Chapter IX · Industrial Relations Code

Lay-Off, Retrenchment and Closure

This chapter sets the money and notice a worker gets when the employer lays them off, retrenches them, closes the business or transfers it to a new owner. In non-seasonal factories, mines and plantations with 50 or more workers on average, a laid-off worker with one year's service gets half of basic wages plus dearness allowance. On retrenchment, closure or a transfer, a worker with one year's service gets one month's notice (or wages instead) and 15 days' average pay, or such other number of days as the government notifies, for every completed year of service. An employer closing an undertaking must also give the government at least 60 days' notice, unless it is a small establishment (fewer than 50 workers) or a construction project.

12 sections ~12 min read Official text, PDF pp. 31–35

HR managersFactory, mine and plantation ownersBusiness owners planning a closure or saleWorkers and trade union representatives

Key points

1A laid-off worker on the muster roll with one year of continuous service, other than a badli or casual worker, gets 50% of basic wages plus dearness allowance for every lay-off day except weekly holidays. This applies in factories, mines and plantations with 50 or more workers on average per working day in the previous calendar month, but not in seasonal or intermittent ones or in those covered by Chapter X. §65 §67
2A worker counts as having one year of continuous service after actually working 240 days in the twelve months before the date of calculation (190 days below ground in a mine). Permitted lay-off days, earned leave on full wages, work-injury absence and maternity leave (up to the Maternity Benefit Act limit) count as days worked. §66
3A worker with one year's service can be retrenched only after one month's written notice giving reasons (or a month's wages instead), compensation paid at the time of retrenchment of 15 days' average pay (or such other days as the government notifies) for every completed year or part over six months, and a notice to the government. §70
4When an Indian citizen is to be retrenched from a category of workers, the last worker hired in that category is ordinarily the first to go, unless there is an agreement or the employer records reasons. If the employer hires again within one year, retrenched workers who are Indian citizens get the chance to offer themselves and have preference over others. §71 §72
5Closing an undertaking needs at least 60 days' notice to the government with reasons (small establishments under 50 workers and construction projects are exempt). Every worker with one year's service gets notice and compensation as if retrenched, capped at three months' average pay if the closure is due to unavoidable circumstances beyond the employer's control. §74 §75
6When ownership or management of an establishment changes hands, workers with one year's service get retrenchment notice and compensation unless their service carries on unbroken, on terms no less favourable, with the new employer legally liable to count their past service if it later retrenches them. §73

At a glance

50% of basic wages + dearness allowanceLay-off compensationSection 67 50 or more on average per working day in the previous calendar monthWorkers needed for lay-off compensation rulesSection 65 240 days in 12 months (190 below ground in a mine)Days worked for one year of continuous serviceSection 66 1 month in writing, or wages in lieuRetrenchment noticeSection 70 15 days' average pay per completed year (or the days notified by the government)Retrenchment compensationSection 70 At least 60 daysClosure notice to the governmentSection 74

Earlier law:Industrial Disputes Act, 1947

Application of sections 67 to 69

In plain words

The lay-off sections (67 to 69) apply only to factories, mines and plantations, and not to those covered by Chapter X, those with fewer than 50 workers on average per working day in the previous calendar month, or those that are seasonal or work only intermittently; the government's decision on whether an establishment is seasonal or intermittent is final.

(1)

Sections 67 to 69 (both inclusive) shall not apply to industrial establishments to which Chapter X applies; or

(a)

to industrial establishments in which less than fifty workers on an average per working day have been employed in the preceding calendar month; or

(b)

to industrial establishments which are of a seasonal character or in which work is performed intermittently.

(2)

If a question arises whether an industrial establishment is of a seasonal character or whether work is performed therein only intermittently, the decision of the appropriate Government thereon shall be final.

Explanation

Explanation.—In this section and in sections 67, 68 and 69, industrial establishment shall mean a—

(i)

factory as defined in clause (m) of section 2 of the Factories Act, 1948; or

(ii)

mine as defined in clause (j) of sub-section (1) of section 2 of the Mines Act, 1952; or

(iii)

plantation as defined in clause (f) of section 2 of the Plantations Labour Act, 1951.

Source: The Industrial Relations Code, 2020, official gazette copy, page 31

Definition of continuous service

In plain words

Continuous service means unbroken service, and breaks for sickness, authorised leave, an accident, a strike that is not illegal, a lock-out or a stoppage that is not the worker's fault do not break it; a worker who worked 240 days in the past twelve months (190 below ground in a mine) counts as having one year, and 120 days in six months (95 below ground) counts as six months.

In this Chapter, continuous service in relation to a worker, means the uninterrupted service of such worker, including his service which may be interrupted on account of sickness or authorised leave or an accident or a strike which is not illegal or a lock-out or a cessation of work which is not due to any fault on the part of the worker.

Explanation

Explanation 1.—For the purposes of this section, where a worker is not in continuous service for a period of one year or six months, he shall be deemed to be in continuous service under an employer—

(a)

for a period of one year, if the worker during a period of twelve months preceding the date with reference to which calculation is to be made has actually worked under the employer for not less than—

(i)

one hundred and ninety days in the case of a worker employed below ground in a mine; and

(ii)

two hundred and forty days, in any other case;

(b)

for a period of six months, if the worker during a period of six months preceding the date with reference to which calculation is to be made has actually worked under the employer for not less than—

(i)

ninety-five days in the case of worker employed below ground in a mine; and

(ii)

one hundred and twenty days, in any other case.

Explanation

Explanation 2.—For the purposes of Explanation 1, the number of days on which a worker has actually worked under an employer shall include the days on which—

(i)

he has been laid-off under an agreement or as permitted by or under this Code or any other law applicable to the industrial establishment for the time being in force; or

(ii)

he has been on leave on full wages earned in the previous years; or

(iii)

he has been absent due to temporary disablement caused by accident arising out of and in the course of his employment; or

(iv)

in the case of a female, she has been on maternity leave, so however, that the total period of such maternity leave does not exceed the period as specified in the Maternity Benefit Act, 1961.

Source: The Industrial Relations Code, 2020, official gazette copy, page 32

Rights of workers laid-off for compensation, etc

In plain words

A laid-off worker on the muster roll with one year of continuous service, other than a badli or casual worker, gets 50% of basic wages plus dearness allowance for every lay-off day except weekly holidays; after 45 lay-off days in twelve months, payment can stop if the worker and employer agree, and the employer may then retrench the worker under section 70, setting off lay-off compensation paid in the preceding twelve months.

Whenever a worker (other than a badli worker or a casual worker) whose name is borne on the muster rolls of an industrial establishment and who has completed not less than one year of continuous service under an employer is laid-off, whether continuously or intermittently, he shall be paid by the employer for all days during which he is so laid-off, except for such weekly holidays as may intervene, compensation which shall be equal to fifty per cent. of the total of the basic wages and dearness allowance that would have been payable to him, had he not been so laid-off:

Proviso

Provided that if during any period of twelve months, a worker is so laid-off for more than forty-five days, no such compensation shall be payable in respect of any period of the lay-off after the expiry of the first forty-five days, if there is an agreement to that effect between the worker and the employer:

Proviso

Provided further that it shall be lawful for the employer in any case falling within the foregoing proviso to retrench the worker in accordance with the provisions contained in section 70 at any time after the expiry of the first forty-five days of the lay-off and when he does so, any compensation paid to the worker for having been laid-off during the preceding twelve months may be set off against the compensation payable for retrenchment.

Explanation

Explanation.— For the purposes of this section "badli worker" means a worker who is employed in an industrial establishment in the place of another worker whose name is borne on the muster rolls of the establishment, but shall cease to be regarded as such, if he has completed one year of continuous service in the establishment.

Source: The Industrial Relations Code, 2020, official gazette copy, page 32

In plain words

For employers

A badli worker (one who stands in for a worker on the muster roll) stops counting as badli after one year of continuous service, so the badli exclusion no longer applies.

Did you know?

If a worker laid off for more than 45 days in a twelve-month period is then retrenched, the employer can set off the lay-off compensation paid in the preceding twelve months against the retrenchment compensation.

Duty of an employer to maintain muster rolls of workers

In plain words

Even during a lay-off, the employer must keep a muster roll and let workers who turn up at the appointed time during normal working hours mark their attendance in it.

Notwithstanding that workers in any industrial establishment have been laid-off. it shall be the duty of every employer to maintain for the purposes of this Chapter a muster roll, and to provide for the making of entries therein by workers who may present themselves for work at the establishment at the appointed time during normal working hours.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Workers not entitled for compensation in certain cases

In plain words

A laid-off worker gets no compensation if they refuse suitable alternative work at normal wages in the same establishment or another one of the same employer in the same town or village or within 8 km, if they do not report for work at the appointed time at least once a day, or if the lay-off is caused by a strike or go-slow by workers in another part of the establishment.

No compensation shall be paid to a worker who has been laid-off—

(i)

if he refuses to accept any alternative employment in the same establishment from which he has been laid-off, or in any other establishment belonging to the same employer situate in the same town or village or situate within a radius of eight kilometres from the establishment to which he belongs, if, in the opinion of the employer, such alternative employment does not call for any special skill or previous experience and can be done by the worker, provided that the wages which would normally have been paid to the worker are offered for the alternative employment also;

(ii)

if he does not present himself for work at the establishment at the appointed time during normal working hours at least once a day;

(iii)

if such laying-off is due to a strike or slowing-down of production on the part of workers in another part of the establishment.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Conditions precedent to retrenchment of workers

In plain words

A worker in any industry with one year of continuous service can be retrenched only after one month's written notice with reasons (or wages in lieu), compensation of 15 days' average pay (or such other number of days as the government notifies) for every completed year, counting any part over six months as a full year, and a notice to the government (or an authority it names) in the manner set by rules.

No worker employed in any industry who has been in continuous service for not less than one year under an employer shall be retrenched by that employer until—

(a)

the worker has been given one month's notice in writing indicating the reasons for retrenchment and the period of notice has expired, or the worker has been paid in lieu of such notice, wages for the period of the notice;

(b)

the worker has been paid, at the time of retrenchment, compensation which shall be equivalent to fifteen days' average pay, or average pay of such days as may be notified by the appropriate Government, for every completed year of continuous service or any part thereof in excess of six months; and

(c)

notice in such manner as may be prescribed is served on the appropriate Government or such authority as may be specified by the appropriate Government by notification.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Procedure for retrenchment

In plain words

When retrenching a worker who is an Indian citizen from a category, the employer ordinarily retrenches the last person hired in that category, unless there is an agreement otherwise or the employer records reasons for choosing someone else.

Where any worker in an industrial establishment who is a citizen of India, is to be retrenched and he belongs to a particular category of workers in that establishment, then, in the absence of any agreement between the employer and the worker in this behalf, the employer shall ordinarily retrench the worker who was the last person to be employed in that category, unless for reasons to be recorded the employer retrenches any other worker.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Re-employment of retrenched worker

In plain words

If the employer wants to hire anyone within one year of a retrenchment, retrenched workers who are Indian citizens must be given the chance to offer themselves for re-employment, in the manner set by rules, and get preference over other candidates.

Where any worker is retrenched and the employer proposes to take into his re-employment any person within one year of such retrenchment, he shall, in such manner as may be prescribed, give an opportunity to the retrenched workers who are citizens of India to offer themselves for re-employment and such retrenched workers who offer themselves for re-employment shall have preference over other persons.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Compensation to workers in case of transfer of establishment

In plain words

When ownership or management of an establishment is transferred, every worker with one year of continuous service gets notice and compensation as if retrenched, unless service carries on unbroken, the new terms are no less favourable, and the new employer is legally liable to count past service if it later retrenches the worker.

Where the ownership or management of an establishment is transferred, whether by agreement or by operation of law, from the employer in relation to that establishment to a new employer, every worker who has been in continuous service for not less than one year in that establishment immediately before such transfer shall be entitled to notice and compensation in accordance with the provisions of section 70 as if the worker had been retrenched:

Proviso

Provided that nothing in this section shall apply to a worker in any case where there has been a change of employers by reason of the transfer, if—

(a)

the service of the worker has not been interrupted by such transfer;

(b)

the terms and conditions of service applicable to the worker after such transfer are not in any way less favourable to the worker than those applicable to them immediately before the transfer; and

(c)

the new employer is, under the terms of such transfer or otherwise, legally liable to pay to the worker, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by the transfer.

Source: The Industrial Relations Code, 2020, official gazette copy, page 33

Sixty days' notice to be given of intention to close down any undertaking

In plain words

An employer who plans to close an undertaking must notify the government with reasons at least 60 days before the closure, except where fewer than 50 workers are or were employed on any day in the previous twelve months, or for construction projects; the government can, by order, lift the notice requirement for a set period in exceptional cases such as an accident, the employer's death or a natural calamity.

(1)

An employer who intends to close down an undertaking shall serve, at least sixty days before the date on which the intended closure is to become effective, a notice, in such manner as may be prescribed, on the appropriate Government stating clearly the reasons for the intended closure of the undertaking:

Proviso

Provided that nothing in this section shall apply to—

(i)

an industrial establishment in which less than fifty workers are employed or were employed on any day in the preceding twelve months;

(ii)

an industrial establishment set up for the construction of buildings, bridges, roads, canals, dams or for other construction work or project.

(2)

Notwithstanding anything contained in sub-section (1), the appropriate Government may, if it is satisfied that owing to such exceptional circumstances as accident in the undertaking or death of the employer or an extraordinary situation such as natural calamities or the like, it is necessary so to do, by order, direct that the provisions of sub-section (1) shall not apply in relation to such undertaking for such period, as may be specified in the order.

Source: The Industrial Relations Code, 2020, official gazette copy, page 34

Compensation to workers in case of closing down of undertakings

In plain words

When an undertaking closes for any reason, every worker with one year of continuous service gets notice and compensation as if retrenched; if the closure is due to unavoidable circumstances beyond the employer's control, compensation is capped at three months' average pay, with special rules for mines closed because the minerals ran out and for construction work finished within two years.

(1)

Where an establishment is closed down for any reason whatsoever, every worker who has been in continuous service for not less than one year in that undertaking immediately before such closure shall, subject to the provisions of sub-section (2), be entitled to notice and compensation in accordance with the provisions of section 70, as if the worker had been retrenched:

Proviso

Provided that where the undertaking is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation to be paid to the worker under clause (b) of section 70, shall not exceed his average pay for three months.

Explanation

Explanation.—An industrial establishment which is closed down by reason merely of—

(i)

financial difficulties (including financial losses); or

(ii)

accumulation of un-disposed stocks; or

(iii)

the expiry of the period of the lease or license granted to it; or

(iv)

in case where the undertaking is engaged in mining operations, exhaustion of the minerals in the area in which operations are carried on,

shall not be deemed to be closed down on account of unavoidable circumstances beyond the control of the employer within the meaning of the proviso to this sub-section.

(2)

Notwithstanding anything contained in sub-section (1), where an undertaking engaged in mining operations is closed down by reason merely of exhaustion of the minerals in the area in which such operations are carried on, no worker referred to in that sub-section shall be entitled to any notice or compensation in accordance with the provisions of section 70, if—

(a)

the employer provides the worker, at the place located within a radius of twenty kilometres from such undertaking engaged in mining operation is closed down, with alternative employment with effect from the date of closure at the same remuneration as he was entitled to receive, and on the same terms and conditions of service as were applicable to him, immediately before the closure;

(b)

the service of the worker has not been interrupted by such alternative employment; and

(c)

the employer is, under the terms of such alternative employment or otherwise, legally liable to pay to the worker, in the event of his retrenchment, compensation on the basis that his service has been continuous and has not been interrupted by such alternative employment.

(3)

For the purposes of sub-sections (1) and (2), the expressions "minerals" and "mining operations" shall have the meanings respectively assigned to them in clauses (a) and (d) of section 3 of the Mines and Minerals (Regulation and Development) Act, 1957.

(4)

Where any undertaking set up for the construction of buildings, bridges, roads, canals, dams or other construction work is closed down on account of the completion of the work within two years from the date on which the undertaking had been set up, no worker employed therein shall be entitled to any compensation under clause (b) of section 70, but if the construction work is not so completed within two years, he shall be entitled to notice and compensation under that section for every completed year of continuous service or any part thereof in excess of six months.

Source: The Industrial Relations Code, 2020, official gazette copy, page 34

In plain words

For employers

Financial difficulties (including losses), unsold stock, an expired lease or licence, or exhausted minerals do not count as unavoidable circumstances. A mine closed merely for exhausted minerals owes no notice or compensation only if it gives alternative work within 20 km from the date of closure on the same pay and terms, with service unbroken and the employer liable to treat it as continuous on any later retrenchment.

Did you know?

A closure merely because of financial difficulties (including losses), piled-up unsold stock or the expiry of a lease or licence does not count as "unavoidable circumstances". Such a closure does not get the three-month cap on compensation.

Effect of laws inconsistent with this Chapter

In plain words

This chapter overrides any other law or standing order that conflicts with it, but any more favourable benefit a worker has under another law, standing order, award or contract continues; State laws on settling industrial disputes stay in force, while lay-off and retrenchment rights are decided under this chapter.

(1)

The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law including standing orders made under Chapter IV:

Proviso

Provided that where under the provisions of any other Act or rules, orders or notifications issued thereunder or under any standing orders or any award, contract or service or otherwise, a worker is entitled to benefits in respect of any matter which are more favourable to him than those to which he would be entitled under this Code, the worker shall continue to be entitled to the more favourable benefits in respect of that matter, notwithstanding that he receives benefits in respect of other matters under this Chapter.

(2)

For the removal of doubts, it is hereby declared that nothing contained in this Chapter shall be deemed to affect the provisions of any other law for the time being in force in any State in so far as that law provides for the settlement of industrial disputes, but the rights and liabilities of employers and workers in so far as they relate to lay-off and retrenchment shall be determined in accordance with the provisions of this Chapter.

Source: The Industrial Relations Code, 2020, official gazette copy, page 35

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