Industrial Relations Code must balance job security in the AI era Premium

The Industrial Relations Code must ensure job security while adapting to AI advancements and changing labor market dynamics.

The Union government recently notified the implementation of the four Labour Codes, including the Industrial Relations Code (IRC), 2020, with effect from November 21, 2025, and they are expected to become fully operational by April 2026. The IRC lays down provisions for employment security for industrial workers, in addition to addressing industrial disputes.

One of the most contentious changes in the IRC from its predecessor, the Industrial Disputes Act (IDA), 1947, is the relaxation of job-security thresholds, allowing establishments with up to 300 workers to carry out layoffs, retrenchments, or closures without government permission, whereas earlier this exemption applied only to establishments with fewer than 100 workers. Though several States such as Rajasthan, Madhya Pradesh, Jharkhand, Andhra Pradesh, Haryana, and Assam had already amended their laws in the past decade to raise this threshold since labour was on the Concurrent List in the Constitution, the national adoption of this flexibility has revived debate about its implications.

It is important, at this moment, to discuss when and under what circumstances these employment security provisions were introduced in the first place, to appreciate their relevance and importance in the present age of artificial intelligence. The size threshold on restrictions to downsizing was not part of the IDA, 1947, until Chapter VB was added through an amendment during the Emergency, requiring firms with 300 or more workers to seek government permission before downsizing, a move widely seen as a response to the unprecedented wave of job losses during the Emergency years, shows existing research on this issue. Employment-security provisions were, therefore, not arbitrary regulatory hurdles introduced as routine regulation but as crisis-response tools, designed to prevent employers from engaging in mass labour displacement during periods of technological, political, or economic shock. The 1982 amendment lowered the applicability threshold to 100 workers.

As firms witness rapid advances in automation and AI, the pressure to substitute labour with capital is intensifying across sectors. The workforce faces heightened vulnerability, especially as AI enables unprecedented forms of task replacement, even in skilled services and, more so, in managerial and supervisory roles. Recalling or diluting these protections makes it easier for firms to downsize and replace workers with AI-enabled systems, increasing job insecurity and vulnerability. Though the definition of “worker” in the IRC has expanded to include sales promotion employees, working journalists, and supervisory employees earning up to ₹18,000 a month, it still excludes managerial employees and supervisory personnel earning above this limit. Moreover, a large share of formal workers in the services sector, including the information technology sector, fall outside the scope of job-security provisions under the IRC.

The Centre’s decision to raise the job-security threshold from 100 to 300 workers under the IRC, 2020, reflects a well-calculated strategy to signal a shift toward a more business-friendly labour regime, while avoiding an explicitly anti-labour stance by continuing to protect workers in larger establishments. However, it remains important for the government to monitor labour-market conditions, preserve the option of discretionary use, and temporarily expand the coverage of employment-protection provisions if a surge in job losses warrants it. Embedding such a mechanism in the IRC or its State-level adaptations will offer reassurance to workers and unions. Jharkhand and Haryana had explicit provisions in their IDA amendments in 2016 to increase coverage, provided that maintenance of industrial peace or prevention of the victimisation of workmen so requires. The IRC already allows the government to relax its provisions by exempting new establishments in the public interest to promote flexibility. By the same logic, the code should also empower the government to temporarily expand coverage when mass job losses threaten workers’ security. Including such a safeguard would balance pro-business flexibility with public-interest accountability during periods of widespread displacement. A commendable measure supporting this balance is the additional provision of the Worker Re-Skilling Fund, which requires employers to contribute an amount equal to 15 days’ last-drawn wages for every worker they retrench, intended to help displaced workers upskill, reskill, and improve their employability.

Another area where the IRC could be strengthened is in providing clearer criteria for determining the employer-employee relationship and, consequently, the applicability of employment-protection provisions. Whether employment-protection provisions apply to contract workers hired through third-party contractors depends on judicially established tests of the employer-employee relationship. Judicial interpretations have favoured both employees (Hussainbhai Calicut v Alath Factory Thozhilali Union, Kozhikode and Ors., 1978) and employers (Joint Secretary, Central Board of Secondary Education and Another v Raj Kumar Mishra & Others, 2025). Given the fast-evolving flexible work arrangements through gig platforms, staffing agencies, freelancing, and third-party contractors, clearer statutory guidance on relationship classification is essential to reduce uncertainty and better serve both employers and workers.