When the establishment is a factory, mine or plantation that employed 300 or more workers on average per working day over the previous twelve months. Chapter X of the Industrial Relations Code 2020 then requires the appropriate government's prior permission to lay off, retrench or close. Below 300, the employer needs notice and compensation but no permission. Whether contract workers count toward the 300 is the question the Code leaves open.
Where the 300 line sits
On an average, over a year, and only for three kinds of establishment. Section 77(1) applies Chapter X to an industrial establishment, not of a seasonal character and not one where work is performed only intermittently, "in which not less than three hundred workers, or such higher number of workers as may be notified by the appropriate Government, were employed on an average per working day in the preceding twelve months". Section 77(3) limits "industrial establishment" for this purpose to a factory, a mine or a plantation.
Three details in that sentence decide most cases. It is an average per working day, not a peak, so a seasonal ramp that touches 320 for six weeks does not by itself bring a site of 250 inside. It looks back twelve months, so the answer can change during a year. And the appropriate government can raise the number but not lower it [VERIFY: whether Tamil Nadu has notified a higher number under s.77(1); none was found]. The Industrial Disputes Act 1947 set the equivalent line at 100 before the Code replaced it on 21 November 2025 [VERIFY: s.25K of the repealed Act was not opened].
The Industrial Relations Code (Amendment) Act 2026, which received assent on 16 February 2026 and is deemed to have come into force on 21 November 2025, rewrote only section 104, the repeal and savings clause, so that existing tribunals and authorities keep functioning. Chapter X is as enacted.
What changes above and below 300
Permission above the line; notice and money below it. The compensation is the same on both sides; the procedure is not.
| 300 or more (Chapter X) | Below 300 (Chapter IX) | |
|---|---|---|
| Lay-off | Prior permission of the appropriate government, unless the lay-off is due to shortage of power or natural calamity (s.78(1)) | No permission; compensation of 50% of basic wages and dearness allowance for each day laid off (s.67), for establishments averaging 50 or more workers in the previous calendar month (s.65(1)) |
| Retrenchment notice | Three months' written notice, or wages in lieu, and prior permission (s.79(1)) | One month's written notice, or wages in lieu, and notice to the appropriate government (s.70(a), (c)) |
| Retrenchment compensation | Fifteen days' average pay for every completed year of continuous service, or part over six months (s.79(9)) | The same (s.70(b)) |
| If the government does not decide | Retrenchment permission is deemed granted after 60 days (s.79(4)); an order stays in force for one year (s.79(5)) | Not applicable |
| Retrenching without permission | Deemed illegal from the date of notice, and the worker keeps every benefit as if no notice had been given (s.79(7)) | Not applicable |
| Closure | Application for permission at least 90 days before the intended date (s.80(1)) | Sixty days' notice to the appropriate government (s.74(1)); the proviso excludes an establishment "in which less than fifty workers are employed or were employed on any day in the preceding twelve months" |
Two rules apply on both sides of the line. Section 71 makes retrenchment "last come, first go" within a category of workers, unless there is an agreement or the employer records reasons for doing otherwise. Section 72 gives retrenched workers preference if the employer takes on anyone within one year. Section 82 applies both of them, with sections 66, 73 and 76, to establishments above the line as well.
There is also a cost that sits outside both chapters. Chapter XI sets up a worker re-skilling fund to which the employer contributes fifteen days' wages last drawn for every retrenched worker, credited to the worker within 45 days of retrenchment (s.83). It applies to retrenchment generally, not only above 300 [VERIFY: whether the appropriate government has notified the fund under s.83(1); the obligation operates through that notification].
Take a worker with four years and seven months' continuous service on an average pay of ₹600 a day, a round figure and not a rate this site quotes for anything. The seven months count as a fifth year, so retrenchment compensation is 75 days' average pay, ₹45,000, and the re-skilling contribution a further fifteen days, ₹9,000. The notice period, or wages in lieu, comes on top.
What does not count as retrenchment
Several common endings are excluded by definition. Section 2(zh) defines retrenchment as the employer's termination of a worker's service for any reason other than disciplinary punishment, and then excludes:
- voluntary retirement, and retirement on reaching the age of superannuation;
- "termination of the service of the worker as a result of the non-renewal of the contract of employment between the employer and the worker concerned on its expiry", or its termination under a stipulation in the contract;
- "termination of service of the worker as a result of completion of tenure of fixed term employment";
- termination on the ground of continued ill-health.
The fixed-term exclusion matters most on a mixed floor. A fixed-term employee whose term runs out has not been retrenched, so neither the notice, nor the compensation, nor the permission above 300 applies; what that employee is owed at the end is set out in the article on this site on fixed-term gratuity. The exclusion covers the end of the term. Ending a fixed-term contract early is a different question.
Where contract workers sit
Partly outside the Chapter X protections, and partly unresolved. Three points are worth separating.
- Counting toward 300. Section 77(1) counts workers "employed" in the establishment. A contract worker is employed through the contractor but works in the establishment, and the Code does not say which way that falls. Take a factory averaging 260 direct employees and 90 contract workers across the year, an illustrative figure: counting the contract crew puts it at 350 and inside Chapter X; not counting it puts it at 260 and outside. We found no Ministry guidance settling the point.
- The lay-off protections. Both the lay-off permission in section 78(1) and lay-off compensation in section 67 are limited to a worker "whose name is borne on the muster rolls of an industrial establishment". A contract worker is usually on the contractor's rolls, not the establishment's, which suggests those two sections do not reach the contract crew directly.
- Disputes. Where a dispute arises between a contractor and the contract labour employed through it in an industrial establishment, the proviso to section 2(a) makes the appropriate government the one with control over that establishment, which keeps the forum with the site.
Sequencing a reduction
The order of the steps matters more than any one of them, because the permission clock and the notice clock run together.
- Work out the average workers per working day over the previous twelve months, direct and contract separately, and get counsel's view on which figure section 77 uses for this site.
- Check whether the establishment is seasonal or intermittent, which takes it outside Chapter X altogether; section 77(2) makes the appropriate government's decision on that final.
- Separate the people whose engagement is ending for a reason that is not retrenchment, such as the expiry of a fixed term, from those who would be retrenched.
- Above 300, apply for permission and serve the copy on the workers at the same time (s.79(2)); the three months' notice and the 60-day deemed-permission period then run in parallel. Below 300, serve one month's notice and the notice to the government.
- Apply section 71 within each category, compute compensation at fifteen days' average pay per year and part-year over six months, and provide for the re-skilling fund contribution.
- Keep the list for a year: section 72 gives those retrenched preference if the site hires within one year.
How Velura Services helps
We agree notice periods and release plans for a contract crew in the engagement terms, before deployment. When volumes drop and a crew is reduced, we settle our workers' statutory dues and keep your site informed at each step. How the Code applies to your own establishment is a question for your counsel.
Sources
- The Industrial Relations Code, 2020 (Act 35 of 2020), Gazette text hosted by the Ministry of Labour and Employment — s.2(a) proviso (appropriate government for disputes between a contractor and contract labour), s.2(zh) (retrenchment and its exclusions), s.2(zr) (worker), s.65 (application of lay-off compensation), s.67 (lay-off compensation), s.70 (conditions for retrenchment), s.71 (last come, first go), s.72 (re-employment within a year), s.74 (closure notice), s.77 (application of Chapter X at 300), s.78 (lay-off permission), s.79 (retrenchment permission, deemed permission, illegality, compensation), s.80 (closure permission), s.82, s.83 (worker re-skilling fund). Opened and read.
- The Industrial Relations Code (Amendment) Act, 2026, Gazette of India Extraordinary Part II Section 1, No. 3, 16 February 2026 — substitutes s.104(1) and inserts s.104(1A), deemed in force from 21 November 2025. Opened and read.
- Industrial Disputes Act, 1947, s.25K — the earlier 100-worker threshold for Chapter V-B [VERIFY: the repealed Act was not opened for this piece]