Modernizing Indian Labour Laws

 The recent labor reforms involve consolidating 29 existing central labor laws into four comprehensive Codes: the Code on Wages, 2019; the Code on Social Security, 2020; the Industrial Relations Code, 2020; and the Occupational Safety, Health and Working Conditions Code, 2020.

The main objective of these Codes is to amend and consolidate laws relating to social security, wages, and industrial relations, with the goal of extending social security to all employees and workers in the organized, unorganized, or any other sectors, while simplifying and modernizing labor regulation.

Here is a summary of the key changes across the new labor Codes:

1. Code on Wages, 2019 (CoW)

This Code consolidates laws related to wages and bonus, replacing four enactments, including the Minimum Wages Act, 1948, and the Payment of Bonus Act, 1965.

• Floor Wage: The Central Government is mandated to fix a floor wage, taking into account the minimum living standards of a worker.
• Wages Definition: A new calculation method for "wages" is introduced. If payments excluded from the traditional definition (such as house rent allowance, conveyance, overtime, etc.) exceed one-half (50%), or a notified percentage, of the employee's total remuneration, the excess amount is deemed as remuneration and is added back into the calculation of wages.
• Gender Discrimination: The Code prohibits discrimination on the ground of gender regarding wages for the same work or work of a similar nature.
• Mode of Payment: Wages can be paid in current coin, currency notes, by cheque, by crediting the bank account of the employee, or by electronic mode.

2. Code on Social Security, 2020 (CoSS)

This Code aims to extend social security benefits by consolidating nine central labor enactments.

• New Worker Categories: The Code introduces and defines "gig worker," "platform worker," and "aggregator".
• Social Security for New Categories: Provisions are made for the Central Government to frame suitable welfare schemes for unorganized workers, gig workers, and platform workers.
  • Funding: Schemes for gig and platform workers may be funded by contributions from aggregators, which shall not exceed five percent of the amount paid or payable by the aggregator to these workers.
  • Registration: Every unorganized worker, gig worker, or platform worker is required to be registered (electronically or otherwise) based on self-declaration and Aadhaar.
• Gratuity Changes: Gratuity is payable to fixed-term employees and deceased employees on a pro rata basis. The requirement for five years of continuous service for gratuity payment does not apply in these cases.
• Pandemic/Disaster Flexibility: The Central Government is empowered to defer or reduce employer’s or employee’s contributions (under EPF or ESI) for a period up to three months at a time, in the event of a pandemic, endemic, or national disaster.
• Voluntary Coverage: Establishments with fewer employees than the prescribed threshold may opt to be covered under the Employees' Provident Fund (Chapter III) or Employees' State Insurance Corporation (Chapter IV) on a voluntary basis.

3. Industrial Relations Code, 2020 (IRC)

This Code consolidates three key industrial relations laws, including the Industrial Disputes Act, 1947.

• Increased Thresholds:
  • The threshold requiring industrial establishments to seek prior government permission for lay-off, retrenchment, or closure is increased from 100 workers to 300 workers. The appropriate government retains the power to further increase this limit by notification.
  • The threshold for mandatory Standing Orders is raised from 100 workers to 300 workers.
• Fixed Term Employment (FTE): The Code formally introduces fixed-term employment, ensuring FTEs receive the same statutory benefits as permanent workers, including gratuity, calculated proportionately.
• Strikes and Lock-outs: Requires a 14-day prior notice for all strikes and lock-outs in all industrial establishments. The definition of a "strike" now includes concerted casual leave by fifty percent or more workers.
• Negotiation Mechanisms: Provisions are established for the recognition of a sole negotiating union (requiring 51% or more worker support) or a negotiating council (formed if no single union achieves the threshold, with representation for unions having at least 20% membership).
• Worker Re-skilling Fund: Mandates the creation of a Worker Re-skilling Fund. Employers must contribute an amount equal to fifteen days' wages (last drawn) for every retrenched worker, which is credited to the worker's account within 45 days of retrenchment.
• Dispute Adjudication: The new Industrial Tribunal structure consists of a Judicial Member and an Administrative Member. Any dispute related to discharge, dismissal, retrenchment, or termination of an individual worker is classified as an industrial dispute.

4. Occupational Safety, Health and Working Conditions Code, 2020 (OSHWCC)

This Code consolidates 13 acts related to working conditions, health, and safety.

• Establishment Thresholds (Factories): The definition of a factory is modified: the threshold for premises operating with power is raised from 10 to 20 workers, and for premises without power, from 20 to 40 workers.
• Hazardous Activities Coverage: The Code applies to all establishments where any hazardous activity is carried out, regardless of the number of workers employed.
• Contract Labour Regulation: The threshold for applicability of contract labor provisions is raised from 20 to 50 or more contract workers.
  • The employment of contract labor in core activities is prohibited, subject to specific exceptions (e.g., sudden volume increase, or activities ordinarily done through a contractor).
  • The Code shifts the primary responsibility for providing welfare facilities from the contractor to the principal employer.
• Inter-State Migrant Workers (ISMW): The definition is expanded to include persons who move to another state and obtain employment on their own, not just those recruited by a contractor.
  • ISMWs are granted portability of benefits, including the ability to avail Public Distribution System benefits in either their native or destination state.
  • Central and State Governments are required to maintain a portal/database for ISMW registration based on self-declaration and Aadhaar.
• Employment of Women: Women are entitled to be employed in all establishments for all types of work and may work at night (before 6 a.m. and beyond 7 p.m.), provided they consent and adequate safety and working conditions are met.
• Compliance Simplification: The Code provides for a single "one registration" for establishments with ten or more workers and aims to provide a "common license" for activities like contract labor and factories.
• Employee Welfare and Health: Employers are mandated to issue appointment letters to all employees to promote formalization. They must also provide free annual health check-ups for employees above a specified age.

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The key shift introduced by these Codes is akin to replacing many small, confusing footpaths with four major, streamlined highways for labor regulation. This modernization effort aims to extend basic labor rights, such as minimum wages and social security coverage, to a much wider population, particularly the unorganized, gig, and platform workers, who previously relied on separate, often inadequate, frameworks. Concurrently, the Codes introduce changes to management flexibility, such as raising key thresholds for industries (e.g., for retrenchment and standing orders) and formalizing fixed-term employment.

The key changes concerning gig workers and platform workers are introduced primarily under the Code on Social Security, 2020 (CoSS), which aims to extend social security benefits to workers outside the traditional employee-employer structure.

Here is a summary of the key provisions and changes for gig and platform workers:

1. Definitions and Recognition

The Code formally introduces and defines these new categories of workers:

• Gig Worker: Defined as a person who performs work or participates in a work arrangement and earns from such activities outside of the traditional employer-employee relationship.
• Platform Worker: Defined as a person engaged in or undertaking platform work. Platform work, in turn, means a work arrangement outside of a traditional employer-employee relationship where organizations or individuals use an online platform to access others to solve specific problems or provide specific services in exchange for payment, including any other activities notified by the Central Government.
• Aggregator: Defined as a digital intermediary or a marketplace connecting a buyer or user of a service with the seller or service provider.
• Expansion of Coverage: These definitions help extend the scope of social security to workers in the unorganized sector and any other sector. The definition of a "platform worker" was expanded in the 2020 Bill to enable the inclusion of future models of work.

Note: There may be some overlap and lack of clarity between the definitions of "gig worker," "platform worker," and "unorganized worker" (which includes self-employed persons), raising questions about the applicability of specific schemes.

2. Social Security Schemes and Benefits

The Central Government is empowered to formulate and notify suitable social security schemes specifically for gig workers and platform workers on matters relating to:

• Life and disability cover.
• Accident insurance.
• Health and maternity benefits.
• Old age protection.
• Crèche facilities.
• Any other benefit as determined by the Central Government.

The Central Government is also empowered to frame schemes for these workers and their families to provide benefits admissible under Chapter IV (Employees' State Insurance Corporation - ESIC) through the Corporation.

3. Funding Mechanisms

Schemes for gig workers and platform workers may be funded through a combination of sources, including:

• Being wholly funded by the Central Government.
• Being partly funded by the Central Government and partly funded by the State Government.
• Being wholly funded by the contributions of the aggregators.
• Being funded from Corporate Social Responsibility (CSR) funds.
• Being partly funded through contributions collected from beneficiaries or aggregators.

Mandatory Aggregator Contribution:

• The contribution required from aggregators for funding schemes must be at a rate not exceeding two percent, but not less than one percent, of the annual turnover of every aggregator falling into a category specified in the Seventh Schedule.
• However, the contribution made by an aggregator shall not exceed five percent of the amount paid or payable by the aggregator to gig workers and platform workers.
• The Central Government will notify the date when this contribution commences. It may also exempt certain aggregators from this contribution requirement.
• The Seventh Schedule specifies categories of aggregators subject to this contribution, including ride sharing services, food and grocery delivery services, logistic services, e-Marketplace, professional services providers, healthcare, travel and hospitality, and content and media services.

4. Registration and Administration

To facilitate benefits, the Code requires the establishment of new systems and bodies:

• Registration: Every gig worker or platform worker shall be registered for the purposes of Chapter IX. Registration is based on self-declaration and requires the submission of documents, including the Aadhaar number.
  • Note: Making the Aadhaar number mandatory for availing certain benefits may raise issues regarding conformity with Supreme Court judgments, as some entitlements are funded by employers/employees and not the Consolidated Fund of India.
• Social Security Fund: The Central Government must establish a Social Security Fund for the welfare of unorganised workers, gig workers, and platform workers.
• National Social Security Board: The National Social Security Board (originally for unorganized workers) also serves as the board for the welfare of gig workers and platform workers. When performing this function, the Board's composition includes five representatives nominated by the Central Government from aggregators and five representatives nominated from gig workers and platform workers.
• Facilitation Centers: The appropriate Government may establish toll-free call centers or facilitation centers to disseminate information, assist with applications, and facilitate the enrollment of registered gig workers and platform workers into schemes.

The changes relating to occupational safety, health, and working conditions are primarily addressed in The Occupational Safety, Health and Working Conditions Code, 2020 (OSHWCC), which replaces thirteen central labor enactments, including the Factories Act, 1948, the Mines Act, 1952, and the Contract Labour (Regulation and Abolition) Act, 1970.

The Code aims to simplify, amalgamate, and rationalize the relevant provisions while introducing several key changes concerning coverage, safety standards, and employment conditions.

Here is a summary of the key changes in occupational safety and related working conditions outlined in the sources:

1. Changes to Establishment Coverage and Thresholds

The Code modifies the applicability thresholds for various establishments and introduces universal coverage for hazardous activities:

• General Applicability: The Code applies to all establishments having ten or more workers, other than mines and docks.
• Factory Thresholds Increased: The definition of a "factory" is modified by increasing the worker thresholds:
  • For premises carrying on a manufacturing process with the aid of power, the threshold is raised from 10 workers to 20 or more workers.
  • For premises carrying on a manufacturing process without the aid of power, the threshold is raised from 20 workers to 40 or more workers.
• Hazardous Activities (Universal Coverage): All establishments where any hazardous or life-threatening activity is being carried on are included, regardless of the number of workers employed.
• Building or Other Construction Work (Threshold Removal): While construction work involving 10 or more workers was previously covered, the 2020 Bill removes this numerical condition, applying coverage broadly, though it does exclude work related to factories or mines, and residential construction under fifty lakhs rupees or employing more than a notified number of workers.

2. General Duties and Worker Rights concerning Safety and Health

The Code formalizes specific duties for employers and enhances worker rights regarding workplace safety:

• Employer Duties: Every employer must ensure that the workplace is free from hazards which cause or are likely to cause injury or occupational disease to employees. Employers are responsible for complying with the occupational safety and health standards declared under the Code.
  • Annual Health Check-ups: Employers must provide annual health examination or test, free of cost, to such employees of a specified age or class, by which it would be possible to detect diseases at an early stage.
  • No Cost Burden: No charge shall be levied on any employee for anything provided for maintaining safety and health, including medical examinations or investigations for detecting occupational diseases.
• Safety Standards (Central Government Role): The Central Government is empowered to declare standards on occupational safety and health for workplaces relating to factory, mine, dock work, beedi and cigar, building and other construction work, and other establishments.
• Worker Right to Information and Warning: Employees have the right to obtain information from the employer relating to their health and safety at work.
  • Workers in a factory engaged in a hazardous process having reasonable apprehension of imminent danger to life or health may bring this to the notice of the occupier, manager, or Safety Committee representatives, and simultaneously inform the Inspector-cum-Facilitator. The employer must take immediate remedial action if satisfied or refer the matter forthwith to the Inspector-cum-Facilitator, whose decision is final.
• Occupational Diseases: The employer must send notice to the prescribed authorities if any worker contracts a disease specified in the Third Schedule. The occupational safety framework also provides for medical examinations and other tests which shall be made available by the employer or at his cost to the employees exposed to hazards.

3. Safety Enforcement and Inspection

The Code strengthens the enforcement mechanism, introducing new roles and expanding investigative powers:

• Inspector-cum-Facilitator (ICF): The Code provides for the appointment of Inspector-cum-Facilitators and a Chief Inspector-cum-Facilitator.
  • The ICF has special powers in factories, mines, dock work, and construction work, including the power to prohibit or limit the employment of persons if conditions pose a serious hazard or imminent danger.
  • An employee affected by such a prohibition order is entitled to wages and other benefits and the employer has a duty to provide alternative employment where possible.
• Third-Party Audit: Provision is made for third-party audit and certification by empanelled experts for start-up establishments and other classes of establishments.
• Accident Inquiry: The appropriate government may direct an inquiry into accidents causing serious danger or occupational diseases contracted in epidemic proportions.

4. Special Provisions for High-Risk Sectors

The OSHWCC retains and updates special provisions for historically regulated sectors:

• Mines: No person below eighteen years of age shall be allowed to work in any mine, though apprentices and trainees not below sixteen years of age may work under proper supervision.
• Building/Construction Work: Employment is prohibited for persons known to be deaf, having defective vision, or having a tendency to giddiness in operations that involve a risk of accident.
• Hazardous Processes in Factories: Occupiers must disclose all information regarding dangers, including health hazards, and measures to overcome them, to workers, the Chief Inspector-cum-Facilitator, and the general public in the vicinity. They must also maintain accurate and up-to-date health records of workers exposed to hazardous substances.

5. Contract Labour and Working Conditions

The Code introduces changes related to the employment and safety of contract workers:

• Contract Labour Threshold Increased: The applicability threshold for contract labor provisions is raised from 20 to 50 or more contract labor employed in an establishment or by a contractor on any day of the preceding twelve months.
• Core Activity Prohibition: Employment of contract labor in core activities of any establishment is prohibited, except in specific circumstances, such as activity ordinarily done through a contractor, activity that does not require full-time workers for the major portion of the day, or sudden increases in work volume.
• Women's Employment: Women are entitled to be employed in all establishments for all types of work. They may be employed at night (before 6 a.m. and beyond 7 p.m.) provided they consent and adequate safety and working conditions are met. Where the employment of women is considered dangerous, the government may require the employer to provide adequate safeguards prior to their employment.

6. Power to Exempt in Special Cases

The Code grants the government significant authority to grant exemptions:

• New Factories: The State Government is empowered to exempt any new factory or class or description of new factories from all or any of the Code's provisions if it is satisfied that the exemption is in the public interest to create more economic activities and employment opportunities.
• Public Emergency: The appropriate Government may exempt any workplace, work activity, or class thereof from all or any provisions of the Code during a public emergency, disaster, or pandemic for a period not exceeding one year at a time.

The changes regarding leave encashment are primarily addressed within the provisions of the Occupational Safety, Health and Working Conditions Code, 2020 (OSHWCC), specifically concerning annual leave with wages and specific classes of employees.

Here are the key changes related to leave encashment:

1. General Annual Leave Encashment Provisions

The OSHWCC introduces specific rights for workers concerning the encashment of accrued annual leave:

• Encashment on Demand: A worker is entitled, on his demand, for encashment of leave at the end of the calendar year.
• Encashment of Excess Carry Forward: If a worker's total number of accrued leave days that may be carried forward to the succeeding year exceeds thirty days, the worker is entitled to encash such exceeded leave.
• Unlimited Carry Forward of Refused Leave: If a worker applies for leave with wages but is not given such leave, he is entitled to carry forward the refused leave without any limit.
• Encashment upon Separation/Death: In case a worker is discharged, dismissed, quits employment, is superannuated, or dies while in service during the calendar year, the worker (or his heir or nominee) shall be entitled to wages in lieu of the quantum of leave to which he was entitled immediately before separation.
  • This payment is due even if the worker has not worked for the required period (one hundred and eighty days or more) to be eligible to avail such leave.
  • In cases of discharge, dismissal, or quitting, payment must be made before the expiry of the second working day from the date of separation.
  • In cases of superannuation or death while in service, payment must be made before the expiry of two months from the date of superannuation or death.

2. Provisions for Working Journalists and Sales Promotion Employees

The Code contains special provisions related to leave and cash compensation for sales promotion employees and working journalists:

• Leave Accumulation and Encashment Limits: These specific employees may accumulate earned leave up to such maximum limit as may be prescribed by the Central Government. They shall be entitled to the limit up to which the earned leave may be either encashed or availed of at a time.
• Cash Compensation on Termination: They are entitled to cash compensation for earned leave earned and not availed of, when they:
  • Voluntarily relinquish their post or retire from service.
  • Have their services terminated for any reason whatsoever (not being termination as punishment).
  • The entitlement to cash compensation is subject to such conditions and restrictions as may be prescribed by the Central Government.
• Compensation upon Death: If a working journalist or sales promotion employee dies while in service, his heirs shall be entitled to cash compensation for the earned leave earned by him and not availed of.
• Compensation Amount: The cash compensation for earned leave shall be an amount equal to the wages due to him for such period.
• Earned Leave Entitlement: These employees shall be granted earned leave on full wages for not less than one-eleventh of the period spent on duty.

In essence, the OSHWCC standardizes and expands leave encashment rights for workers, making it a mandatory entitlement upon demand at year-end or upon separation, and provides explicit rules for handling accumulated leave for specific classes of workers like journalists and sales promotion employees.

The laws governing redundancy and retrenchment are consolidated primarily under The Industrial Relations Code, 2020 (IRC), replacing provisions previously found in the Industrial Disputes Act, 1947.

The IRC introduces significant changes regarding the size threshold for establishments requiring government permission for termination actions, defines retrenchment, and mandates the creation of a Worker Re-skilling Fund.

Here is a summary of the key changes and provisions regarding retrenchment, lay-off, and closure:

1. Definition of Retrenchment

The IRC defines "retrenchment" as the termination by the employer of a worker’s service for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action.

Actions explicitly excluded from the definition of "retrenchment" include:

• Voluntary retirement of the worker.
• Retirement of the worker on reaching the age of superannuation.
• Termination of service resulting from the non-renewal of a contract of employment upon its expiry, or termination under a stipulation contained within that contract.
• Termination of service resulting from the completion of the tenure of fixed term employment (FTE).
• Termination of the service of a worker on the ground of continued ill-health.

2. Threshold for Prior Government Permission

The Code establishes two sets of rules for layoffs, retrenchments, and closures, based on the size of the establishment, and significantly raises the threshold for mandatory government approval:

Action	Establishment Threshold (IRC, 2020)	Prior Permission Required?
Lay-off, Retrenchment, or Closure (Chapter X)	300 or more workers (or such higher number as notified by the appropriate Government)	Yes, prior permission from the appropriate Government is required.
Lay-off, Retrenchment, or Closure (Chapter IX)	Less than 300 workers (and 50 or more workers for retrenchment/closure/lay-off compensation rules)	No, only notice and compensation required.

Key Change in Threshold: The requirement for industrial establishments (factories, mines, and plantations) to seek prior government permission for closure, lay-off, or retrenchment has been raised from 100 workers (under the previous law, IDA 1947) to 300 workers. The appropriate Government retains the power to further increase this threshold by notification.

3. Conditions for Retrenchment

For a worker who has been in continuous service for not less than one year, the following conditions must be met:

Establishment Size	Notice Required	Compensation Required	Requirement
Fewer than 300 Workers (Chapter IX)	One month’s notice or wages in lieu thereof.	Compensation equivalent to fifteen days’ average pay (or average pay of such days as notified by the appropriate Government) for every completed year of service.	Notice must be served on the appropriate Government or specified authority.
300 or More Workers (Chapter X)	Three months’ notice or wages in lieu thereof.	Compensation equivalent to fifteen days’ average pay (or average pay of such days as notified by the appropriate Government) for every completed year of service (paid if permission is granted).	Prior permission from the appropriate Government is mandatory.

If an establishment subject to the 300-worker threshold either fails to apply for, or is refused, permission for retrenchment, the retrenchment is deemed illegal.

4. Provisions for Lay-off

Lay-off, defined as the failure or inability of an employer to provide employment due to reasons like shortage of power, raw materials, or accumulation of stocks:

• Compensation (General): Workers (other than badli or casual) who have completed at least one year of continuous service are entitled to compensation equal to fifty per cent. of the total of the basic wages and dearness allowance they would have earned.
• Prior Permission (300+ Workers): Lay-off is generally prohibited in establishments with 300 or more workers except with the prior permission of the appropriate Government. Exceptions are made for reasons like shortage of power, natural calamity, or, in mines, fire, flood, or explosion. If permission is not communicated within sixty days, it is deemed granted.

5. Provisions for Closure

An employer intending to close an undertaking must serve a notice to the appropriate Government stating the reasons for the intended closure.

• Notice and Permission (300+ Workers): For establishments employing 300 or more workers, the employer must apply for prior permission at least ninety days before the intended closure. The procedure allows the government to grant or refuse permission after an inquiry. If permission is refused, the closure is deemed illegal.
• Compensation Limits: Generally, compensation upon closure follows the retrenchment formula (Section 70). However, if the undertaking closes due to unavoidable circumstances beyond the employer’s control (excluding financial difficulties, stock accumulation, lease expiry, or mineral exhaustion), the compensation to the worker is limited to average pay for three months.

6. Worker Re-skilling Fund (New Mechanism)

The IRC mandates the creation of a Worker Re-skilling Fund to support retrenched workers:

• Employer Contribution: Employers of industrial establishments must contribute an amount equal to fifteen days wages last drawn by the worker immediately before the retrenchment.
• Worker Benefit: This amount is credited to the retrenched worker's account within forty-five days of the retrenchment.

7. Re-employment

Where an employer proposes to hire new personnel within one year of retrenchment, the employer must give an opportunity for re-employment to the retrenched workers who are citizens of India, and these workers shall have preference over other candidates.

8. Impact of Fixed Term Employment (FTE)

The Code recognizes fixed term employment. Importantly, the termination of a worker upon the completion of their fixed term contract is not defined as retrenchment.

• Fixed term workers must receive the same statutory benefits (wages, allowances, other benefits) as permanent workers performing similar work, calculated proportionately.
• Crucially, they are eligible for gratuity if they complete a service period of one year. The sources state that this provides flexibility to the employer without restriction on any sector.

In essence, the IRC attempts to balance industry flexibility (by increasing the threshold for mandatory government approval to 300 workers) with worker security (by providing higher compensation mandates for workers in the highly regulated sector, formalizing fixed-term benefits, and establishing a new re-skilling fund for retrenched workers).

The Industrial Relations Code, 2020 (IRC) specifies the formula and conditions for compensating workers who are retrenched. This formula dictates the minimum amount of compensation an employer must pay to a worker who has been in continuous service for at least one year.

The compensation formula is based on the worker's average pay and length of service:

Retrenchment Compensation Formula

In both Chapter IX (for establishments with fewer than 300 workers) and Chapter X (for establishments with 300 or more workers), the formula is consistent:

Compensation = 15 days' average pay $\times$ Completed years of continuous service (or any part thereof exceeding six months).

The relevant section in the Code states that the retrenchment compensation required is equivalent to fifteen days' average pay, or average pay of such days as may be notified by the appropriate Government, for every completed year of continuous service or any part thereof in excess of six months.

Details of the Formula Components

1. Average Pay

"Average pay" is calculated based on how the worker is paid, preceding the date on which the average pay becomes payable:

• Monthly paid worker: Average of the wages payable in three complete calendar months.
• Weekly paid worker: Average of the wages payable in four complete weeks.
• Daily paid worker: Average of the wages payable in twelve full working days.

If such calculation cannot be made, the average pay shall be calculated as the average of the wages payable during the period the worker actually worked.

2. Continuous Service

A worker is considered to be in "continuous service" if they have been in uninterrupted service, including service interrupted only by sickness, authorized leave, accident, a strike which is not illegal, a lock-out, or cessation of work not due to the worker's fault.

Specific rules define continuous service for a period of one year or six months, even if the worker was not continuously employed:

• One Year (12 months): A worker is deemed to be in continuous service for a year if they actually worked under the employer for not less than 240 days (or 190 days for below-ground mine workers) in the preceding 12 months.
• Six Months: A worker is deemed to be in continuous service for six months if they actually worked under the employer for not less than 120 days (or 95 days for below-ground mine workers) in the preceding six months.

Days included as working days for calculation purposes include days of lay-off, full-wage leave earned in previous years, temporary disablement due to accident, and maternity leave (up to the period specified in the Maternity Benefit Act, 1961).

Other Relevant Conditions for Retrenchment

The payment of this compensation is a condition precedent to retrenchment:

1. The worker must be given one month's notice in writing (for establishments below 300 workers), or three months' notice (for establishments with 300 or more workers), or wages paid in lieu of such notice.
2. The compensation calculated using the formula must be paid at the time of retrenchment.
3. Notice of the retrenchment must be served on the appropriate Government or specified authority.

If prior government permission is required (for establishments with 300 or more workers) and is granted, the worker is entitled to receive this compensation at the time of retrenchment.

Exception: Closure Due to Unavoidable Circumstances

In cases where an establishment is closed down on account of unavoidable circumstances beyond the control of the employer, the compensation payable to the worker is capped and shall not exceed the worker's average pay for three months. Financial difficulties, accumulation of stocks, or exhaustion of minerals (in mining) are explicitly stated as circumstances that are not considered unavoidable.