Understanding Employer Obligations Under the Industrial Disputes Act

The Industrial Disputes Act, 1947, remains one of India’s most significant labour legislations, governing industrial relations and dispute-resolution mechanisms between employers and workmen. As we navigate 2025, with India’s new labour codes awaiting full implementation across all states, understanding employer obligations under this Act remains critical for maintaining harmonious industrial relations and ensuring legal compliance.

Foundational Framework and Applicability

The Industrial Disputes Act was enacted to provide mechanisms for investigation and settlement of industrial disputes through conciliation, arbitration, and adjudication. The Act applies to every industry and industrial establishment in India, regardless of the number of workers employed. A “workman” under the Act includes any person engaged in an industry to do manual, unskilled, skilled, technical, operational, or supervisory work for hire or reward, excluding those in managerial or administrative capacities or drawing wages exceeding ₹10,000 per month in supervisory roles.

Critical Employer Obligations in 2024-2025

Recent High Court rulings in 2024 have reinforced several key principles. The Bombay High Court clarified that the predominant nature of duties performed determines whether a person qualifies as a workman, emphasizing that managerial roles fall outside this definition. Courts have consistently upheld that illegal termination does not automatically guarantee reinstatement, and employers retain the right to supervise and discipline employees through proper procedures.

Works Committees and Standing Orders

Establishments employing 100 or more workers must constitute Works Committees with equal representation from employers and workmen. The purpose is to promote measures to secure and preserve amicable relations between employers and workers, and to discuss matters of common interest. Recent amendments under the pending Industrial Relations Code propose raising this threshold to 300 workers.

Standing Orders, which define conditions of employment, are mandatory for industrial establishments. These orders must specify the classification of workmen, hours of work, holidays, leave provisions, termination procedures, and definitions of misconduct. The Industrial Employment (Standing Orders) Act, 1946, governs these requirements, and employers must ensure compliance to avoid legal challenges.

Notice Requirements and Change Management

Section 9A of the Industrial Disputes Act mandates that employers provide 21 days’ notice to workers before effecting any change in conditions of service specified in the Fourth Schedule. This includes wage rates, allowances, hours of work, leave with pay, and shift-working arrangements. Any change implemented without proper notice can be challenged as an unfair labour practice.

During the pendency of conciliation or adjudication proceedings, Section 33 restricts employers from altering service conditions or discharging workers connected with the dispute without express permission from the authority before which proceedings are pending. This protection extends further to “protected workmen” who are office bearers of registered trade unions.

Retrenchment Compliance: Essential Procedures

Chapter V-B of the Industrial Disputes Act contains special provisions regarding lay-off, retrenchment, and closure for establishments employing 100 or more workers on any day in the preceding 12 months. The 1982 amendment reduced this threshold from 300 to 100 workers, significantly expanding the Act’s coverage.

Statutory Requirements for Retrenchment

Section 25F mandates that no workman with one year of continuous service can be retrenched unless three specific conditions are satisfied. First, the workman must receive one month’s written notice specifying reasons for retrenchment, or payment in lieu thereof. Second, the workman must be paid retrenchment compensation equivalent to 15 days’ average pay for every completed year of continuous service or any part thereof exceeding six months. Third, notice must be served in the prescribed manner on the appropriate government or specified authority.

For establishments covered under Chapter V-B, Section 25N imposes additional requirements. Employers must obtain prior permission from the appropriate government before retrenching any workman with at least one year of continuous service. The application must clearly state the reasons, and copies must be served on the concerned workmen. Authorities conduct inquiries, provide hearing opportunities, and decide based on the genuineness of reasons, workers’ interests, and relevant factors. If no decision is communicated within 60 days, permission is deemed granted.

The Supreme Court has upheld Section 25N as constitutionally valid, ruling that restrictions on employers’ rights to retrench serve the public interest and do not infringe Article 19(1)(g) of the Constitution. Retrenchment without compliance renders the action illegal from the date the notice was given, entitling workers to all benefits as if no notice had been issued.

Lay-off Provisions and Compensation

Lay-off occurs when employers temporarily fail to employ due to a shortage of coal, power, or raw materials, stockpiles, machinery breakdown, natural calamity, or other related reasons. Under Section 25C, laid-off workers are entitled to compensation equal to 50% of their total basic wages and dearness allowance. If a layoff exceeds 45 days, employers must either continue paying compensation or retrench workers in accordance with proper procedures.

Section 25E establishes that workers laid off for more than 45 days in any 12 months are entitled to retrenchment compensation unless the lay-off is due to natural calamity or other exceptional circumstances. Employers must maintain muster rolls accurately, as workers’ names must be borne thereon to claim lay-off benefits.

Closure Requirements and Government Permission

Section 25O governs undertaking closures for establishments under Chapter V-B. Employers must apply for prior permission at least 90 days before intended closure, stating reasons clearly. The authority examines whether closure is genuine, considers workers’ interests and the public interest, and may grant or refuse permission with recorded reasons. Closing without permission or before the 90-day notice period makes closure illegal, entitling workers to full wages from closure date until permission is granted.

Compensation for closure equals 15 days’ average pay for every completed year of continuous service or any part exceeding six months. This is payable at closure time for workers employed immediately before the application date.

Strikes and Lockouts: Legal Framework

Chapter V regulates strikes and lockouts to maintain industrial peace. Illegal strikes include those commenced without giving requisite notice (14 days for public utilities, six weeks for other industries), during conciliation proceedings plus seven days thereafter, and during pendency before labour courts or tribunals. Employers cannot declare lockouts during similar periods.

The Industrial Relations Code, awaiting implementation, proposes requiring 60 days’ notice before strikes and prohibits strikes during proceedings and for 60 days after their conclusion. This represents a significant strengthening of restrictions aimed at preventing flash strikes.

Unfair Labour Practices

The Fifth Schedule enumerates unfair labour practices by employers, including discriminating against workers for union activities, establishing employer-dominated unions, victimizing workers for testifying in proceedings, and refusing to bargain collectively in good faith. Courts have expanded this concept through interpretations, and employers must ensure their practices align with fair industrial relations principles.

The Delhi High Court clarified in 2024 that associations providing personal services through workers to corporate entities do not qualify as “industry” under the Act, limiting the scope of disputes that can be raised under this legislation for certain service arrangements.

Transition to New Labour Codes

As of December 2024, the Ministry of Labour and Employment announced that all 36 states and union territories are expected to complete harmonization and pre-publication of draft rules under the four Labour Codes by March 31, 2025. Barring five states including West Bengal, Meghalaya, Nagaland, Sikkim, and Andaman & Nicobar Islands, all others have pre-published rules, setting the stage for implementation.

The Industrial Relations Code, 2020, will consolidate and replace the Industrial Disputes Act along with two other labour laws. Key changes include raising the threshold for standing orders and government permission for retrenchment from 100 to 300 workers, introducing a re-skilling fund for retrenched workers, recognizing fixed-term employment with equal benefits, and establishing a two-member Industrial Tribunal system for faster dispute resolution.

However, until formal notification of implementation dates is issued, the Industrial Disputes Act, 1947, remains in force, and employers must maintain strict compliance with its provisions.

Best Practices for Compliance

Maintain Accurate Records: Comprehensive documentation, including appointment letters, service records, muster rolls, attendance registers, wage registers, and correspondence, is essential. Records must be preserved for prescribed periods and produced during inspections or proceedings.

Implement Fair Procedures: Before terminating any workman, conduct proper domestic inquiries following principles of natural justice. Provide show-cause notices, allow opportunities to explain, examine witnesses, and record findings in writing. Courts closely scrutinize procedural fairness.

Engage in Collective Bargaining: Recognize registered trade unions and engage in good faith negotiations. Refusal to bargain collectively constitutes an unfair labour practice. Regular dialogue prevents disputes from escalating into strikes or litigation.

Seek Legal Counsel Early: For complex situations involving retrenchment, closure, or contentious dismissals, consult labour law experts before taking action. Preventive legal advice is far more cost-effective than defending lengthy litigation.

Monitor Regulatory Developments: Stay informed about court judgments, government notifications, and labour code implementation timelines. Subscribe to legal updates and conduct periodic compliance audits.

Train Management Personnel: Ensure HR managers, supervisory staff, and senior management understand legal requirements and company policies. Well-trained personnel prevent inadvertent violations and maintain harmonious industrial relations.

Conclusion

Employer obligations under the Industrial Disputes Act, 1947, encompass comprehensive requirements designed to balance industrial efficiency with workers’ welfare. The 2024 judicial interpretations have provided greater clarity on definitional aspects, procedural requirements, and the extent of labour court interference in domestic inquiries.

With the imminent implementation of new labour codes in 2025, employers face a transitional period that requires vigilance and adaptability. While the Industrial Relations Code promises simplified compliance for specific provisions by raising thresholds, it simultaneously introduces new obligations regarding re-skilling funds and fixed-term employment.

Successful navigation of this legal landscape requires employers to move beyond mere technical compliance toward fostering genuine industrial harmony. Proactive communication, fair treatment, transparent procedures, and respect for workers’ rights create workplaces where disputes are prevented rather than litigated.

As India positions itself as a global manufacturing destination under the “Make in India” initiative, demonstrating commitment to lawful employment practices becomes a competitive advantage. Employers who view labour law compliance as integral to corporate governance rather than a burden will be best positioned to thrive in India’s evolving industrial relations framework, ultimately contributing to the nation’s sustainable economic growth and social development.