Labour Codes: #21 Layoff – Old vs New: A Comparison of the Old and New Provisions

Introduction: – 

Chapter V-A and Chapter V-B of the Industrial Disputes Act, 1947 (“ID Act“) provide a legal framework for layoffs, retrenchment, and closure of establishments, with specific provisions governing the process of layoffs. The Industrial Relations Code, 2020 (“IR Code“) represents a significant transformation in India’s labor law framework, consolidating three major labor legislations including the ID Act. Chapter X of the IR Code deals with the provisions related to Layoffs, Retrenchment, and Closure. 

 

Comparative Analysis of Key Provisions of the ID Act and IR Code: 

 

Criteria  ID Act  IR Code 
Definition of Layoff  Failure, refusal, or inability of an employer to provide work to a regularly employed worker due to shortage in coal, raw material, too much stocks, breakdown of machines or natural disasters.   Same definition maintained under section 2(t) of the IR Code. 
Determination of Layoff Status  An employee whose name is on the muster rolls and who presents for work but is not given employment within 2 hours is considered laid-off for that day.   Same provision maintained.  
Half-day Layoff Provision  If employer directs worker to come in second half, the employee is considered laid off for half a day only.   Same provision maintained.  
Compensation for Second Half Non-employment  If employee comes in second half as directed but is still not given work, entitled to full basic allowance and dearness wages.   Same provision maintained.  
Scope of Application  Layoff provisions do not apply to establishments with less than 50 workers on any day preceding the calendar month.   Maintains the same threshold of 50 workers.  
Exemptions  Provisions do not apply to seasonal or intermittent work.   Continues to exempt seasonal or intermittent work.  
Chapter Reference  Falls under Part V-B of the Act.   Consolidated under Chapter X of the Code.  
Permission Requirement for Layoff  Establishments with more than 100 workmen need prior permission from appropriate government (Section 25M).  Threshold raised to establishments with more than 300 workmen (Section 78). 
Penalties for Non-compliance  Imprisonment up to one month or fine up to Rs. 1,000.   Significantly increased to compensation up to Rs. 2 lakhs for first conviction and Rs. 5 lakhs for second conviction.  

 

Key Impact on Employer: 

 

  1. Increased Threshold for Permission: The threshold requiring prior government permission for layoffs has been raised from 100 to 300 workmen, providing employers with greater flexibility in workforce management for mid-sized establishments while reducing regulatory compliance requirements.  
  2. Significant Higher Penalties: Non-compliance now attracts substantially higher financial penalties (up to Rs. 5 lakhs for repeat offenses compared to Rs. 1,000 previously), creating stronger deterrents and increasing potential financial liability for employers. Employers must strengthen compliance systems and legal oversight.  
  3. Consolidation of Provisions: All layoff-related provisions now fall under Chapter X of the IR Code, providing a more streamlined and integrated regulatory framework, potentially simplifying compliance but requiring employers to familiarize themselves with the new structure.  

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