industrial Relations Code, 2020, to simplify and modernise labour laws related to industrial relations. It combines multiple older labour laws into one framework to make compliance easier for employers while protecting employee rights. For startups and growing businesses, understanding this code is essential to avoid disputes, maintain smooth operations, and build a healthy workplace culture.
What Is the Industrial Relations Code, 2020?
The Industrial Relations Code, 2020, is one of the 4 new Labour Codes that the Government of India enacted to simplify and modernise the country’s labour laws. Before these codes came into existence, employers and HR teams had to deal with over 40 separate central labour laws, each with its own definitions, compliance requirements, and penalties. This made it incredibly difficult for businesses, especially growing ones, to stay on top of everything.
The Labour Code on industrial relations specifically consolidates three older laws:
- The Trade Unions Act, 1926
- The Industrial Employment (Standing Orders) Act, 1946
- The Industrial Disputes Act, 1947
By bringing these three under one roof, the government aimed to reduce confusion, speed up dispute resolution, and create a more balanced environment for both workers and employers.
Key Changes You Should Know About
1. New Definition of “Worker”
Under the Industrial Relations Code 2020, the definition of “worker” has been expanded. It now includes working journalists and sales promotion employees, who were previously left out of certain protections. However, supervisory staff earning more than ₹18,000 per month are still excluded from this definition.
This matters because the protections and rights under this code such as the right to raise disputes or form unions, apply only to those who fall under the definition of “worker.”
2. Fixed-Term Employment Gets Legal Recognition
One of the most practical additions in this code is the formal recognition of fixed-term employment. Earlier, businesses used contract workers through third-party contractors for short-term work. Now, companies can directly hire workers on a fixed-term basis.
Fixed-term employees are entitled to the same wages, working hours, and social security benefits as permanent workers on a proportional basis. They are also eligible for gratuity if they complete at least one year of service, unlike the earlier requirement of five years for regular employees.
This is a significant win for businesses in seasonal industries like retail, logistics, and manufacturing.
3. Standing Orders: Threshold Raised
Under the old Industrial Employment (Standing Orders) Act, every establishment with 100 or more workers had to draft and certify standing orders, formal written rules about conditions of employment. The Industrial Relations Code 2020 raises this threshold to 300 workers.
This means smaller businesses no longer have to go through the lengthy process of drafting and getting standing orders certified. It reduces paperwork and gives growing companies more flexibility in managing their HR policies.
4. Strikes and Lockouts: Stricter Rules
The code introduces tighter rules around strikes and lockouts. Workers in all industries — not just essential services must now give a 60-day prior notice before going on strike. Earlier, this requirement applied mainly to public utility services.
Similarly, no strike can happen while a dispute is being conciliated or is before a tribunal.
These rules are aimed at encouraging dialogue before any industrial action. For employers, this means more time to negotiate and resolve issues before they escalate.
5. Layoffs, Retrenchment, and Closure: The 300 Threshold
This is where the industrial relations code becomes most relevant for growing businesses. Under the old Industrial Disputes Act, any establishment with 100 or more workers needed prior government approval before carrying out layoffs, retrenchment, or closure.
The new code raises this threshold to 300 workers. So businesses with fewer than 300 employees now have more freedom to restructure without seeking government permission first.
However, they still need to give proper notice, pay retrenchment compensation (15 days’ wages for each year of service), and follow due process.
Dispute Resolution Under the New Code
The Industrial Relations Code 2020 creates a cleaner dispute resolution structure. It introduces Industrial Tribunals that will handle both individual and collective disputes replacing the earlier system of Labour Courts, Industrial Tribunals, and National Tribunals operating separately.
Each tribunal will have two members, one judicial and one administrative, to speed up case resolution. Disputes must go through a conciliation process first, and only if that fails do they move to adjudication.
For businesses, this means faster closure of disputes that were earlier stuck for years in overlapping jurisdictions.
Compliance Checklist for HR Teams
If you are managing HR for a company in India, here are some immediate steps to consider once the Industrial Relations Code comes fully into effect in your state:
- Review your employment contracts especially for fixed-term or contractual workers
- Check whether your workforce size crosses the 300-worker threshold for standing orders and retrenchment
- Update your grievance and dispute resolution policies
- Make sure your HR team understands the new strike and lockout notice rules
- Revisit your separation process notice periods, severance pay, full and final settlements
Final Thoughts
Labour law in India has always been complex. The good news is that the government is finally trying to make things simpler and more business-friendly through codes like the Labour Code on Industrial Relations. But simpler does not mean you can skip compliance altogether; it just means the process is cleaner.
For startups and growing businesses, staying on top of these changes is critical. Getting your HR foundation right, from employment contracts to dispute handling, protects your business and your people. If managing all of this in-house feels overwhelming, working with an experienced HR outsourcing partner can make a real difference.
One Comment
Shikhar
Great article.