The notification of four new labour codes signals a major shift in India’s labour market regulation. Among them, the Industrial Relations Code, 2020, deserves the closest scrutiny. Its most consequential change is the requirement that a trade union must have at least 51% of workers as members to secure formal recognition.
In principle, that should improve industrial relations. A single recognised majority union can reduce fragmented bargaining, speed up negotiations, and improve dispute resolution. But one loophole in the treatment of fixed-term employment (FTE) weakens that logic.
Before this code, the Trade Unions Act, 1926, allowed recognition with a far lower threshold, while some state laws used higher cut-offs. In practice, a factory with 1,000 workers could end up with multiple unions, each claiming to speak for labour. That raised transaction costs, prolonged negotiations, and made settlement harder.
READ I Gender statistics, unpaid work, and the limits of labour data
Industrial Relations Code and union recognition
The case for a majority union is straightforward. If negotiation rights are clearly assigned to one union with demonstrable worker backing, bargaining becomes more coherent. The state’s move to a 51% threshold seeks to do exactly that: reduce ambiguity over representation and create a more efficient dispute-resolution framework.
This is where the reform draws its strength. It assumes that the negotiating parties are stable enough to sustain bargaining relationships over time. But that assumption becomes fragile if a large part of the workforce is on rolling fixed-term contracts.
The problem is not the idea of fixed-term employment in itself. The problem is the absence of a limit on repeated renewals.
READ I Flawed design: Female labour force participation still to pick up
Fixed-term employment and union participation
The new labour framework allows workers on fixed-term contracts to receive benefits comparable to regular employees, including gratuity after one year. But it does not set a cap on how many times an FTE contract can be renewed. In effect, a worker can remain on renewable contracts for years without tenure security.
That changes incentives on both sides. Employers gain flexibility because they can simply choose not to renew a contract. Workers may accept FTE terms because the immediate benefits resemble regular employment. But the threat of non-renewal creates a persistent deterrent against union activity.
This matters because non-renewal is not easily treated as termination in the usual sense. As a result, protections against unfair labour practices become harder to invoke in cases where workers face retaliation through contract non-renewal rather than explicit dismissal.
The consequence is structural, not incidental. A legal regime that demands a strong majority union may simultaneously weaken the conditions needed to build one.
READ I Textile industry’s problem is not labour, it’s policy and scale
Labour dispute resolution and the FTE paradox
The FTE loophole creates two direct problems for dispute resolution.
First, it discourages participation in union activity. Workers on renewable contracts have reason to avoid visible roles in organising, bargaining, or collective action.
Second, it disrupts union continuity. Even if a union is formed, repeated non-renewal of fixed-term workers can hollow out its leadership, break organisational memory, and weaken bargaining capacity. A union cannot function effectively if its active members can be cycled out without explanation.
This produces the central paradox in the current design: the law seeks a stable majority union for efficient bargaining, but unconstrained FTE renewals make that stability harder to sustain.
Fixed-term contract renewals and policy reform
If the goal is faster and more credible industrial dispute resolution, the government must define limits on fixed-term employment renewals. A practical amendment would require conversion of fixed-term workers into permanent employees after two consecutive contract terms.
Such a rule would align the union-recognition reform with the institutional conditions needed for collective bargaining to work. It would not eliminate employer flexibility at the point of hiring. But it would prevent indefinite use of renewable contracts as a substitute for permanent employment.
The draft’s broader point is sound: efficiency in labour negotiations cannot rest only on union-recognition thresholds. It also depends on whether workers have enough tenure security to participate in unions without fear.
By reducing insecurity, a limit on repeated FTE renewals would strengthen the functioning of recognised unions and make negotiations more credible. Only then can the Industrial Relations Code deliver what its design promises: faster dispute resolution, lower bargaining frictions, and a more durable balance between enterprise efficiency and labour justice.
Rewanth Raichooti is a postgraduate student, and Satyaki Dasgupta is Assistant Professor, Department of Economics, at CHRIST University, Bengaluru.