New Labour Codes and Its Impact

The new Labour Codes proposes to expand the social security spectrum by incorporating gig workers and inter-state migrant workers, while steps have also been proposed to provide employers with greater freedom to recruit and fire workers without approval from the government. Let us look at the impact these labour codes could have on industry in India.

Fri Jul 01 2022 | Employment, Criminal and Labour | Comments (0)


On September 29, 2020, India's existing labor laws, i.e. the Trade Unions Act, 1926, the Industrial Employment (Standing Orders) Act, 1946 ('SO Act'), and the Industrial Disputes Act, 1947, were replaced by the Government of India under a new legislation enacted as 'the Industrial Relations Code, 2020.

As industry in India is battling the ongoing COVID-19 pandemic, the Code aims to pursue benefits for both employers and their employees. The new labor codes streamline dispute resolution procedures, protect fixed-term workers, ensure that standing orders are followed by all large industrial institutions, build a re-skilling fund for retrenched workers, and raise fines to ensure that non-compliance is minimized. It ensures that an industry-friendly approach to fostering market harmony is followed by establishing a single bargaining body and allwing employers more autonomy to take operational decisions.

Overview of the changes introduced by the Code:

Comparison of previous provisions and changes proposed by NCL for lay-offs, retrenchment and closure

FeatureID Act 1947NCL Recommendations

Prior Permission

  • Needed for lay-offs in establishments with 100 or more employees, closure and retrenchment.
  • Not required for retrenchment and lay-offs.
  • Needed for closure in places with 300 or more employees

Clearance of dues as a pre-condition

  • No
  •  Yes

Notice period 

  • One month
  • Two months


  • At the 15-day rate (for closure and retrenchment)
  • Fifty percent of salaries for lay offs
  • Based on whether the company is profitable or causing losses:
  • Closure for facilities of more than 100 employees: 30 days (for sick businesses with losses of three years and filed for bankruptcy/winding-up) and 45 days (for profit making enterprises)
  • Retrenchment for facilities with more than 100 employees: 45 days (for sick companies trying to become viable by retrenchment) and 60 days (for profit making one enterprises)
  • For companies with 100 or fewer staff, 50 percent of the above is payable.
  • 50 per cent of lay-off salaries. Government approval should be sought if the lay-off reaches one month in establishments with 300 or more staff.


Some of the main acts relating to labor law, but not subsumed by the codes,

Additional Central LawsDescription of the Act
Labour Laws (Simplification of Procedure for Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988 Enables institutions with up to 19 employees and up to 40 employees to file cumulative annual reports and consolidated registrations in compliance with 16 central laws (covering wages, factories and contract labour)
Apprentices Act, 1961Provides for the supervision of apprentice instruction.
Bonded Labour System (Abolition) Act, 1976Provides for the training of apprentice supervision.
Child and Adolescent Labour (Prohibition and Regulation) Act 1986Provides for the management of apprentice instruction.
Public Liability Insurance Act 1991 Provides public liability insurance provisions to provide relief to those affected by injuries that have happened while handling any hazardous material.
Dock Workers (Regulation of Employment) Act 1948Makes provisions for the framing of a framework for the control of dock workers' jobs. Develop a board for the management of the system.
Dock Workers (Regulation of Employment) (Inapplicability to Major Ports) Act 1997.Provides for the Dock Workers (Employment Regulation) Act, 1948 to be inapplicable to dock workers at major ports in India.
Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948 Provides for the framing of the provident fund, pension, related deposit-insurance and bonus schemes for individuals working in coal mines.
Provident Funds Act, 1925Provident funds are mostly dealt with by the government, local authorities, railways and some other bodies.
Seamen's Provident Fund Act, 1966Makes provisions for the framing of a Seamen Provident Fund Program.
Sexual Harassment at Workplace Act, 2013Establishes a system to correct allegations of sexual abuse in the workplace.
Boilers Act, 1923Regulates the manufacture of steam boilers and their use.
Employment of Manual Scavengers and Construction of Dry Latrines (Prohibition) Act, 1993 Prohibits work for such activities of manual scavengers. Regulates the building and maintenance of latrines for water seals.
Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013Prohibits the use of manual scavengers, manual cleaning without protective equipment of sewers and septic tanks, and construction of insanitary latrines.


What are the changes to the hiring-firing laws according to the new Labour Codes in Industry?

The GOI has allowed companies with up to 300 employees to fire staff or shut down plants without the prior approval of the GOI under the Economic Relations Code. Prior approval has been needed so far. Companies with nearly 300 employees also have to apply for approval. However, if the authorities do not respond to their appeal, the plans for retrenchment will be considered to have been accepted. Earlier, labor legislation mandated a period of notice of 30 to 90 days before retrenching "workmen," who could be a class of workers exclusively in the workplace. Lay-offs often require government approval in the case of processing units, farms, and mines with 100 or more workmen.

How does it affect workers' right to strike?

The Industrial Connection Code sets new conditions for workers to travel on strike on their own. Unions will now have to send notice of a strike for 60 days. While cases are pending before a labor tribunal or the National Industrial Tribunal, employees will not be able to continue a 60-day strike after they have been dismissed. Such standards apply to all or most sectors. Earlier, by giving between a fortnight and 6 weeks of notice, employees could continue the strike. There are now outlawed light hits.

What do these new labour codes mean for India's industries and economy?

Economists in India have long argued that for the industry to grow, India's obsolete labor laws need reform. Strict hiring-firing laws applicable to businesses with more than 100 employees made it nearly impossible for employees to get off. This adversely served as an opportunity to remain small for smaller businesses so that they could avoid the principles. Consistent with World Bank estimates, India could add approximately "2.8 million more good-quality formal sector jobs" on an annual basis with less restrictive legislation.

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