India’s labour landscape is undergoing a comprehensive transformation through the enactment of four new labour codes – Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health & Working Conditions Code – which replace 29 older central laws and seek to modernize, simplify, and formalize employment regulation.
Notification of the Labour Codes
- On 21 November 2025, the Central Government has brought into force the four labour codes, namely: (i) the Code on Wages, 2019; (ii) the Industrial Relations Code 2020; (iii) the Code on Social Security 2020; and (iv) the Occupational Safety, Health and Working Conditions Code 2020 (collectively, the “Labour Codes”), thus operationalising a consolidated statutory framework that would subsume and repeal 29 labour laws. However, several procedural and operational elements under the Labour Codes remain contingent upon the issuance of corresponding rules, schemes, and notifications by the Central and State Governments.
- Until such time, the Central Government has clarified that the existing rules, forms, registers, and procedural requirements prescribed under the erstwhile labour law regime will continue to govern day-to-day compliance including those protected by applicable survival provisions under the Labour Codes. Accordingly, while the substantive standards and provisions introduced under the Labour Codes have been notified and are in force, the operative framework on several aspects remains in a transitional phase.
- The consolidation exercise in the form of the labour codes does bring with it certain changes in the existing labour law regime. The digitization of procedures (relating to registration and intimations) and the concept of deemed registration (in case authorities do not register the establishment within the specified timeline) may be seen as a positive impact on the ease of commencing business as well as the ease of doing business. Similarly, the substitution of prosecution-oriented framework with facilitation process, whereby an employer would be given an opportunity to rectify any non-compliance, heralds an important change in the approach of the government.
- Having said that, current and potential employers may have to gear up for a relook at their workplace arrangements and workforce engagement structures. Fixed-term employments will see an important change in that employees engaged for a specified duration will also enjoy tenure-based benefits similar to permanent workforce (albeit on a pro-rated basis). Engagement of contract labour in an establishment’s core activities would be barred except in certain situations.
- Another salient feature includes the incorporation of a proviso to the definition of ‘wages’. As per the proviso, if the expressly excluded components exceed 50% of the overall remuneration (i.e., the ‘wages’ bucket + expressly excluded components), then some portion of these expressly excluded components will be taken out and added to the ‘wages’ bucket, idea being to bring ‘wages’ bucket to 50% level at the time of making various computations such as gratuity and retrenchment compensation.
- Accordingly, on the cost front, employers may see some impact on their expenses towards gratuity and severance compensation as these computations may have to be calculated on at least 50% of the total remuneration paid to an employee.
Supreme Court of India (“SC”) upholds validity of employment bonds
- The SC’s recent ruling in Vijaya Bank & Another v Prashant B Narnaware (2025 INSC 691) has reaffirmed the enforceability of employment bonds that require employees to serve a minimum tenure or pay liquidated damages for early exit. In the extant matter, the SC assessed the validity of a clause in an employee’s employment contract which mandated 3 (three) years of service and an indemnity of INR 2,00,000 for premature resignation, i.e., the consequential breach to be paid by the employee, prior to the lapse of the stipulated 3 (three) years. The employee in this regard, argued that such a clause violated Articles 14 and 19 of the Constitution of India, 1950, along with Sections 23 and 27 of the Indian Contract Act, 1872 (“Contract Act”).
- Through this judgment, the SC drew a clear line between restrictions applicable during employment and that applicable post-termination of employment, holding that service obligations during employment do not amount to restraint of trade under Section 27 of the Contract Act. It emphasized that such clauses serve legitimate business objectives like workforce stability and skill retention, rather than curbing future employment opportunities. The SC further held that such a clause is not violative of public policy given that public policy should be weighed against other factors including increased competition of a public sector organisations vis-à-vis private employers.
- Accordingly, the SC upheld the provisions concerning liquidated damages but specified that the enforceability of these clauses hinge on reasonableness and proportionality. The SC further opined that while employers can use service bonds to curb attrition, they must ensure that penalties are not excessive and align with actual losses. This decision signals judicial support for employment bonds as a lawful retention tool, provided they do not impose unfair burdens or conflict with public interest.
- This judgment is notable in the context of service bonds as the SC reiterated the distinction between a restrictive covenant meant to apply post termination, which amounts to a restraint on employment, and a restrictive covenant which operates during the subsistence of employment, noting that the service bonds fall into the latter category and, therefore, have legal force. That said, the contours of enforceability of service bonds do not appear to have been discussed in detail by the SC, as it does not deal with factual situations where an employee may be bound by onerous bond conditions and is subsequently restricted from tendering their resignation.
Issuance of mandatory directives for strict compliance with the POSH Act
With the SC’s judgment in the case of Aureliano Fernandes v The State of Goa and Others (2025 SCC OnLine SC 1749), enforcement of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 (“POSH Act”) has been on strict spotlight with directions to Indian states and union territories for robust compliance with the POSH Act, particularly the submission of their compliance reports and appointment of district officers as mandated under the POSH Act. This judicial push has acted as a catalyst for state administrations to tighten enforcement measures and ensure that employers adhere to statutory obligations under the framework of the POSH Act.
Following these developments, several states have issued mandatory directives to strengthen compliance with the POSH Act. In Maharashtra, district administrations in Mumbai and Pune have instructed establishments with 10 (ten) or more employees to constitute internal committees (“ICs”) and update their details on the She Box portal. Additionally, Pune has mandated that proof of IC constitution to be submitted to the District Women and Child Development Officer via email. Following a similar suit, state governments of Rajasthan, Karnataka and Delhi have also released notifications directing establishments to register and update their IC details on the She Box portal. These measures reflect a nationwide trend toward stricter enforcement and greater digital transparency in preventing workplace sexual harassment.
Separately, the FAQs on the She Box Portal also specify that it is mandatory for all eligible establishments (both public and private entities) to establish an IC. For ensuring compliance under the POSH Act, the portal is structured in such a way that, unless the concerned workplace/ office or authority uploads information about their IC, complainants will be unable to file complaints through the portal to the respective IC of their workplace. Therefore, it is imperative for all workplaces including public and private organizations and workplaces within their jurisdictions to submit the required details.
***
About the Firm and Employment, Labour and Benefits team
Khaitan & Co is one of the oldest, national, top tier premier full-service law firm with over 1200 legal professionals, including 300+ leaders with presence in 7 states in India (Delhi, Gujarat, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal) and Singapore. With more than a century of experience in practicing law, we offer end-to-end legal solutions in diverse practice areas to our clients across the world. We have a team of highly motivated and dynamic professionals delivering outstanding client service and expert legal advice across a wide gamut of sectors and industries.
The employment law practice team comprises of around 50 lawyers including 7 partners and 3 counsels, spread across various offices in the country (Mumbai, Bengaluru and Delhi). The team provides commercially oriented and practical advice on areas and events around business sale and acquisitions, change of ownership, employee benefits including equity-based incentive schemes, employment agreements and policies, workplace diversity and discrimination issues. We routinely conduct staff training on workplace ethics and anti-bribery issues. We also work closely with our clients on CXO recruitment, exits and separation agreements, secondment and consulting agreements, employee disputes and disciplinary inquiries and investigations and sexual harassment related situations. We also specialise in contract labour and alternate employment arrangements, whistle blower complaints, employee grievance redressal, workforce restructuring, staff re-classification and mobility, workplace health and safety issues as well as immigration advisory.