Notice of Change: Section 40 Industrial Relations Code

A notice of change under Section 40 of the Industrial Relations Code, 2020 is the written warning your employer must give you before it alters your wages, your allowances, your working hours, your leave, your grade or your shift pattern. The change cannot take effect within twenty one days of that notice. The eleven subjects that carry this protection are listed in the Third Schedule to the Code, and they cover most of what an employee would call their terms.

Part of the employment and labour law practice at S Jain & Attorneys, Bangalore.

The provision is short, it is old, and it is almost never invoked, which is exactly why employers restructure a salary over a weekend and circulate the revised letter on Monday morning. Nothing in the Code makes that lawful. It survives because employees do not know the section exists, and because the first thing most people do when the revised letter lands is sign it.

What Section 40 actually says

The section is framed as a prohibition on the employer rather than as a right of the employee, which is part of why it is missed. No employer who proposes to effect any change in the conditions of service applicable to any worker, in respect of any matter specified in the Third Schedule, may effect that change without giving the workers likely to be affected a notice of the nature of the change proposed, in the manner prescribed. Nor may the employer effect the change within twenty one days of giving that notice.

Two things follow from the wording. The notice goes to the workers likely to be affected, not to a union alone, so an establishment with no union is not outside the section. And the twenty one days run from the giving of the notice, not from the date the employer decided internally, so a change announced and implemented on the same day is bad however long the management had been planning it.

Read the section with our guide on what the four labour codes actually changed for employees, because Section 40 is one of the provisions that carried across from the repealed Industrial Disputes Act, 1947 largely intact. The employer cannot argue that the codes swept it away.

The eleven headings below are worth reading slowly, because the breadth is the point.

Twenty one days

The change cannot take effect within twenty one days of the notice being given to the workers likely to be affected by it.

Eleven subjects

The Third Schedule covers wages, provident fund contributions, allowances, hours, leave, shifts, grades, customary concessions, discipline rules, rationalisation and headcount.

Workers only

Section 40 protects workers as defined in Section 2(zr). Managerial and administrative staff, and supervisors above the wage threshold, fall outside it.

Four exemptions

No notice is needed for a change under a settlement or award, for government service rules staff, in a genuine shift emergency, or under a government order.

The eleven headings in the Third Schedule

The Third Schedule is headed as conditions of service for change of which notice is to be given, and it is read with Sections 40 and 101(1) of the Code.

Third Schedule item	What it catches in practice
1. Wages, including the period and mode of payment	A salary restructure, a change from monthly to fortnightly payment, moving a fixed component into a variable one
2. Employer contribution to any provident fund or pension fund	Reducing the employer side of the provident fund contribution, or changing the wage base on which it is computed
3. Compensatory and other allowances	Cutting or withdrawing conveyance, house rent, shift, city compensatory or special allowances
4. Hours of work and rest intervals	Lengthening the working day, moving the lunch interval, changing the weekly hours
5. Leave with wages and holidays	Reducing annual leave, capping carry forward, removing a declared holiday from the calendar
6. Starting, alteration or discontinuance of shift working	Introducing night shifts, ending a shift, changing the rotation, where this is not already provided in standing orders
7. Classification by grades	Redrawing the grade structure, merging grades, moving a category of staff into a lower band
8. Withdrawal of any customary concession or privilege, or change in usage	Ending a long standing practice such as transport, a canteen subsidy, an annual bonus practice or a leave encashment custom
9. Introduction of new rules of discipline, or alteration of existing rules	A new disciplinary policy or code of conduct, except so far as the subject is already covered by certified standing orders
10. Rationalisation, standardisation or improvement of plant or technique likely to lead to retrenchment	Automation and process redesign where the consequence is that workers will be let go
11. Any increase or reduction, other than casual, in the number of persons employed	Headcount cuts in an occupation, process, department or shift that are not caused by circumstances outside the employer's control

Item 8 is the one that surprises people. A concession that was never written into the appointment letter can still be a customary privilege if it has been given consistently for long enough, and withdrawing it is a change requiring notice. Item 11 is the one that matters most in a downsizing, because a reduction in headcount that the employer chose to make is squarely within the Schedule, while a reduction forced by circumstances beyond its control is not.

Key takeaway. Section 40 does not require your consent and it does not give you a veto. It requires notice and a twenty one day wait. Its value is that it converts a decision taken in private into a proposal on the record, with a period in which the workers can organise, raise a grievance or apprehend a dispute.

The four situations where no notice is needed

The proviso to Section 40 removes the notice requirement in four cases, and an employer defending a change will reach for them.

Where the change is effected in pursuance of any settlement or award. If the change implements something already agreed in a settlement or directed in an award, the parties have had their say and no fresh notice is required.
Where the workers affected are governed by the Fundamental and Supplementary Rules, the Civil Services rules, the Indian Railway Establishment Code or other rules notified by the appropriate Government. This is the government service carve out and it does not touch private employment.
In an emergent situation which requires a change of shift or shift working otherwise than in accordance with standing orders, in consultation with the Grievance Redressal Committee. Note the two limits built into this exemption. It is confined to shift changes, and it requires consultation with the Committee, so an employer that has never constituted one cannot easily rely on it.
Where the change is effected in accordance with the orders of the appropriate Government, or in pursuance of any settlement or award.

An employer that simply asserts business necessity is not within any of these. Commercial pressure is not an emergent situation, and the third exemption is about shifts, not about pay.

Who Section 40 protects, and who it does not

Section 40 speaks of workers, and worker is a defined term. Under Section 2(zr) of the Code it excludes a person employed mainly in a managerial or administrative capacity, and a person employed in a supervisory capacity drawing wages above eighteen thousand rupees a month. Whether you are inside or outside that definition is decided by what you actually do, not by the designation on your appointment letter, and it is the single question that decides whether any of this is available to you. We have set that test out in full in our guide on worker status under the Industrial Relations Code.

If you fall outside the definition, Section 40 is not your provision. Your protection against a unilateral change comes from contract law instead, which is a different argument with a different forum. A change to a fundamental term without your agreement can be a breach of the employment contract, and continuing to work under protest matters to how that argument is later received.

Why this section matters more in 2026 than it used to

The four labour codes commenced on 21 November 2025, and the definition of wages changed with them. Where excluded allowances exceed half of total remuneration, the excess is added back into wages for statutory purposes, which raises the base for provident fund contributions and for gratuity. The predictable response has been a wave of salary restructuring, and restructuring is Third Schedule item 1 and often item 3 as well.

That is the practical reason to know this section now. An employer entitled to restructure is not entitled to restructure silently. If your salary breakup was rewritten without notice, the failure to give notice is a separate complaint from any argument about whether the new breakup is itself lawful. For the wages point and its effect on your gratuity, see our guide on gratuity under the Code on Social Security.

Common mistake. Signing the revised appointment letter or the acknowledgement slip, and complaining afterwards. Once you have signed a document recording your agreement to the new terms, the employer will say the change was consensual and that Section 40 never arose. If you want to keep the point alive, receive the letter, do not sign acceptance, and say in writing that you are working under protest and reserving your rights.

What to do when the change lands without notice

The sequence below is what we would ordinarily advise, and it is deliberately unaggressive in the first two steps, because the object is to build a record rather than to start a fight.

Take a copy of everything before you respond. The old salary structure, the old roster or leave policy, the circular or letter announcing the change, and the date you received it. Email yourself a copy from your work account to a personal one while you still have access.
Do not sign an acceptance. If you are asked to acknowledge receipt, write received, and nothing more. If you are pressed for consent, put in writing that you are continuing to work under protest.
Ask, in writing, for the notice. A single line is enough. Ask on what date the notice of change under Section 40 of the Industrial Relations Code, 2020 was given, and to which workers. The answer, or the silence, is the evidence.
Take it to the Grievance Redressal Committee if there is one. Every industrial establishment employing twenty or more workers is required to have one, and an aggrieved worker may apply to it within one year of the cause of action.
If it is not resolved there, the route runs through conciliation and then the Industrial Tribunal. The clocks in the Code are short, so do not let this sit. Our guide on wrongful termination and employee remedies sets out the forum sequence and the limitation periods that govern it.

In practice the letter asking for the notice does most of the work. An employer that has not given notice under Section 40 will usually not want that fact recorded in correspondence, and the request often produces either a rollback, a negotiation, or a properly issued notice that at least gives the workforce twenty one days to respond.

Do not sign

Write received on the acknowledgement, not accepted. A signed acceptance lets the employer argue the change was consensual and that no notice was required.

Ask in writing

One line asking on what date the Section 40 notice was given, and to whom. The answer or the silence becomes the evidence in any later proceeding.

Keep working

Working under written protest preserves the point. Walking out over the change turns a live grievance into an argument about your own abandonment of service.

The penalty, and why it is not really the remedy

Contravening Section 40 is not listed among the specific penalty provisions in Section 86 of the Code. It falls into the residual clause, Section 86(20), under which contravention of any other provision of the Code carries a fine which may extend to one lakh rupees. That penalty is imposed by an officer of the appropriate Government appointed under Section 85, not by a court, and under Section 87 no court can take cognizance of an offence under the Code except on a complaint made by or under the authority of the appropriate Government. An employee cannot walk into a magistrate's court and prosecute the company.

So the fine is not the point. The value of Section 40 to an individual employee is evidential and tactical. A change made without the notice the statute required is a change the employer made irregularly, and that is a useful fact in a conciliation, in a Tribunal reference about the change itself, and in any later dispute about whether the employer acted in good faith.

A stronger rule applies once a dispute is pending

Section 40 governs the ordinary case. Once an industrial dispute concerning the establishment is actually pending before a conciliation officer, an arbitrator or a Tribunal, Section 90 of the Code takes over and it is considerably stricter. On matters connected with that dispute the employer cannot alter conditions of service to the prejudice of the workers concerned, and cannot discharge or punish them for misconduct connected with the dispute, without the express written permission of the authority before which the proceeding is pending.

That is a different and much sharper protection, and it is the reason employers often move quickly to implement changes before anything is filed. It is dealt with separately in our guide on the position once proceedings have begun.

One observation from acting on both sides of these matters in Bengaluru. The employers who lose these arguments are rarely the ones who acted in bad faith. They are the ones whose human resources team treated a Third Schedule subject as an internal policy decision and papered it with a consent letter, and who then could not produce a notice, a date, or a list of the workers to whom it went. The record either exists or it does not, and it is made at the time of the change, not afterwards.

Frequently Asked Questions

Does my employer need my consent to change my salary structure?

Section 40 does not require consent. It requires notice of the proposed change to the workers likely to be affected, and it forbids the change taking effect within twenty one days of that notice. Consent is a separate question that arises under your contract, and an employer that obtains a signed acceptance will argue that both questions are closed.

I am a manager. Does Section 40 protect me?

Probably not. The section protects workers as defined in Section 2(zr) of the Code, which excludes persons employed mainly in a managerial or administrative capacity and supervisors drawing wages above eighteen thousand rupees a month. The test is the dominant nature of your actual duties, not your designation, so the answer is not automatic.

My employer withdrew the cab facility we have had for years. It was never in my offer letter. Can they?

Not without notice, if you are a worker. Item 8 of the Third Schedule covers withdrawal of any customary concession or privilege and change in usage, and a benefit provided consistently over a long period can be a customary privilege even though no document promises it.

What happens if the twenty one days pass and the employer goes ahead anyway?

The notice period is a waiting period, not a consent period. Once twenty one days have elapsed the employer may implement the change, and your remedy then is to raise it as an industrial dispute on its merits rather than on the notice point.

Can the company say it was an emergency?

Only within narrow limits. The emergency exemption in the proviso applies to a change of shift or shift working, it requires the change to be otherwise than in accordance with standing orders, and it requires consultation with the Grievance Redressal Committee. It does not cover a change to pay, allowances or leave, and commercial pressure is not an emergency.

Does this apply to an information technology company in Bengaluru?

Section 40 is in Chapter VII of the Code and is not confined to factories, mines and plantations the way Chapter X is. What decides it is whether the establishment is an industrial establishment and whether you are a worker. Many software and services employees are workers on the duties test, and many are not.

How long do I have to act?

Treat it as short. An aggrieved worker may apply to the Grievance Redressal Committee within one year of the date on which the cause of action arose, and a conciliation officer cannot hold conciliation proceedings more than two years after the industrial dispute arose. Delay is the most common reason these complaints fail.

Can I refuse to work under the changed terms?

Refusing to work is a serious step and it usually helps the employer. The safer course is to work under written protest, which keeps your objection alive without giving the company an argument about unauthorised absence or abandonment of service.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Notice of Change: The Twenty One Days Before Your Terms Can Be Altered