Section 2 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Five definitions in section 2 of the Industrial Relations Code, 2020 decide which procedure an employer or worker must follow when work stops or a job ends: lay-off (clause (t)), closure (clause (h)), retrenchment (clause (zh)), strike (clause (zk)) and lock-out (clause (u)). Getting the label right matters because notice, compensation and prior permission rules attach to each label.
Lay-off is an employer's failure, refusal or inability to give work to a muster-roll worker for reasons such as shortage of coal, power or raw materials, accumulated stocks, machinery breakdown or natural calamity. Retrenchment is termination of service for any reason other than disciplinary punishment, and it does not include voluntary retirement, superannuation, non-renewal or expiry of a contract, completion of a fixed term, or termination for continued ill-health. Closure is the permanent closing of a place of employment or part of it; a lock-out is temporary. A strike includes concerted casual leave by fifty per cent. or more of the workers on a given day.
Lay-off (s.2(t))
"Lay-off" means the failure, refusal or inability of an employer, on account of shortage of coal, power or raw materials, accumulation of stocks, break-down of machinery, natural calamity or any other connected reason, to give employment to a worker whose name is borne on the muster rolls of his industrial establishment and who has not been retrenched.
The two-hour Explanation. A worker on the muster rolls who presents himself for work at the appointed time during normal working hours and is not given employment within two hours is deemed laid off for that day. Two provisos refine it:
- If, instead of being given work at the start of the shift, the worker is asked to report in the second half of the shift and is then given work, he is deemed laid off only for one-half of that day.
- If he is asked to report in the second half and still gets no work, he is not treated as laid off for the second half and is entitled to full basic wages and dearness allowance for that part of the day.
If you are planning any of these, a labour law compliance check before acting is sensible. Lay-off compensation itself is in section 67; this definition only tells you what lay-off is. Notice that the causes are about the employer's side (coal, power, raw material, stock, machinery, calamity). A lay-off is not a strike, and a work stoppage caused by a strike elsewhere in the establishment is dealt with in s.69(iii).
Closure (s.2(h))
"Closure" means the permanent closing down of a place of employment or part thereof. Two words carry the weight: "permanent" separates closure from a lock-out, and "part thereof" means closing a unit, shift-line or department permanently can be a closure even if the rest of the establishment continues. The notice and compensation rules for closure are in s.74 and s.75, and prior permission applies in certain establishments under s.80. See sixty days' notice of closure.
Retrenchment (s.2(zh))
The general rule
"Retrenchment" means the termination by the employer of the service of a worker for any reason whatsoever, otherwise than as a punishment inflicted by way of disciplinary action.
What is not retrenchment
| Clause | Termination that is not retrenchment |
|---|---|
| (i) | Voluntary retirement of the worker |
| (ii) | Retirement of the worker on reaching the age of superannuation |
| (iii) | Non-renewal of the contract of employment on its expiry, or termination under a stipulation in the contract |
| (iv) | Completion of tenure of fixed term employment |
| (v) | Termination of the service of a worker on the ground of continued ill-health |
Clauses (iv) and (v) are important: the Code treats the end of a fixed term, and termination for continued ill-health, as outside retrenchment. The Code does not define "continued ill-health", so be careful before relying on clause (v) without evidence of a sustained condition. For how these exclusions interact with the old law, see our note on deemed retrenchment and non-renewal of contract, which discusses the Industrial Disputes Act, 1947 position.
Example. A company terminates a worker for poor performance and pays a month's pay. Because the termination is not "a punishment inflicted by way of disciplinary action", and none of clauses (i) to (v) applies, it may be a retrenchment, and s.70's conditions (one month's notice or pay in lieu, compensation, notice to the appropriate Government) then apply to a worker with not less than one year's continuous service. If the same worker was dismissed after a disciplinary enquiry as punishment for misconduct, the definition excludes it.
How the word is used
Section 70 (conditions precedent), s.71 (procedure), s.72 (re-employment) and s.79 (prior permission in larger establishments) all attach to retrenchment; they are covered in separate articles in this cluster, beginning with section 70. Section 83 and rule 37 of the Central Rules, 2026 link retrenchment to the Worker Re-skilling Fund. Those Rules apply to Central-sphere establishments; State Governments make their own rules elsewhere.
Lock-out (s.2(u)) and strike (s.2(zk))
Lock-out
"Lock-out" means the temporary closing of a place of employment, or the suspension of work, or the refusal by an employer to continue to employ any number of persons employed by him. It is the employer's counterpart of a strike. Section 62(2) requires notice before a lock-out, and s.63 and s.64 deal with illegal lock-outs and financial aid; see our article on the prohibition of strikes and lock-outs.
Strike
"Strike" means:
- a cessation of work by a body of persons employed in any industry acting in combination; or
- a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment; and
- it includes the concerted casual leave on a given day by fifty per cent. or more workers employed in an industry.
The last limb is easy to miss: if half or more of the workers take casual leave together on a given day, that is a strike for the purposes of the Code, with the consequences in Chapter VIII (notice before a strike, and the illegality of strikes in breach of it). The text says "fifty per cent. or more workers employed in an industry"; it does not say how the count is taken, so the headcount basis should be settled with advice for borderline cases. See our note on strikes under the Industrial Disputes Act for the old position.
Lay-off, lock-out, closure side by side
| Term | Temporary or permanent | Who acts | Core trigger |
|---|---|---|---|
| Lay-off | Temporary | Employer unable or refuses to give work | Shortage of coal, power or raw materials, stocks, breakdown, calamity |
| Lock-out | Temporary | Employer | Closing place of employment, suspending work or refusing to continue employment |
| Closure | Permanent | Employer | Permanent closing of place of employment or part |
| Strike | Temporary | Workers | Concerted cessation or refusal to work |
| Retrenchment | Permanent (for that worker) | Employer | Termination other than disciplinary punishment and the five exclusions |
Need help with a lay-off, retrenchment or closure plan?
The label you choose decides your notice, compensation and permission obligations. Our labour law compliance team can test a proposed action against these definitions and the matching chapter before you issue any notice. Share the employment contracts and the reasons for the action to begin.
Key takeaways
- Lay-off is a temporary inability to give work to a muster-roll worker; the two-hour rule deems a day of lay-off.
- Retrenchment is any termination other than disciplinary punishment, except the five carve-outs, including completion of a fixed term and continued ill-health.
- Closure is permanent; a lock-out is temporary.
- A strike includes concerted casual leave by fifty per cent. or more workers on a given day.
- The label triggers different notice, compensation and permission rules in later chapters.
Read next
- Definitions of industry, industrial dispute and establishment
- Definitions of Trade Union, settlement, award and other terms
- Section 62: prohibition of strikes and lock-outs
- Industrial Disputes Act 1947: retrenchment, closure and strike-lockout rules
Disclaimer: Based on the Industrial Relations Code, 2020 (as enacted) and, where noted, the Industrial Relations (Central) Rules, 2026 (G.S.R. 342(E), 8 May 2026), as on 30 September 2026. The Code is in force from 21 November 2025; some provisions may be notified later, and State Governments make their own rules for establishments where the State is the appropriate Government. Verify the current position before acting.