Procedure for Lay-Off, Retrenchment and Closure under Industrial Relations Code, 2020

Akshit Rai

Akshit Rai

Published on: Apr 27, 2026

Shatakshi Sharma

Updated on: Apr 27, 2026

★★★★★(1 Rating)

141

The Industrial Relations Code, 2020 (IR Code) provides a framework for lay-off, retrenchment, and closure, categorising establishments based on their worker strength.

Process of Lay-Off, Retrenchment and Closure For 50 to 299 Workers

1. Industrial establishments such as factories, mines, and plantations employing 50 to 299 workers must serve notice on the appropriate government or such authority as specified by the appropriate government before carrying out any lay-off, retrenchment, or closure.
2. If a worker is laid off, the employer must pay compensation equal to 50% of the basic wages plus dearness allowance that the worker would have received if she/he had not been laid off.
3. Employers must give 1 month’s prior notice to a worker before retrenchment.
4. Retrenchment compensation must be paid at the rate of 15 days’ average pay for each completed year of continuous service.
5. Employers must also contribute an amount equal to 15 days’ wages for each retrenched employee to the Workers’ Re-Skilling Fund.
6. An employer planning to close an industrial establishment must serve prior notice on the appropriate government at least 60 days in advance, clearly stating the reasons for closure, and must simultaneously serve a copy of the application to the workers’ representatives.
7. When ownership or management of an establishment is transferred, workers with at least 1 year of continuous service are entitled to notice and retrenchment compensation.

Process of Lay-Off, Retrenchment and Closure For More than 300 Workers

1. Industrial establishments such as factories, mines, and plantations employing 300 or more workers must obtain prior permission from the appropriate Government before any lay-off, retrenchment, or closure.
2. If a worker is laid off, the employer must pay compensation equal to 50% of the basic wages plus dearness allowance that the worker would have received if they had not been laid off.
3. Employers must give 3 months’ prior notice before retrenchment.
4. Retrenchment compensation must be paid at the rate of 15 days’ average pay for each completed year of continuous service.
5. Employers must contribute an amount equal to 15 days’ wages per retrenched employee to the Workers’ Re-Skilling Fund.
6. An employer intending to close an industrial establishment must apply for prior permission at least 90 days in advance, clearly stating the reasons for closure, and must simultaneously serve a copy of the application on the workers’ representatives.
7. In case of transfer of ownership or management, workers with at least 1 year of continuous service are entitled to notice and retrenchment compensation.