By – Vishal V.

Kharpude
Prof. – Mithun Bansode
College Name – Jai Bhagwan College of Law
An Overview of Industrial Relations Code, 2020

The aim to revamp existing labour & employment laws, the government notified the
Industrial Relations Code, 2020 (“Code”) on September 28, 2020. It is likely that the Code
will be implemented soon, and it will repeal 3 central labour enactments namely, Industrial
Disputes, Trade Union, and Industrial Employment Standing Orders acts. The Code has 14
chapters, 104 sections and 3 schedules. It aims at consolidating and amending the laws
relating to trade unions, conditions of employment in industrial establishments, investigation,
and settlement of industrial disputes. While it retains several provisions from the existing
legal framework regarding retrenchment, lay-off, closure, industrial disputes, trade union
recognition, etc., new requirements have been introduced to simplify as well as add more
structure to the existing regulations. An overview of some of the key changes under the Code.

 Industry: Industry is defined under the Industrial Disputes Act (ID Act) as any
business, trade, undertaking, manufacture or calling of employers including any
calling, service, employment, handicraft, industrial occupation, or vocation of
workmen. The definition is wide enough to include every form of institutional and
organized activity that results in production or supply of goods or services. Whether an
organisation is industry under ID Act is fact specific and has been delved into in
several court cases.

The Code draws a cue from the 1982 proposal and defines industry as any systematic activity
carried on by co-operation between employer and workmen, employed directly or indirectly
for production, supply, distribution of goods or services with a view to satisfy human wants,
including sales and business promotion activities, irrespective of capital invested or whether
such activity is carried out with a motive to make any gain or profit. However, it limits the
exclusions to 3 activities – charitable, philanthropic or social activities; domestic services;
government sovereign activities, and its departments engaged in defence research, atomic
energy and space. Relying on the exclusion for charitable activities, one could infer those
educational institutions which are obligated to function as charitable organisations, religious
 trusts, charity hospitals, research & development organisations incorporated as societies, and
similar other institutions which are currently treated as industries under ID Act will be
outside the Code’s ambit. While the new definition seems to codify the principles that will be
applied to determine if an establishment is industry under the Code, the determination will
continue to remain fact specific.

Employee & worker: The ID Act, Trade Union and Industrial Employment Standing Orders
acts did not provide for definition of employee, as they dealt with workmen. ID Act defined
workman as any person including an apprentice employed in any industry to do manual,
unskilled, skilled, technical, operational, clerical or supervisory work with monthly wages up
to INR 15,000. It specifically excluded white-collar employees i.e., those who were engaged in
managerial, administrative or supervisory role earning monthly wages above INR 15,000.
Except for Trade Union Act which arguably included white-collar employees, the existing
laws primarily aim at dealing with employment relations and working conditions of workmen.
Further, certain special kind of employments such as working journalists and sale personnel
were governed under different laws, and several court cases have ruled that they remain
outside purview of ID Act
However, the Code seems to expand the scope. It defines employees and workers. Employee
is any person other than an apprentice employed in an industrial establishment to do any
skilled, semi-skilled, unskilled, manual, operational, supervisory, managerial, administrative,
technical or clerical work. As the definition is wide, literal interpretation will include white-
collar employees. Worker is defined in similar fashion as workmen under ID Act, although
with certain key changes. Workers exclude apprentices, and supervisors earning more than
INR 18,000 per month instead of INR 15,000. They will also include working journalists as
defined in the Working Journalists and other Newspaper Employees (Conditions of Service)
Act, and sales promotion employees under Sales Promotion Employees (Conditions of
Service) Act. Further, it states that for purposes of Chapter III dealing with trade unions,
workers will include all persons employed in the industry i.e., without any exception for
white-collar employees. On cumulative reading, it appears that (i) apprentices can no longer
raise industrial disputes, (ii) white-collar employees can form trade unions and seek
recognition, and (iii) sales personnel and working journalists can raise industrial disputes and
claim rights plus benefits under the Code.

 Wages: Wages has a common definition under the 3 subsumed laws. Currently, it means
all remuneration capable of being expressed in money, and includes allowances, value of
house accommodation or supply of utility or medical amenity or concessional supply of food,
and any travelling concession. It excludes bonus, contribution payable to any pension or
provident fund, and gratuity.

The Code includes a more concise definition of wages and the same definition is provided in
all other 3 labour codes, thereby bringing uniformity across several labour laws. Wages will
now mean any remuneration payable by the employer in cash or kind including basic pay,
dearness and retaining allowance (if any), but exclude 11 components namely bonus, value of
house-accommodation or utilities or medical amenities payable through special government
order, contribution to provident or pension fund, HRA, conveyance/travel allowance,
overtime, commission, gratuity, payment towards special expenses, any amount paid under
award or settlement, and retrenchment compensation or any retirement or ex-gratia payment
made upon termination under any law. Further, the Code states that the aforementioned
exclusions (except gratuity and termination pay) and any payment in kind cannot exceed 50%
and 15% of the total remuneration respectively. Where it does, the excess will be deemed as
part of wages. Thus, a narrower scope is provided under the Code, which may result in
employers limiting payment to basic + dearness + retaining allowance for retrenchment, lay-
off, closure compensation, or where back wages are ordered under an industrial dispute.
 Bipartite forums: Chapter II of the Code deals with works committee and grievance
redressal committee. As per ID Act, appropriate government can order an industrial
establishment with 100 or more workmen to constitute a works committee comprising of
employer and workmen representatives. The works committee is mandated to promote
amicable relations between employer and workmen, and endeavour to resolve differences.
Further, it requires industries employing 50 or more workmen to create a grievance
settlement authority that will settle disputes internally. The Code aims to strengthen these
internal mechanisms. It retains the provisions concerning works committee but reduces the
headcount for constitution of grievance redressal committee from 50 to 20. ID Act limits
grievance committee’s composition to 6 members, which now stands enhanced to 10,
with adequate
representation of women workers proportionates to their strength to the total workforce.
Furthermore, the Code introduces a cut-off period of 1 year within which the grievance must
be resolved, and if not, the employer or worker can raise a formal industrial dispute. Non-
compliance with the above requirements may attract hefty fine up to INR 1 million.

With these changes, it is expected that employers and workers attempt to resolve difference
internally before escalating it to labour forums. Consequently, it is likely that formal
proceedings (conciliation followed by adjudication) cannot be initiated without following the
internal grievance redressal mechanism. Considering that disgruntled workmen often engage
in frivolous industrial disputes to pressurize employers for regularization, reinstatement,
payment of back wages, and similar demands, mandatory grievance settlement is likely to
curb such practices. Further, a ruling by the grievance committee may also be factored by
labour tribunals in their ruling, and hence, organizations must seriously consider setting up a
meaningful and efficient grievance redressal mechanism.

 Trade unions: Chapter III of the Code deals with trade unions. It retains most of the
provisions with respect to formation of trade unions, its bylaws, registration, alteration,
constitution of fund, membership fee and other aspects. However, it introduces new provision
for recognition of a negotiating union or negotiating council as the sole and authorised
negotiating body for the unionised workers. Where the establishment has only one trade
union, the employer shall recognise it as the negotiating union. But, if there are multiple
unions, then the union supported by at least 51% of the workers will be recognized. Where
none of the unions are backed by 51% of the workers, then employer shall constitute a
negotiating council comprising of representatives from each union that has at least 20%
workers, followed by proportional representation from all other unions. It further provides
that where an agreement is reached between the negotiating council and the employer, same
shall be binding on the workers. Introducing the concept of a sole negotiating union is a
welcome step as many times multiplicity of unions compels employers to negotiate
employment terms and benefits separately with each of them, making the process of
collective bargaining tedious and prolonged. Nonetheless, the Code fails to clarify if the
agreement reached with the negotiating union shall be binding on all unionised workers who
belong to different unions, and perhaps, the rules will provide the needed clarity.

 Standing orders: Chapter IV of the Code deals with standing orders and unlike existing
law where standing orders is mandated for industrial establishments with 100 or more
workmen, the Code increases the threshold to 300 or more workers employed in preceding 12
 months. Covered entities must prepare standing orders on matters such as classification of
workers, work hours, holidays, paydays, wage rates, termination, disciplinary proceedings,
and grievance redressal mechanism. It further codifies the existing practice of automatic
application of model standing orders and states that within 6 months from the date on which
the headcount triggers, covered organisations must apply for certification of any modification
that they wish to incorporate in model standing orders, failing which the model shall become
binding. The Code also provides that model standing orders will be developed by central
government (CG) which power currently vests with the state government. Vesting power
with CG to devise model orders is likely to be a relief for employers who have operations in
several states, as they were required to comply with model standing orders as promulgated by
different states. Now, employers can apply the same set of standing orders for their
establishments in different states.

Strikes and lock-outs: ID Act defines strike as cessation of work by workmen acting under a
common understanding. The Code further expands the definition to include a situation where
50% or more workers go on mass casual leave on any day. Apart from this, the Code changes
the requirement of a legal strike and lock-out. Under the existing law, workers and employers
engaged in public utility services such as essential supplies, transportation, postal services, and
other notified sectors are obligated to provide minimum 14 days’ prior notice before going on
strike and lock-out, respectively. The Code aims at deterring arbitrary strikes and lock-outs.
Towards this, it requires workers of all industries to provide 60 days’ advance notice before
proceeding on strikes. Similarly, employers are required to provide 60 days’ notice before
imposing a lock-out.

 Retrenchment, lay-off and closure: As per ID Act, any establishment with 100 or more
workmen must obtain prior permission from the appropriate government prior to retrenching
or laying-off workmen, or closing the establishment. Additionally, it entitles workmen in
such establishments to 3 months’ notice or pay as compensation for retrenchment, lay-off or
closure. The Code liberalises the entire process by increasing the headcount to 300 workers.
This means that establishments with headcount below 300 workers can proceed to retrench or
lay-off workers, or close the establishment by simply notifying the appropriate government.
In all such cases, the workers would no longer be entitled to 3 months’ notice or pay. Rather,
they would be entitled to 1 month notice or pay as is currently applicable to establishments
with less than 100 workmen. Consequently, the overall process and costs associated is likely
to be eased out for various organisations during retrenchment, lay-off and closure.
  Worker reskilling fund: The Code empowers the appropriate government to
introduce a worker re-skilling fund for retrenched workers. The fund shall consist of
contribution from employers @15 days’ wages last drawn by the retrenched worker
and such other sources as may be prescribed by government. The proceeds shall be
utilised as direct credit of 15 days’ wages to the retrenched worker’s account as per
prescribed process. This will be over and above the retrenchment compensation paid to
worker as part of retrenchment process.

 The Code also has enhanced penalties for various offences. For example, under the ID
Act, the penalty for contravention of retrenchment provisions under Chapter VB was
imprisonment for a term up to one month and/or with fine up to INR 1,000. Under the
Code, this has been made punishable with minimum fine of INR 100,000 that can be
extended to INR 1 million. Alongside, it enables compounding of offences which are
penalised with fine, or with fine or imprisonment up to 1 year. For offences that are
punishable with fine only, the offence may be compounded for 50% of the maximum
fine, and for others with 75% of the maximum fine.

Conclusion: As evident from the foregoing points, there is lack of clarity on several new
changes as the Code does not provide specifics. It is expected that the needed clarity will be
captured in final CG rules and those that will be notified by states. It is possible that different
chapters of the Code are supplemented with specialised rules to bring more structure, and
government adopts a staggered approach for implementation. It will also be key to wait and
watch if the rules or commencement notification provide for transition guidelines, which are
currently missing in the Code.