If you searched this question and landed on a page explaining your obligations under the Industrial Disputes Act, 1947, close it. That Act no longer exists.
On 21 November 2025 the Government of India notified all four Labour Codes into force in a single stroke, repealing twenty-nine central labour statutes. The Industrial Disputes Act, 1947, the Industrial Employment (Standing Orders) Act, 1946 and the Trade Unions Act, 1926 were among them, subsumed into the Industrial Relations Code, 2020. The Industrial Relations Code (Amendment) Bill, 2026, introduced in the Lok Sabha on 11 February 2026, put the repeal date beyond argument. The Industrial Relations (Central) Rules, 2026 followed on 8 May 2026.
Most of the substance carried across. But the section numbers changed, two thresholds moved, and a great deal of the guidance currently circulating online is written against a repealed statute. This guide gives the 2026 position, with a map from the old sections to the new ones.
| Is India at-will? | No |
| Governing statute | Industrial Relations Code, 2020 |
| Retrenchment notice (worker, 1+ year) | 1 month, or wages in lieu |
| Retrenchment compensation | 15 days' average pay per completed year |
| Government permission needed at | 300+ workers (was 100) |
| Reskilling fund contribution | 15 days' wages, within 45 days |
Position stated as at July 2026. Central rules are notified; state rules are being notified on differing timelines and states may set thresholds lower. Verify your state's position.
Old section, new section: the map
If you have internal policies, templates or a termination SOP written against the ID Act, this is the table to work through. The language of most of these provisions was carried forward substantially unchanged, which is why the older case law remains relevant — a point we take up separately in Do old labour law judgments still apply under the new Codes?
| Repealed provision | Subject | Now | Changed? |
|---|---|---|---|
| ID Act s.2(s) — "workman" | Who is protected | IR Code s.2(zr) — "worker" | Yes — supervisory line set at ₹18,000; journalists and sales promotion employees expressly included |
| ID Act s.25F | Conditions precedent to retrenchment | IR Code s.70 | Substantially unchanged |
| ID Act s.25G | Last-come, first-go | IR Code s.71 | Retained, with written reasons required to depart from it |
| ID Act s.25H | Re-employment of retrenched workers | IR Code s.72 | Substantially unchanged |
| ID Act s.25N | Prior government permission | IR Code s.79 (applicability set by s.77) | Yes — threshold raised from 100 to 300 workers |
| Standing Orders Act, 1946 | Certified standing orders | IR Code Chapter IV, s.28 | Yes — threshold raised from 100 to 300 workers |
| — | Fixed-term employment | IR Code s.2(o) and s.30 | New — statutory recognition with benefit parity |
| — | Reskilling fund | IR Code s.83 (Chapter XI) | New — employer contribution on retrenchment |
Step 0: is this person a "worker"?
Everything below branches on this. Under s.2(zr), "worker" covers any person employed to do manual, unskilled, skilled, technical, operational, clerical or supervisory work, and expressly includes working journalists and sales promotion employees. It excludes people employed mainly in a managerial or administrative capacity, and people in a supervisory capacity drawing wages above ₹18,000 a month.
| Worker | Not a worker | |
|---|---|---|
| Governed by | Industrial Relations Code + contract + state Shops & Establishments Act | Contract + state Shops & Establishments Act |
| Dismissal for misconduct | Requires a domestic inquiry meeting natural justice | Per contract, though fairness still matters evidentially |
| Retrenchment compensation | Statutory entitlement under s.70 | Contractual only |
| Forum | Conciliation, then Industrial Tribunal | Civil court; or the tribunal if worker status is disputed |
| Can the penalty be reviewed? | Yes — proportionality is examinable | Remedy is generally damages, not reinstatement |
Titles do not decide this. A person called "Manager" who has no independent authority is very often still a worker. The full test is in Is your employee a "worker"?, and it is worth reading before you act on anyone whose status you have assumed rather than tested.
The three lawful exit routes
| Route | When it applies | Notice | Compensation | Procedure |
|---|---|---|---|---|
| Retrenchment s.70 |
Termination for any reason other than punishment by disciplinary action — redundancy, restructuring, role elimination, poor business | 1 month written notice stating reasons, or wages in lieu | 15 days' average pay per completed year (and any part in excess of six months) | Notify the appropriate Government; observe last-come-first-go; contribute to the reskilling fund |
| Dismissal for misconduct standing orders / contract |
Proven misconduct — theft, fraud, wilful insubordination, unauthorised absence, breach of a specific clause | None required where misconduct is established | No retrenchment compensation; statutory dues still payable | Charge sheet, domestic inquiry, reasoned finding, proportionate penalty |
| Resignation or mutual separation | Employee-initiated, or negotiated exit | Per contract | Per contract or as agreed | Document that it was genuinely voluntary — this is the point most often attacked |
Retrenchment: the mechanics
Section 70 provides that no worker in continuous service for not less than one year may be retrenched until they have been given one month's written notice indicating the reasons for retrenchment and the notice period has expired, or have been paid wages in lieu; and until they have been paid, at the time of retrenchment, compensation equivalent to fifteen days' average pay for every completed year of continuous service or any part of it in excess of six months. Notice to the appropriate Government in the prescribed manner is also required.
Whether you additionally need prior permission depends on headcount:
| Establishment size | Notice | Compensation | Prior government permission |
|---|---|---|---|
| Under 50 workers | Not required under Chapter X | Payable under s.70 | No |
| 50 to 299 workers | 1 month, or wages in lieu | Payable under s.70 | No |
| 300 or more workers | Required | Payable | Yes — s.79 |
The 300 threshold replaced the previous 100. States may notify a higher number, and may retain a lower one — several industrialised states have historically applied stricter thresholds. Confirm your state before relying on the central position.
Last-come, first-go
Section 71 retains the principle that where workers in a particular category are retrenched, the employer ordinarily retrenches the one who was employed last. Departure is permissible, but you must record the reasons in writing. In practice this is where selection-based redundancies are won or lost: a genuine, documented, objective selection matrix is defensible; a reverse-engineered justification is not.
The reskilling fund
The Code introduces a new obligation: on retrenchment, the employer contributes an amount equivalent to fifteen days' last-drawn wages of the retrenched worker, within forty-five days of retrenchment. This sits on top of retrenchment compensation, not inside it. Budget for it.
Dismissal for misconduct: the procedure is the substance
Where the ground is misconduct rather than redundancy, the compensation obligations fall away — but a much heavier procedural burden replaces them. For a worker, a dismissal that cannot show a fair inquiry will generally fail regardless of how well-founded the allegation was.
A defensible inquiry has the following anatomy:
- Charge sheet — specific allegations, specific dates, and the clause or standing order said to have been breached. Vague charges cannot be answered, and unanswerable charges fail.
- Opportunity to reply — a reasonable period, in writing.
- Inquiry officer — someone with no prior involvement in the allegation and no stake in the outcome.
- Disclosure — the employee sees the material relied on, and can question the witnesses against them.
- Opportunity to be heard — genuinely, and with enough time. An inquiry conducted in undue haste is vulnerable even where the employee has been uncooperative.
- Reasoned finding — the conclusion, and the reasoning that supports it, in writing.
- Proportionate penalty — dismissal must be commensurate with the proven misconduct.
The point about haste is not theoretical. The Supreme Court has set aside outcomes precisely because the committee moved too quickly and gave inadequate opportunity to respond, notwithstanding repeated absences by the person facing the allegations.
Notice periods and the Shops & Establishments overlay
The Code is not the only source of notice obligations. Every state has its own Shops and Commercial Establishments Act, and those statutes impose their own minimum notice requirements for employees in shops and commercial establishments — commonly thirty days for an employee with a year or more of service, with variations between states. Your obligation is the higher of the statutory floor and the contract.
Practical rule: for any termination, check three documents — the Code, your state's Shops and Establishments Act, and the employment contract — and comply with the most demanding of them.
Full and final settlement: what must be paid
| Component | When payable | Note |
|---|---|---|
| Salary to last working day | Always | Including any pending reimbursements |
| Notice pay in lieu | Where notice is not served | Only if the employer chooses to pay rather than serve |
| Leave encashment | Always, for accrued unavailed leave | Per policy and applicable law |
| Retrenchment compensation | Retrenchment of a worker with 1+ year | 15 days' average pay per completed year |
| Gratuity | Generally on 5 years' continuous service | Now under the Code on Social Security, 2020; pro-rata from day one for fixed-term employees |
| Statutory bonus | Where eligible | Pro-rated to the exit date |
| PF settlement / transfer | Always | Employee elects; exit date must be filed correctly |
Fixed-term employment: the compliant alternative
The Code gives fixed-term employment statutory recognition for the first time across all sectors. A fixed-term worker must receive wages, allowances and other benefits at parity with a permanent worker doing similar work, and is entitled to gratuity on a pro-rata basis. In exchange, where the term simply ends and is not renewed, that expiry is not retrenchment and does not attract retrenchment compensation.
For genuinely time-bound or project-based work this is a cleaner and more defensible structure than repeated contractor engagements or serial probation extensions. It is not a device for converting permanent roles — a fixed-term contract renewed indefinitely for a permanent role invites the argument that the form does not match the substance.
The mistakes that produce claims
- Assuming seniority means no protection. The exclusion is about the dominant nature of duties, not the title or the salary alone.
- Calling a retrenchment a "termination as per contract" and paying only contractual notice.
- Skipping the notice to the appropriate Government. It is a condition, not an administrative afterthought.
- Forgetting the reskilling fund contribution. New obligation, easy to miss, forty-five day clock.
- Applying the 100-worker threshold. It is 300 under the central position — but check your state before relying on either number.
- Manufacturing a resignation. A resignation obtained under pressure can be challenged as a dismissal, and the challenge often succeeds.
- Terminating during maternity leave. A separate and serious exposure under the maternity provisions of the Code on Social Security, 2020.
- Building the file after the decision. Contemporaneous documentation is worth more than a thorough post-hoc reconstruction, and tribunals can tell the difference.
Why exits are cleaner on one connected system
A lawful termination is an assembly problem. You need continuous service computed correctly to the day, average pay computed on the right wage base, leave balances, the gratuity position, the PF exit filing, the notice calculation, and a documentary trail that is internally consistent. Miss the six-month rule in the compensation formula, or compute average pay on the wrong base, and the arithmetic is wrong in a way that is trivially checkable by the other side.
When employment records, attendance, leave, payroll and statutory data sit in one database, continuous service, average pay, leave encashment, gratuity and the retrenchment computation all derive from the same underlying record — and the settlement statement reconciles to the payroll ledger without anyone exporting anything. Helion runs hiring, HR, payroll and statutory compliance on a single schema for exactly this reason. On an exit that may be examined line by line two years later, arithmetic that reconciles to the source record is not a convenience; it is the difference between a defensible file and an argument.
Frequently asked questions
Is India an at-will employment country?
No. Termination must rest on a valid ground and follow the applicable procedure. For workers, the Industrial Relations Code, 2020 prescribes notice, compensation and process requirements; for others, the contract and the applicable state Shops and Establishments Act govern.
Can you terminate an employee without notice in India?
Only for established misconduct, and for a worker only after a proper domestic inquiry. In every other case notice, or wages in lieu of notice, is required.
How much is retrenchment compensation in India?
Fifteen days' average pay for every completed year of continuous service, and for any part of a year in excess of six months, under Section 70 of the Industrial Relations Code, 2020. This is in addition to one month's notice or wages in lieu, and to the separate reskilling fund contribution.
Do I need government permission to lay off employees?
Under the central position, prior permission under Section 79 is required for industrial establishments employing 300 or more workers on average per working day in the preceding twelve months. Below that, notice and compensation apply but permission does not. States can vary the threshold, so confirm your state's notification.
Is the Industrial Disputes Act, 1947 still in force?
No. It was repealed with effect from 21 November 2025 and its subject matter is now in the Industrial Relations Code, 2020. The Industrial Relations Code (Amendment) Bill, 2026 was introduced to place that repeal date beyond doubt.
What notice period is legally required in India?
It depends on three sources read together: the Code (one month for retrenchment of a worker with a year's service, longer for larger establishments), your state's Shops and Establishments Act, and the employment contract. Comply with whichever is most demanding.
Can we terminate an employee on probation without following this process?
A probationer with less than one year of continuous service does not attract the Section 70 conditions, which apply to workers with not less than one year of continuous service. Contractual and state-law notice requirements still apply, and confirmation by conduct — keeping someone well past the probation period without confirming them — is a familiar source of dispute.
Does a termination letter have to give reasons?
For retrenchment, yes — Section 70 requires the written notice to indicate the reasons. For misconduct dismissal, the reasoned finding of the inquiry should be communicated. Issuing a bare termination letter with no stated ground removes your ability to defend the ground later.