Unfair Dismissal in India (2026 Legal Guide) — Rules & Requirements

The Industrial Disputes Act 1947 (IDA) — and now the Industrial Relations Code 2020 (IR Code), enforceable 21 November 2025 — make a job in industrial India sticky. Unlike the at-will model of US employment, an Indian factory worker who has crossed one year of continuous service cannot simply be sent home. There is a notice. There is a payment. And in larger plants there is a government approval that has to come first.

The most controversial change under the IR Code is the threshold raise. Under IDA s. 25N, employers with 100+ workers needed prior government approval to retrench or close. The IR Code raised that threshold to 300 workers — meaning establishments between 100 and 299 workers no longer need state approval to retrench, only the existing s. 25F notice + compensation. Labour federations have challenged this in court; the change took effect on enforcement (21 Nov 2025) and is now operating. For establishments of 300+, prior government approval under the IR Code (mirroring old s. 25N) is still required, and refusals remain common.

• Retrenchment rules (IDA s. 25F / IR Code Chapter X) — for any worker with one year of continuous service:
  • One month's notice, or pay in lieu.
  • Retrenchment compensation of 15 days' average pay for every completed year of service.
  • Notice to the appropriate government. For establishments of 300+ workers (up from 100 under the old IDA), the employer additionally needs prior government approval under the IR Code — and that approval is often refused.
• Last in, first out (IDA s. 25G / IR Code re-enactment): unless an agreement says otherwise, the most recently hired worker in the category goes first. Skipping over the LIFO order is a common ground for setting aside a retrenchment.
• Reinstatement or compensation (IDA s. 11A / IR Code): if a Labour Court or Industrial Tribunal finds the termination unjustified, it can order reinstatement with back wages — sometimes the full back wages running into years.
• Standing Orders: in establishments with 100+ workers (threshold preserved by the IR Code), the employer must have certified Standing Orders that spell out the grounds for dismissal and the procedure. A dismissal that ignores the Standing Orders is void. Karnataka IT/ITES exemption: Notification LD 328 LET 2023 (dated 10 June 2024) extended the IT/ITES sector's exemption from Standing Orders until 10 June 2029 — the wage and overtimeUnder the federal Fair Labor Standards Act, non-exempt employees must be paid at least 1.5× their regular hourly rate for hours worked beyond 40 in a workweek. State laws can require more generous overtime rules. protections under the Code on Wages remain fully enforceable.