Retrenchment, lay-off and closure under the Industrial Relations Code: the 300-worker line

From 21 November 2025, a factory, mine or plantation that averaged 300 or more workers a day over the preceding twelve months needs the appropriate Government's prior permission to lay off, retrench or close, and a retrenchment there needs three months' notice, where a smaller establishment gives one month's notice and only informs the Government. In both classes a retrenchment carries fifteen days' average pay for each completed year of service, and a separate payment of fifteen days of last drawn wages into the worker re-skilling fund within ten days.

What changed, and from when?

The Industrial Relations Code, 2020 (the Code) came into force on 21 November 2025, appointed under section 1(3) by notification S.O. 5320(E). The Central Government then made the Industrial Relations (Central) Rules, 2026 (the Rules) by notification G.S.R. 342(E) of 8 May 2026, in force on publication. They supersede the Industrial Disputes (Central) Rules, 1957 as to Part II and Parts V to VIII.

The Industrial Relations Code (Amendment) Act, 2026 (Act 1 of 2026), deemed in force from 21 November 2025, changed only section 104: the Tribunals and statutory authorities under the three repealed Acts keep functioning until their counterparts under the Code become functional.

Three chapters carry the rules on job loss: Chapter IX (sections 65 to 76) for retrenchment, lay-off and closure generally, Chapter X (sections 77 to 82) for the permission regime in the largest establishments, and Chapter XI (section 83) for the worker re-skilling fund.

Which establishments does the permission regime reach?

Section 77(1) applies Chapter X to an industrial establishment in which "not less than three hundred workers, or such higher number of workers as may be notified by the appropriate Government" were employed on an average per working day in the preceding twelve months. Section 77(3) limits "industrial establishment" to a factory, a mine or a plantation, each as defined in the Factories Act, 1948, the Mines Act, 1952 or the Plantations Labour Act, 1951. All three Acts are repealed by the Occupational Safety, Health and Working Conditions Code, 2020 on its commencement; section 77(3) has not been updated to that Code's definitions.

An office-based business, including most technology and services firms, is not an industrial establishment under section 77(3) however many people it employs, so the lighter Chapter IX applies to it. And only a "worker" is protected: section 2(zr) excludes a person employed mainly in a managerial or administrative capacity, and a supervisor drawing wages above INR 18,000 a month "or an amount as may be notified".

Under section 2(b) the Central Government is the appropriate Government for central undertakings, railways, mines, major ports, banking and the like, and the State Government for every other establishment. The Rules read here are the central ones. A private factory ordinarily answers to its State's rules, and State rules may differ on forms and timing and are not covered here.

What does a smaller establishment have to do?

Under section 70, a worker with one year of continuous service cannot be retrenched until three things are done: one month's written notice with reasons, or wages for that period in lieu; compensation at the time of retrenchment equal to fifteen days' average pay for every completed year of continuous service or any part over six months; and notice to the appropriate Government in the prescribed manner.

Rule 27 supplies that last step. The employer sends Form XIII to the Central Government and the Deputy Chief Labour Commissioner (Central) by e-mail or speed post within three days of serving the worker's notice, or of paying wages in lieu. Where retrenchment is by agreement fixing a termination date, the notice must reach them at least one month before it. Rule 28 requires a seniority list on the notice board seven days before retrenchment.

Closure under Chapter IX needs sixty days' notice to the appropriate Government (section 74, rule 29), except for establishments with fewer than fifty workers. Workers are paid as if retrenched (section 75), capped at three months' average pay where closure is from unavoidable circumstances, which financial difficulty alone is not.

What does the larger establishment have to do?

Chapter X replaces notice with permission.

• Lay-off (section 78): prior permission, applied for in Form XIV (rule 30) with a copy served on the workers, except for shortage of power or natural calamity. Compensation is fifty per cent of basic wages and dearness allowance (sections 67 and 78(10)).
• Retrenchment (section 79): three months' written notice or wages for it, and prior permission on a Form XIV application (rule 33), displayed at the main entrance.
• Closure (section 80): an application at least ninety days before the closure takes effect (rule 35).

On each, the Government decides after hearing the employer, the workers and interested persons, and records reasons. If it communicates no order within sixty days of the application, permission is deemed granted. Review may be sought within thirty days (rules 32, 34 and 36) and is to be disposed of within two months; the statute also lets the Government refer the matter to a Tribunal, which must award within thirty days.

A retrenchment without an application, or after refusal, is "deemed to be illegal" from the date of the notice, and the worker keeps all benefits as if no notice had been given (section 79(7)); lay-off and closure follow the same rule. On permission, section 79(9) and section 80(8) fix the same compensation as section 70: fifteen days' average pay a year.

How is the pay measured?

"Average pay" in section 2(d) is the average of wages payable over three complete calendar months for a monthly paid worker, four weeks for a weekly paid worker and twelve full working days for a daily paid one.

"Wages" in section 2(zq) is basic pay, dearness allowance and retaining allowance, with remuneration not excluded by clauses (a) to (k), which take out house rent allowance, conveyance allowance, overtime, commission and employer provident fund contributions, among others. A proviso adds the 50 per cent rule: where the payments excluded under clauses (a) to (i) exceed "one-half, or such other per cent. as may be notified by the Central Government" of all remuneration, the excess is added back to wages. Leaving aside clauses (j) and (k), wages are in effect at least half of remuneration. A second proviso brings clauses (d), (f), (g) and (h) back into wages "for the purpose of payment of wages"; whether that reaches average pay for compensation is not settled.

What is paid into the re-skilling fund?

Section 83(2)(a) requires the employer of an industrial establishment to contribute fifteen days' wages last drawn by the worker immediately before the retrenchment, for each retrenched worker, "in case of retrenchment only". Rule 37 requires an electronic transfer within ten days of the retrenchment into an account displayed on the Ministry of Labour and Employment's website, and a list of names, amounts and bank details to the Labour Commissioner's office. The fund credits the worker within forty-five days of retrenchment, for re-skilling (section 83(3)).

Nothing in section 83 or rule 37 sets the payment against retrenchment compensation. On their words the two are separate sums. For gratuity on fixed-term staff, see what the labour codes cost.

What do the dates and figures look like?

An illustration. The establishment, the worker and the dates below are hypothetical. The factory is run by a central public sector undertaking, so the Central Government is the appropriate Government. The daily rate is an assumption, shown at 26 and at 30 days a month, and wages are computed on the first proviso only.

Worker: 12 years 8 months of service (13 years for compensation)
  Monthly remuneration, average of last three months          INR 50,000
    Basic pay 20,000; house rent 18,000; conveyance 7,000; overtime 5,000
  Excluded under clauses (d), (f), (h): 30,000, above half (25,000)
  Excess added back: 5,000
  Wages under section 2(zq): 20,000 + 5,000                   INR 25,000

                                                26-day month   30-day month
  Fifteen days of wages                         INR 14,423     INR 12,500
  Compensation, 13 years (section 79(9))        INR 1,87,500    INR 1,62,500
  Re-skilling fund transfer, one worker         INR 14,423     INR 12,500
  Wages in lieu of three months' notice         INR 75,000     INR 75,000

Plant A, 312 workers on a twelve-month daily average: Chapter X
  Notice and Form XIV application                1 March 2027
  Deemed permission if no order (60 days)        30 April 2027
  Notice expires; earliest retrenchment          1 June 2027
  Seniority list displayed (7 days before)       by 25 May 2027
  Fund transfer due (10 days)                    by 11 June 2027
  Fund credit to workers (45 days)               by 16 July 2027

Plant B, 296 workers on the same measure: Chapter IX
  One month's notice; Form XIII within 3 days; no permission

Four workers on the average separate the plants: A needs permission and a three-month wait, B a month's notice. Compensation and fund sums are the same.

What are the consequences of a breach?

Section 86(1) fines an employer who contravenes sections 78, 79 or 80 between INR 1 lakh and INR 10 lakh; a repeat offence carries up to INR 20 lakh or six months. Contravening sections 67, 70, 73 or 75 draws INR 50,000 to INR 2 lakh. Section 83 is not named there, so on its words a missed transfer falls under the residual sub-section (20), a fine up to INR 1 lakh.

What remains unsettled?

Six points.

How many days make "fifteen days". Neither text gives a divisor for a monthly wage, and a 26-day and a 30-day month differ by about 15 per cent, as the table shows.

Whether the fund payment applies on closure. Section 75 treats workers as if retrenched for the notice and compensation of section 70. Section 83(2)(a) says "in case of retrenchment only" and rule 37 speaks of an employer who "has retrenched". The words point away from closure; we have not seen a ruling.

Whether the second proviso to section 2(zq) reaches average pay. It brings clauses (d), (f), (g) and (h) back into wages "for the purpose of payment of wages", which would lift the illustration's wages above INR 25,000; the table is computed on the first proviso only.

Whether the 50 per cent figure or the INR 18,000 supervisory limit has been varied. Each can be changed by notification, and we have not seen one.

How the forms square with the text. The note to Form XIII speaks of "sixty days and thirty days" before closure and retrenchment, while rule 27 ties the notice to the worker's notice.

Which forum reviews. Section 79(6) refers to a Tribunal under the Code, but section 104(1A) keeps those under the repealed Act working until the new ones are functional. We have not seen the point decided.