Retrenchments in Kerala: Labour codes and its rules | Explained
A wave of retrenchments in Kerala has drawn attention to the retrenchment and worker-support provisions under the Industrial Relations Code, 2020 (one of the four consolidated labour codes) and its accompanying rules.
Under Chapter XI of the Code, the appropriate government must set up a Worker Re-skilling Fund, to which employers must contribute an amount equal to 15 days' wages last drawn by a retrenched worker, in addition to standard retrenchment compensation.
The episode has renewed scrutiny of the notice, compensation, and government-permission requirements that apply before a firm can lawfully retrench workers, and of how these differ by establishment size.
State-level implementation matters: the "appropriate government" (Centre or state) can vary certain thresholds by notification, so protections can differ across states, including Kerala.
The Industrial Relations Code, 2020
The Industrial Relations Code, 2020 (Act No. 35 of 2020) is one of four labour codes that consolidated 29 central labour laws — this Code alone merges the Trade Unions Act 1926, Industrial Employment (Standing Orders) Act 1946, and Industrial Disputes Act 1947. It governs trade union recognition, standing orders, and the resolution of industrial disputes including layoff, retrenchment, and closure. The Code was passed by Parliament in 2020 but implementation was delayed for years pending finalisation of central and state rules; states notify their own rules under the Code, which is why Kerala's specific rules are relevant to how retrenchment plays out there.
Key Details
- Enacted 2020; consolidates the Industrial Disputes Act 1947, Trade Unions Act 1926, and Industrial Employment (Standing Orders) Act 1946.
- Chapter X (Sections 77–79) contains "Special Provisions Relating to Lay-Off, Retrenchment and Closure" for larger establishments.
- Labour falls under the Concurrent List (List III, Entry 22 — Trade Unions; industrial and labour disputes), so both Parliament and state legislatures can legislate, and states frame their own rules under the central Code.
The Kerala case is being read through the lens of this Code's specific chapters — retrenchment procedure (Section 70), the higher-threshold permission regime (Chapter X), and the re-skilling fund obligation (Chapter XI) — showing how a single retrenchment event triggers multiple, distinct statutory obligations.
Retrenchment Compensation and Notice (Section 70)
Section 70 lays down the general procedure and compensation due whenever any workman with at least one year of continuous service is retrenched, regardless of establishment size. The employer must give one month's written notice (or wages in lieu) stating reasons for retrenchment, notify the appropriate government/authority, and pay compensation equal to 15 days' average pay for every completed year of continuous service (or part thereof exceeding six months).
Key Details
- Notice period: at least one month, or wages in lieu of notice.
- Compensation: 15 days' average pay per completed year of continuous service.
- Applies as the baseline rule to industrial establishments generally, distinct from the higher threshold in Chapter X.
This is the default protection layer that applies to most retrenched workers, separate from the additional re-skilling fund contribution under Chapter XI — students should not conflate the two 15-day-wage obligations, since one (Section 70) is compensation paid directly to the worker, and the other (Chapter XI) is a fund contribution for re-skilling.
Worker Re-skilling Fund (Chapter XI)
Chapter XI mandates that the appropriate government establish a Worker Re-skilling Fund for retrenched workers. The employer must contribute an amount equal to 15 days' wages last drawn by the worker immediately before retrenchment, credited to the worker's account, intended to fund re-skilling programmes so retrenched workers can find alternative employment. This is a new welfare mechanism not present in the earlier Industrial Disputes Act, 1947.
Key Details
- Employer contribution: 15 days' wages last drawn before retrenchment, over and above Section 70 compensation.
- Fund is administered by the "appropriate government" (state government for most establishments, central government for specified sectors).
- Represents a shift from pure severance compensation toward active labour-market re-employment support.
The re-skilling fund contribution is the specific Chapter XI obligation the article highlights in the Kerala retrenchment cases, illustrating a concrete, testable numeric detail (15 days' wages) that is easily confused with the separate Section 70 compensation.
Government Permission for Layoff/Retrenchment (Chapter X, Sections 77–79)
Chapter X requires industrial establishments employing 300 or more workmen on average per working day in the preceding twelve months to obtain prior permission from the appropriate government before laying off, retrenching, or closing down, via an application under Section 79. This replaces Chapter V-B of the erstwhile Industrial Disputes Act, 1947, which set the threshold at 100 workers. States retain power to notify a higher (or, per some interpretations, different) threshold, meaning the applicable trigger can vary by state — a point of federal significance for labour regulation.
Key Details
- New threshold: 300 or more workers (raised from 100 under the old Industrial Disputes Act, 1947, Chapter V-B).
- Appropriate government (Centre/state) may notify a different threshold for specific establishments.
- Applying without permission, or retrenching after refusal, renders the action illegal.
Whether a Kerala establishment needed prior government permission before retrenching depends on whether it crosses this 300-worker mark or any state-notified variant — a key factual determinant in how the labour authorities and courts assess the legality of the retrenchments.
- Industrial Relations Code, 2020 = Act No. 35 of 2020; one of four labour codes (Code on Wages 2019, IR Code 2020, Code on Social Security 2020, OSH&WC Code 2020).
- Section 70: 15 days' average pay per completed year of service + one month's notice/wages in lieu, for standard retrenchment.
- Chapter XI Worker Re-skilling Fund: employer contributes 15 days' wages last drawn, in addition to Section 70 compensation.
- Chapter X (Sections 77–79): prior government permission required for lay-off/retrenchment/closure at establishments with 300+ workers on average (up from 100 under the 1947 Industrial Disputes Act's Chapter V-B).
- Labour is a Concurrent List subject (List III, Entry 22 and related entries), enabling both central codification and state-specific rules.