Industrial Relations Code, 2020

Understanding the Industrial Relations Code, 2020: A Comprehensive Overview

The Industrial Relations Code, 2020 (IRC 2020) is one of four landmark labour codes passed by the Parliament of India in 2020, aiming to consolidate and amend laws relating to trade unions, conditions of employment in industrial establishments, investigation and settlement of industrial disputes, and other matters connected therewith. It replaces three erstwhile central labour laws: the Trade Unions Act, 1926; the Industrial Employment (Standing Orders) Act, 1946; and the Industrial Disputes Act, 1947. The primary objective of the IRC 2020 is to simplify India’s complex labour laws, promote ease of doing business, and enhance the formalisation of the economy while also safeguarding workers’ rights.

From Legacy Laws to a Unified Code: The Journey of Reform

Prior to the promulgation of the IRC 2020, India’s industrial relations landscape was governed by a fragmented collection of over 40 central and more than 100 state-level labour laws. This multitude of statutes often led to complexity, inconsistency, and significant compliance burdens for businesses, particularly for those operating across multiple states. The pre-existing laws, such as the Industrial Disputes Act, 1947, were often criticised for being archaic, rigid, and creating barriers to industrial growth and job creation, while the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946, also presented their own sets of challenges regarding union recognition and employment conditions.

The reform initiative gained momentum over several years, driven by the government’s agenda to improve India’s ranking in the ‘Ease of Doing Business’ index and attract foreign investment. The four new labour codes – the Code on Wages, 2019; the Industrial Relations Code, 2020; the Code on Social Security, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020 – represent a significant legislative effort to streamline and modernise the country’s labour legal framework. The IRC 2020, in particular, was designed to strike a balance between employer flexibility and worker protection, facilitating industrial harmony and productivity.

Decoding the Code: Core Elements and Innovations

The Industrial Relations Code, 2020 introduces several significant changes to the existing industrial relations framework. Key provisions include:

• Definition of “Worker”: The Code expands the definition of ‘worker’ to include persons employed in a supervisory capacity drawing wages up to ₹18,000 per month (previously ₹10,000), thereby extending protection to a larger segment of the workforce. However, it explicitly excludes those in managerial or administrative capacities.
• Fixed-Term Employment: It formally introduces and legitimises fixed-term employment across all sectors, granting fixed-term employees parity with permanent workers in terms of wages, benefits, and working conditions. This aims to provide greater flexibility to employers while ensuring fair treatment for workers.
• Standing Orders: The threshold for applicability of standing orders (rules governing conditions of employment, conduct, etc.) has been raised from 100 to 300 workers in an establishment. This change exempts smaller establishments from the requirement to frame certified standing orders, reducing compliance burdens.
• Trade Unions and Collective Bargaining: The Code introduces provisions for the recognition of a sole negotiating union or a negotiating council in establishments with multiple trade unions. This aims to strengthen collective bargaining and prevent inter-union rivalries, which often hinder dispute resolution. A minimum membership of 7% is required for a union to be recognised as a negotiating union or to be part of the negotiating council.
• Restrictions on Strikes and Lockouts: The IRC 2020 mandates a 60-day notice period before a strike or lockout, and also prohibits strikes/lockouts during conciliation proceedings, arbitration proceedings, and for a specific period thereafter. This effectively makes it harder for workers to go on immediate strikes and encourages dialogue and dispute resolution through formal channels. The definition of “strike” has also been expanded to include concerted casual leave.
• Retrenchment, Lay-off, and Closure: Similar to standing orders, the threshold for obtaining prior government permission for lay-off, retrenchment, or closure of an establishment has been increased from 100 to 300 workers. This gives greater operational flexibility to establishments with fewer than 300 employees but maintains safeguards for larger workforces.
• Re-skilling Fund: The Code proposes the establishment of a re-skilling fund for retrenched workers, contributing 15 days’ wages, payable by the employer, to help workers acquire new skills and re-enter the workforce.
• Grievance Redressal Mechanism: It mandates the establishment of a Grievance Redressal Committee (GRC) in every industrial establishment employing 20 or more workers, providing an internal mechanism for workers to resolve disputes.

Strategic Implications for Enterprises: Why Businesses Must Understand the Code

Understanding the Industrial Relations Code, 2020 is paramount for businesses operating in India, as it fundamentally alters the legal framework governing employer-employee relationships and industrial disputes. Non-compliance can lead to significant penalties, legal challenges, and reputational damage. For businesses, the Code aims to provide:

• Increased Flexibility: The provisions on fixed-term employment, higher thresholds for standing orders, and retrenchment/lay-off offer greater operational and human resource flexibility, enabling businesses to scale operations more efficiently in response to market demands.
• Reduced Compliance Burden: By consolidating multiple laws into one and raising certain applicability thresholds, the Code seeks to simplify compliance procedures, particularly for small and medium-sized enterprises (SMEs).
• Improved Industrial Harmony: The emphasis on formal grievance redressal, recognition of negotiating unions, and stricter rules for strikes/lockouts are designed to foster a more stable industrial environment, reducing the frequency and impact of industrial disputes.
• Predictability and Clarity: A unified code aims to bring greater clarity and predictability to labour relations, allowing businesses to plan their HR strategies with more certainty.

Operationalizing the Code: Real-World Applications for Businesses

The IRC 2020 impacts various aspects of business operations and requires proactive measures for adaptation:

• HR Policy Revisions: Businesses need to review and update their employment contracts, standing orders (if applicable), grievance redressal policies, and disciplinary procedures to align with the Code’s provisions.
• Workforce Planning: The introduction of fixed-term employment provides a new avenue for workforce planning, allowing businesses to manage temporary staffing needs more effectively while ensuring legal compliance and worker benefits.
• Dispute Resolution: Establishing or re-calibrating the Grievance Redressal Committee (GRC) and understanding the new framework for conciliation and arbitration becomes crucial for managing internal and external disputes.
• Union Engagement Strategy: Businesses must adapt their strategies for engaging with trade unions, particularly concerning the new rules around negotiating unions and councils, to ensure effective collective bargaining.
• Exit Management: The revised thresholds for retrenchment and layoff, along with the provision for the re-skilling fund, necessitate a clear and compliant process for employee separation.

Connecting the Dots: Related Labor Law Concepts

The Industrial Relations Code, 2020 operates within the broader context of India’s reformed labour law ecosystem. Key related concepts and codes include:

• Code on Wages, 2019: Consolidates laws on wages, bonus, and equal remuneration, establishing a universal minimum wage and timely payment.
• Code on Social Security, 2020: Aims to universalise social security benefits by subsuming various acts related to provident fund, ESI, gratuity, maternity benefit, etc.
• Occupational Safety, Health and Working Conditions Code, 2020 (OSH Code): Consolidates laws relating to safety, health, and working conditions in establishments.
• Collective Bargaining: The process through which employers and trade unions negotiate wages, working conditions, and other terms of employment. The IRC 2020 aims to strengthen this process.
• Industrial Disputes: Any dispute or difference between employers and employers, or between employers and workmen, or between workmen and workmen, connected with the employment or non-employment or the terms of employment or with the conditions of labour of any person.

The Code in Practice: Current Status and Implementation Updates

While the Industrial Relations Code, 2020, along with the other three labour codes, received presidential assent in September 2020, they have not yet been implemented across India. The central government is in the process of finalising the rules required to operationalise these codes, and many state governments also need to frame their respective rules. The codes will come into effect only after the notification of these rules, which has been delayed multiple times due to various reasons, including stakeholder consultations and administrative preparations. As of late 2023, discussions continue, and businesses are awaiting the official notification of the implementation date.

Cross-Departmental Impact: Who Needs to Know?

The ramifications of the IRC 2020 are far-reaching within any organisation. Key departments that must have a deep understanding of its provisions include:

• Human Resources (HR): Directly responsible for compliance, policy formulation, recruitment, employee relations, grievance handling, and exit management.
• Legal Department: Crucial for interpreting the Code, advising on compliance, drafting contracts, managing litigation, and ensuring all company practices are legally sound.
• Operations/Production: Managers need to understand the impact of the Code on workforce flexibility, managing industrial actions, and ensuring adherence to working conditions.
• Finance Department: Affected by changes in labour costs, severance packages (e.g., re-skilling fund), and potential penalties for non-compliance.
• Senior Management/Leadership: Responsible for strategic planning, risk management, and fostering a compliant and productive work environment aligned with the new legal framework.

Evolving Dynamics: What the Future Holds

The full implementation of the Industrial Relations Code, 2020, is expected to usher in a new era for India’s labour market. Future trends are likely to include:

• Increased Formalisation: The simplified framework is anticipated to encourage more businesses to operate within the formal sector, thereby extending legal protections and social security benefits to a larger workforce.
• Greater Labour Market Flexibility: The Code’s provisions on fixed-term employment and increased thresholds for retrenchment are likely to provide businesses with more agility in hiring and staffing decisions.
• Focus on Skill Development: The re-skilling fund indicates a growing emphasis on upskilling and reskilling the workforce, which will become increasingly important in an evolving economic landscape.
• Digitalisation of Labour Administration: There will likely be a continued push towards digital platforms for labour compliance, inspections, and grievance redressal, enhancing transparency and efficiency.
• Ongoing Adaptations: As the Code is implemented and its real-world impact becomes clearer, there may be subsequent amendments or refinements based on feedback from industry, trade unions, and legal experts to address unforeseen challenges or opportunities.