Retrenchment Compensation Under Industrial Relations Code

If you complete one year of continuous service and your employer cuts your post, the Industrial Relations Code, 2020 entitles you to compensation of fifteen days average pay for every completed year of service, plus one month written notice or pay in lieu of it. Since 21 November 2025 this Code, not the old Industrial Disputes Act, 1947, governs retrenchment across India.

Retrenchment is the employer ending the service of a worker for any reason at all, except as a punishment by disciplinary action. The Industrial Relations Code, 2020 defines it in section 2 and carves out several things that are NOT retrenchment: voluntary retirement, retirement on reaching the age of superannuation, non-renewal or completion of a fixed-term contract, and termination on the ground of continued ill-health. Being sacked for misconduct is dismissal, not retrenchment, and carries no retrenchment compensation.

• Governing law since 21 November 2025. The four Labour Codes were brought into force on 21 November 2025. The Industrial Relations Code, 2020 (Act 35 of 2020) has subsumed the Industrial Disputes Act, 1947. References to the old section 25F are now to be read as section 70 of the Code. See the bare Act at India Code: Act 35 of 2020.
• Definition. Retrenchment is defined in section 2 of the Code, with the exclusions noted above.
• Conditions precedent (section 70). No worker in continuous service of not less than one year can be retrenched until three things are done: one month notice in writing stating the reasons, or wages in lieu of that notice; payment of compensation equal to fifteen days average pay for every completed year of continuous service or any part beyond six months; and notice served on the appropriate Government in the prescribed manner. Source: Section 70, IR Code 2020.
• Continuous service (section 66). Whether you have completed the one year is decided under section 66, which counts days actually worked, leave, lay-off and lawful strikes.
• Last-in, first-out (section 71). Where workers of one category are retrenched, the employer ordinarily retrenches the worker who joined last, unless there is a recorded reason to do otherwise.
• Re-employment (section 72). A retrenched worker has a preferential right to be re-employed if the employer hires again for that category.
• Worker Re-skilling Fund (section 83). The employer contributes an amount equal to fifteen days wages last drawn by the worker, and fifteen days wages are credited to the retrenched worker's account within forty-five days of retrenchment. This is in ADDITION to the section 70 compensation. This is a new feature with no equivalent in the 1947 Act.
• Larger establishments (Chapter X). In an establishment that employed not less than 300 workers on average per working day in the preceding twelve months, the employer must also obtain PRIOR permission of the appropriate Government before retrenchment (section 79) or lay-off (section 78), and notice rises to three months. Section 77 fixes the 300-worker threshold, raised from 100 under the old law.

1. Confirm you have at least one year of continuous service under the same employer (section 66). Less than a year means section 70 compensation does not apply.
2. Check the written notice. It must give one month and state the reasons, or you must be paid wages in lieu of that one month.
3. Calculate compensation: fifteen days average pay multiplied by each completed year, counting any part over six months as a full year.
4. Ask in writing for the re-skilling fund credit of fifteen days wages, due within forty-five days of retrenchment.
5. If the employer has 300 or more workers, verify that prior Government permission was actually obtained; without it the retrenchment is illegal.
6. If dues are unpaid or the retrenchment looks unlawful, raise a dispute with the conciliation officer; an individual worker can approach the Industrial Tribunal after forty-five days, within three years of the retrenchment.

• Appointment letter and latest salary slips (to prove average pay and length of service)
• The retrenchment or termination letter and any notice received
• Proof of continuous service: attendance records, leave records, Form 16 or EPF passbook
• Bank statement showing what was actually paid on exit
• Any reply from the employer to your written demand

• Treating a misconduct dismissal as retrenchment. Termination as punishment by disciplinary action is excluded from the definition in section 2 and earns no retrenchment compensation.
• Counting basic pay only. Compensation is fifteen days AVERAGE pay, which includes the components that make up wages, not just basic.
• Forgetting the re-skilling fund. The fifteen days wages under section 83 are extra money, credited within forty-five days, on top of section 70 compensation.
• Assuming the old 100-worker rule. The prior-permission threshold is now 300 workers (section 77), so smaller units need no permission, only notice to Government.
• Quoting section 25F. That belonged to the repealed Industrial Disputes Act, 1947. The current provision is section 70 of the IR Code, 2020.

If your employer is a public sector undertaking, a Government department, or a body substantially financed by Government, you can file an RTI to get the file noting on your retrenchment, the seniority list used for last-in-first-out, the permission application under Chapter X (if any), and proof that notice was served on the appropriate Government. Use the AI RTI Drafter to frame a tight application, and if the reply is denied or delayed, the First Appeal Builder drafts your appeal under section 19(1).

Fifteen days average pay for every completed year of continuous service, with any part beyond six months counted as a full year, under section 70 of the Industrial Relations Code, 2020. You also get one month notice or pay in lieu.

No. The fund contribution under section 83, equal to fifteen days wages credited within forty-five days, is paid in addition to the section 70 retrenchment compensation. They are two separate amounts.

Only if the establishment employed 300 or more workers on average in the preceding twelve months. Then prior permission of the appropriate Government is required under section 79. Smaller units only have to serve notice on the Government.

No. Termination as a punishment by way of disciplinary action is expressly excluded from the definition of retrenchment in section 2, so no retrenchment compensation is payable for a misconduct dismissal.

No. Section 70 protection requires not less than one year of continuous service, measured under section 66. Below that, the compensation provision does not apply.

Raise the matter with the conciliation officer. An individual worker can approach the Industrial Tribunal after forty-five days, and the claim must be made within three years of the retrenchment.

• Section 70, Industrial Relations Code, 2020
• India Code: The Industrial Relations Code, 2020 (Act 35 of 2020)
• PRS Legislative Research: IR Code, 2020 (arrangement of clauses)
• The full citizen handbook: The RTI Playbook

• Gratuity recovery under the Payment of Gratuity Act
• Maternity leave rights under the Maternity Benefit Act
• Full and final settlement after resignation
• EPF claim when there is no nominee
• RTI Act, 2005
• Case-law database