Industrial Relations

The webinar, ‘Investing in India – Industrial Relations’, hosted by Khaitan & Co, explained to foreign investors and their advisors why industrial relations matter in India, along with guidance on the key applicable legislations and the practical challenges for foreign investors.

The session was moderated by Vinay Joy, Partner, Employment, Labour & Benefits practice group and led by Anshul Prakash, Partner, Employment, Labour & Benefits practice group.

Please see below a summary of the key points discussed in the webinar. Views expressed in the webinar are those of individual panel members and not those of Khaitan & Co. and are subject to the disclaimer set out in the webinar recording.

The recording of the session can be viewed here: Industrial Relations Regime | Investing in India

Introduction

India’s employment law framework has undergone significant transformation. Effective 21 November 2025, four consolidated labour codes replaced 29 central labour statutes. The four codes are:

• The Code on Wages, 2019 (Wages Code)
• The Code on Social Security, 2020 (SS Code)
• The Industrial Relations Code, 2020 (IR Code)
• The Code on Occupational Safety, Health and Working Conditions, 2020 (OSH Code)

(Collectively referred to as Labour Codes)

The IR Code replaced 3 (three) erstwhile statutes: Trade Unions Act, 1926, Industrial Employment (Standing Orders) Act, 1946 and Industrial Disputes Act, 1947.

Industrial relations are critical to business stability. Poor labour relations can cause disruptions, financial loss, reputational harm, and deal uncertainty, especially in M&A transactions.

Employee Classification

• Critical Distinction between Workers vs Non-Workers: The status of an individual as a “worker” determines whether statutory protections under the IR Code apply. This classification is notbased on job title but on actual day-to-day responsibilities.
• Definition of Worker:An individual engaged in any industry to perform manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward.
• Non-Workers(typically senior executives and managerial personnel) have:
• Limited statutory protections
• Termination and compensation governed by contract and company policy
• Very limited entitlements under labour law
• Key Principle:Courts focus on actual job duties rather than titles. Employees with managerial titles may still be treated as workers if their work is largely clerical or operational, while those performing genuine managerial functions are typically not regarded as workers.

Statutory Protections For Workers

• Termination Safeguards: For workers with continuous service of 1 (one) year or more:
• Minimum 1 (one) month notice or wages in lieu (may be extended per contract)
• Payment of statutory severance compensation computed as 15 (fifteen) days’ wages for each completed year of service
• Notice to be provided to the appropriate government in case of retrenchment
• Prior government approval required before retrenching workers in manufacturing units with 300 (three hundred) or more workers
• 60 (sixty) days’ prior notice to government if closure of the undertaking contemplated
• Unfair Labour Practices: Absolute prohibition - Both employers and workers are prohibited from undertaking unfair labour
• Protection from Adverse Changes: No unilateral change to critical terms and conditions without advance notice.
• Business Transfers: Statutory safeguards in place to ensure continuity of service during asset transfers.

Understanding “Wages”

• All statutory contributions and payments are to be computed on the “wages” bucket.
• If expressly excluded components exceed 50% of total remuneration, the statutory contributions / payments are to be computed on 50% of the total remuneration. Where the actual wages already exceed 50% of the total remuneration, computations are to be made on actual wages.

Trade Unions

The IR Code introduces formal trade union recognition.

• Recognition Framework
• Single Registered Union: Automatically recognised as sole negotiating union
• Multiple Unions (≥51% support): Union with 51% or more worker support recognised as sole negotiating union
• Multiple Unions ((51% support): Negotiating council constituted comprising unions with 20% or more worker support
• Strategic Employer Advantage: Formal recognition reduces ambiguity and minimises risk of parallel demands from multiple unions.
• Practical Recommendation: Employers should proactively map workforce affiliations, establish clear engagement protocols and document union recognition processes.

Grievance Redressal Committee (GRC)

Mandatory Requirement: Per the IR Code, establishments engaging 20 (twenty) or more workers must constitute a GRC.

Composition:

• Maximum 10 (ten) members
• Equal representation from management and workers
• Adequate women representation mandated

Worker Representative Selection: Per Draft Central Rules for IR Code

• Nominated by negotiating union or negotiating council (if present)
• If no union exists: elected by workers from amongst themselves (electronic/online platforms permitted)

Procedural Aspect: Per Draft Central Rules for IR Code

• Members serve three (3) year tenure
• Workers must file complaints within 1 (one) year of cause of action
• GRC must complete proceedings within 30 (thirty) days of receipt of application
• Decisions require majority view andagreement of more than half of worker representatives

Disciplinary Process & Dispute Resolution

Follow a Fair Process: Although no specific statutory procedure governs internal inquiries, well-established judicial principles of natural justice apply:

• Issue detailed charge sheet specifying allegations
• Provide reasonable timeframe for response
• Conduct impartial inquiry by appointed inquiry officer or disciplinary committee
• Permit cross-examination of witnesses
• Obtain reasoned and independent inquiry report
• Issue show-cause notice regarding potential action
• Provide right of appeal before final action imposed

Dispute Resolution: Worker grievances may escalate to industrial courts. Outcomes can include:

• Reinstatement with full back wages
• Monetary compensation

Strikes & Lockouts

• Legal Regime: Previously, strike/lockout restrictions applied only to public utility services. Under IR Code, restrictions now apply to all establishments.
• Mandatory Prerequisites for Strike:
• Notice of strike issued within 60 (sixty) days before strike, and
• Cooling-off period of 14 (fourteen) days from date of notice maintained
• Additional Restrictions:
• No strike before expiry of date specified in notice
• Same prerequisites apply vice versa to lockouts by employers
• No strike during pendency of any proceedings
• Financial Prohibition: No person permitted to knowingly spend or apply money in furtherance of illegal strike/lockout.
• Strategic Recommendation: Establish industrial action readiness protocol encompassing:
• Monitoring employee communications and union activity
• Ensuring statutory notices issued and tracked
• Enabling controlled and legally defensible management response, as necessary

Key Changes Under IR Code

Worker Reskilling Fund: Upon dismissal of worker-category employees, employer to contribute 15 (fifteen) days’ last-drawn wages to reskilling fund (constitution and mechanics awaited).

Practical Implementation

• Foreign investors must ensure compliance with Indian labour laws and recognise that such compliances are equally critical for operational stability and post‑acquisition integration.
• Labour disputes require a pragmatic, solution‑oriented approach - early engagement and constructive dialogue with trade unions can prevent escalation.
• Regular and structured communication with workers helps identify and resolve issues before they develop into collective unrest.
• Maintaining strong relationships with local authorities and stakeholders is essential for managing union issues effectively.
• Strong industrial relations governance functions as a key risk‑mitigation and value‑protection mechanism for investors.

The content of this document does not necessarily reflect the views / position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up, please contact Khaitan & Co at editors@khaitanco.com.