Industrial Employment Act, 1946

Introduction

Industrial Employment (Standing Orders) Act, 1946 (also known as IESO Act) is a landmark legislation by the parliament in India’s labour law framework, enacted for the purpose of bringing order and clarity to the employer-employee relationship within an industrial establishment. It aims to bring consistency, uniformity and legal enforceability to the terms of employment through means of “Standing Order”, thereby rendering justice to labor and workmen working in an industrial setting.

Prior to its enactment, ambiguity and arbitrariness was prevalent in industrial setup. The employment contracts were oral and vague, providing wider scope of discretion to employers, and leading to arbitrary dismissals creating an atmosphere of job insecurity and regular workplace disputes. This Act address the issue by certifying Standing Orders that promote fairness and legal transparency.

Historical Background

During the colonial rule, an increase in the number of industrial disputes between the employers and the employees was seen due to the unspecified contracts between them, leading to misunderstandings and problems. The creation of number of trade and labor unions further acted as a catalyst as they highlighted the poor labor conditions and environment.

When these disputes started affecting the efficiency and production of the industry, they found it necessary to create a law to standardize the employment in the industry, ensure minimal conflicts and establish a legal and systematic labor environment. Therefore, the law finally came into force on 23 April, 1946.

Objective

The law had certain primary objectives that it aimed to achieve through its enactment:

• Codification of employment terms: The terms of employment should be formalised in a manner which is crystal clear without any confusion and accessible to all.
• Legal Enforceability: Gives the terms of employment a legal backing to create deterrence from any violation and resolve conflict and disagreements.
• Mutual Agreement: The law should provide both employers and employees to mutually agree upon the basic conditions of employment.
• Reduction in Arbitrariness and Ambiguity: It should reduce the discretionary power of employers over hiring, firing and disciplinary action while standardising the conditions of service.
• Uniformity across Establishments: There should be consistency and uniformity of its application across various industrial units.

Applicability of the Act

The act applies to all public and private industrial establishments employing 100 or more workers (Section-1(3)). It includes factories, railways, mines, oil fields, plantations, workshops, and any industrial unit defined under the Industrial Disputes Act, 1947. Some states may define the number of minimum workers for the purpose of application in their state. For example, some states like Rajasthan, Maharashtra, etc. have lowered the minimum number to 50.

The act does not apply when the industry is subject to provisions of Chapter VII of the Bombay Industrial Relations Act, 1946 or the Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961 (Section-1(4). The act also does not apply when the workmen in the industrial establishment are subject to rules like Fundamental and Supplementary Rules, Civil Services Rules, Revised Leave Rules, Civilians in Defense Service Rules or the Indian Railway Establishment Code, etc.(Section 13-B).

Key definitions

1. Standing orders (Section- 2(g)):

The rules made on the matters listed in Schedule to the Act, such as classification of workmen, manner of intimidation, grievance redressal, etc. There are a total of 11 items listed in the Schedule that establish a contractual framework between the employers and employee. It ensures that the rules are mutually agreed upon and both the parties are aware of their contractual obligation.

2. Certifying Officer (Section- 2(c)):

It refers to the authority, generally a Labour Commissioner or a Regional Labour Commissioner, who is appointed by the appropriate government through an Official Gazette, to approve the Standing Orders submitted by the industries.

Process of Certification (Section- 5):

1. Submission of Draft of Standing orders: Once the Act becomes applicable on any industry, within six months, the employer has to submit Five copies of the draft of Standing Orders that the industry propose to the Certifying Officer.
2. Notification and objection by workmen: On submission, the Certifying Officer sends a copy to the workers or the trade union, if any, to notify them of the rules proposed by their employer. They are given a chance to raise objection to it within 15 days of notification.
3. Hearing: In case of objection from the workers, the Certifying Officer gives both the parties a chance to be heard, wherein they can propose any modification. Though, it is the discretion of the Certifying Officer to make modifications or not, so that the rules comply with the law.
4. Certification: The Certifying Officer certifies the Standing Orders within 7 days of any modification made and the Orders thereby become effective and binding on both the parties.

3. Workman (Section- 2(i)):

In this act, the workmen is described as that in Section 2(s) of Industrial Disputes Act, which include any labour hired, for any work except in managerial and administrative capacity.

Key Features:

1. Model Standing Order:

These are the rules drafted by the Government as under Industrial Employment (Standing Orders) Central Rules, 1946 for the industries under control of central Govt., Railway Administration, major mines and ports, etc. These rules under effect for all other industries on which IESO Act is applicable, powered Section 12-A of the Act, until the employer draft a Standing Order certified by authority. The employer himself has to draft the rules on the lines of Model Standing Orders, i.e., it provides a basic structure for the establishment of terms of Employment.

2. Modification:

According to Section 10 of the Act, once a certified order comes into effect, it cannot be modified until after the passing of six months. The modification will follow the same procedure as the original procedure with the agreement of both employer and the employees. The landmark judgment of Western India Match Co. Ltd. v. Workmen(1973) states that the employer alone cannot modify the orders. Consent of employees is essential.

3. Appeals:

Section 6 of the Act provides for the aggrieved party to approach the Appellate Authority, generally Labour courts or Industrial Tribunal with powers equivalent to Civil courts, within 30 days from the receipt of the copies of Order. The order certified by Authority, with or without amendment, is legal and binding on both the parties to the dispute.

Legal Status and Enforcement of Standing Order

Once certified, Standing orders acquires a Statutory Status for each industry individually. They become legally binding on both employers and employees and are enforceable like any other law of the Parliament. The employers on violation can be subject to penalties, industrial disputes or intervention by labour courts or tribunals. The employees also on non- compliance of Order may be subject to disciplinary actions. These orders override the inconsistent terms of individual contracts between parties (Bagalkot Cement Co. Ltd. v. R. K. Pathan, 1962)

The Act does not stand in isolation but is empowered by other labour laws, like Industrial Disputes Act 1947, Factories Act 1948, etc. Therefore, the orders must be consistent with these laws so that the industrial environment consist the best of what all these laws provide for.

Criticisms and challenges

• Limited applicability: The act only applies to industries having employed more than 100 workers unless it is lowered by state. Therefore, it excludes many small-scale industries employing a large share of India’s workforce.
• Procedural delays: The whole procedure to get certification is very long and cumbersome, preventing compliance to the law.
• Inflexible: The law is very old and is very rigid for the modern day industries including freelance, gig work, IT, etc.
• Overlapping Laws: When the subject matter of this law overlaps with that of other labour laws, it leads to confusion and legal disputes which take even more time to resolve.

Recent Judgments

1. Wipro Ltd. v. Ashok Kumar (2021) – Karnataka High Court

The issue was whether an IT company like Wipro falls within the purview of the Act and whether internal HR policies can override certified Standing Orders. For this, the court pronounced that IT companies are within the scope of ‘Industry’ as under Industrial Dispute Act. Therefore, they are obliged to follow IESO Act. the court also ruled that certified Standing Orders are statutory and therefore have precedence over internal company rules.

2. HCL Technologies Ltd. v. Employees Union (2023) – Madras High Court

The question  arose that whether internal company policies override the certified Standing Orders when both address similar subjects. The Court announced that any internal company policy conflicting with certified Standing Orders is void to the extent of the conflict.

These judgments have protected employees from unilateral and arbitrary actions by companies. It also reiterated that Standing Orders must align with the principles of natural justice and due process.

Recent Developments and Reforms

The Industrial Relations Code, 2020 is part of India’s broader labor law reform initiative aimed at simplifying and modernizing the regulatory landscape. It consolidates three major labor laws:

• The Industrial Employment (Standing Orders) Act, 1946

• The Industrial Disputes Act, 1947

• The Trade Unions Act, 1926

The intent behind this consolidation is to make the legal framework more coherent and business-friendly, while maintaining essential worker protections.

Key Changes Introduced

• Higher Threshold for Applicability: The Code now applies to those industries that employ 300 or more workers, from the earlier 100 employees, leaving behind many small-scale industries.
• Greater Employer Flexibility: Employers now hold more authority over hiring and layoffs. Though these reforms aim to encourage ease of doing business(EoDB), it also affect job security and the collective bargaining power of workers.
• Dispute Resolution Mechanism: The Code introduces systematic procedures for handling industrial disputes, based on mechanisms like Conciliation, Mediation and Voluntary arbitration to resolve conflicts more efficiently.

Although the Code was enacted in 2020, since labour is part of the concurrent list, its full implementation remains pending as of 2025 in several states due to them trying to formulate their own rules. This has resulted in uneven application across the country.

Conclusion

The Industrial Employment (Standing Orders) Act, 1946 continues to ensure transparency, fairness and labour justice in the industrial setup since it ensures that everything is codified and enforced with the power of law. The new Industrial Relations Code 2020 is also trying to update the law to fit to the modern industrial atmosphere. But, there is a need to make constant effort to establish a balance between industrial growth and labour justice on the lines of the principle of equity, transparency and industrial peace to ensure sustenance of economic growth.

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