The Shifting Thresholds of State Amendments and Labour Codes

When an employer in India considers large-scale layoffs or closure of an industrial undertaking, the law does not treat it as an ordinary managerial decision. Chapter V-B of the Industrial Disputes Act, 1947 (“ID Act”) imposes strict conditions, particularly under Sections 25N (retrenchment of workmen) and 25O (closure of undertakings). These provisions require prior government approval once the establishment crosses a statutory employment threshold.

For decades, that threshold was set at 100 workmen. In practice, this meant that factories, mines, and plantations employing 100 or more workers could not legally retrench staff or shut down operations without state approval. However, in recent years, several state amendments have raised this bar to 300 workmen.

This evolving landscape raises critical questions for employers, employees, and policymakers alike: Where do things stand today? How do state-specific amendments interact with central labour law? And what practical shift should businesses expect once the labour codes are finally enforced?

Section 25N and 25O – The Framework for Layoffs and Closures

The Industrial Disputes Act, 1947 was crafted to balance industrial stability with workers’ security. Within this framework, Section 25N and Section 25O serve as the most stringent controls on an employer’s ability to reduce workforce strength or close down operations.

  • Section 25N (Retrenchment):

Employers falling under Chapter V-B must obtain prior government permission before retrenching any workman. The application must state reasons, and the appropriate government may grant or refuse permission after inquiry. 

Retrenchment without approval is void, and workmen are entitled to all benefits as if no retrenchment occurred.

  • Section 25O (Closure):

Similarly, for the closure of an undertaking, an employer must apply for prior government permission at least 90 days in advance. The government evaluates whether the closure is justified, balancing economic reasons with workers’ rights. 

Any closure without such approval is deemed illegal, entitling workers to full benefits.

The 100 vs 300 Workmen Debate – State Amendments

The fault line in India’s labour regulation on layoffs and closures lies in the threshold of applicability. Under the original Industrial Disputes Act, 1947, the trigger for Sections 25N and 25O was 100 workmen. 

This meant that even medium-sized factories employing slightly more than a hundred workers could not retrench or close without state approval—a safeguard for labour, but often cited as a deterrent to investment and scaling.

Over time, several state governments used their legislative competence under the Concurrent List to amend this threshold upward to 300 workmen, easing compliance for mid-sized enterprises. 

Some notable examples:

  • Rajasthan (2014): Became the first state to amend the threshold from 100 to 300. This reform was projected as a step to attract investment and reduce compliance rigidity.
  • Madhya Pradesh, Uttar Pradesh, Gujarat, Haryana, Assam, Karnataka, and others followed, similarly raising the threshold to 300 in subsequent years.
  • Delhi, Maharashtra, and a few other states still follow the original threshold of 100, which keeps the stricter regime alive in those jurisdictions.

This unevenness is one of the reasons the Union government sought to harmonise thresholds through the Industrial Relations Code, 2020, which—though yet to be enforced—formally sets the bar at 300 workmen nationwide.

Practical Implications for Employers and Workmen

The transition from a 100 to 300 workmen threshold is not just a technical adjustment—it reshapes the bargaining power between employers and employees.

For Employers:

  • Greater Autonomy for Mid-Sized Units: Factories or undertakings employing between 100–299 workmen gain significant flexibility. They can restructure or shut down without prior state approval, subject only to statutory notice and severance obligations.
  • Reduced Litigation Risk: In states where approvals are often delayed or denied, businesses faced a legal minefield when closures were challenged as “illegal.” The higher threshold reduces this exposure for a large segment of employers.
  • Compliance Strategy Across States: Until the Labour Codes take effect, employers must still navigate the state-by-state differences. For companies with pan-India operations, this requires careful workforce planning and legal audits.

For Workmen:

  • Narrowed Protection Net: Workers in establishments with fewer than 300 employees will no longer enjoy the protective umbrella of Sections 25N and 25O once the Codes come into force. Their security will rest mainly on notice pay, retrenchment compensation, and access to industrial dispute resolution mechanisms.
  • Continuing Role of Unions: While the approval regime weakens in scope, trade unions may become more active in negotiating voluntary separation packages and settlements outside the formal state-approval system.
  • Heightened Vulnerability During Downturns: In industries with cyclical employment—such as textiles, auto ancillaries, and electronics—workers may face faster retrenchment decisions, with fewer procedural barriers for employers.

The implications are not uniform. In labour-intensive states where manufacturing clusters thrive, raising the threshold to 300 could trigger sharper labour responses, while in investor-friendly states, the change is likely to be seen as a competitive advantage.

Conclusion

The debate over mass layoffs and closures under Sections 25N and 25O has always been a balancing act between two competing objectives: protecting workers from sudden loss of livelihood and allowing businesses the flexibility to respond to economic realities.

State amendments raising the threshold from 100 to 300 workmen signaled a reformist push, easing restrictions on mid-sized enterprises. For employers, the move promises clarity and reduced procedural bottlenecks. For workmen, it narrows the shield of pre-approval safeguards and shifts reliance onto compensation, collective bargaining, and dispute resolution forums. 

The long-term test of these reforms will lie in whether they genuinely foster investment and job creation, or whether they leave workers in mid-sized establishments more vulnerable to abrupt restructuring.