The landmark verdict delivered on August 20 by the Supreme Court regarding the legal definition of ‘industry’ preserves the 1978 framework for old disputes, while leaving the new Labour Codes to develop their own meaning of the term. The judgement’s real test will be in using it to combine labour protection with greater economic flexibility.
The term ‘industry’ is crucial in Indian labour law, as it determines the statutory protections for workers and responsibilities of employers. Classifying a workplace as an industry subjects it to various industrial relations laws, impacting both workers and employers.
In Uttar Pradesh vs Jai Bir Singh, the Chief Justice-led nine-judge Constitution Bench brought an important measure of clarity to a question that had troubled labour law for nearly five decades since the landmark Bangalore Water Supply & Sewerage Board (1978) decision. But the latest judgement should not be read as simply overturning the old one. The significance of the change lies in its ability to distinguish the earlier legal regime from the new framework established by the Industrial Relations Code, 2020.
Section 2(j) of the Industrial Disputes Act, 1947 contained a wide definition of industry. In the BWSSB case, a seven-judge Constitution Bench gave that provision its most influential interpretation. It evolved the famous triple test, under which an activity could qualify as an industry if there was systematic activity, cooperation between employers and employees, and the production, supply, or distribution of goods or services to satisfy human wants or wishes. The motive to make profit was not decisive.
The outcome was a deliberately broad interpretation. Hospitals, educational institutions, municipalities, charitable organisations and various service providers could be included in the definition if their activities met the criteria. The focus was on the activity and the employer-worker relationship, rather than simply on whether the organisation called itself commercial, charitable or governmental. For workers, this was a significant expansion of legal protection.
What changes, what remains
The Supreme Court has upheld the triple test for unresolved disputes under the Industrial Disputes Act. The interpretation established in 1978 remains applicable to these cases, which ensures legal continuity for disputes stemming from the repealed statute and protects workers from losing the benefits of the law simply because their cases have taken years to resolve.
The important change concerns the future. The Industrial Disputes Act has been replaced by the Industrial Relations Code, 2020. Section 2(p) of the code contains its own definition of industry. It retains the broad concept of systematic activity involving cooperation between employer and worker in the production, supply or distribution of goods or services to satisfy human wants or wishes. It also makes clear that the presence or absence of capital investment and the motive to make profit are not, by themselves, decisive.
At the same time, the code excludes activities such as designated charitable, social and philanthropic institutions, domestic service and government functions related to sovereign duties. Thus, Parliament itself has drawn some boundaries that were not expressed in the same manner under the old law.
The Supreme Court has now made a key distinction: Section 2(j) of the old Act will follow the 1978 jurisprudence, while Section 2(p) of the new code will be interpreted in light of its own language and legislative scheme. This is the judgement’s main significance.
The definition of industry sets the boundaries between economic activity and labour regulation. A broad definition enhances worker protection by preventing employers from evading labour obligations based on their organisation type, such as hospitals or non-profits. This is especially important in today’s economy, where outsourcing and public-private partnerships are common.
However, regulation comes with economic costs. Compliance requirements and dispute resolution processes can raise the cost of hiring labour. While large companies may manage these costs, small organisations with limited budgets may struggle. Ultimately, the key issue is whether regulation is predictable and proportionate and protects workers without deterring employment and investment.
The judgement can contribute to industrial growth by clarifying the divide between the old and new labour regimes. Businesses dealing with legacy disputes know that the established 1978 test still applies. New enterprises and disputes, meanwhile, will be examined under the Industrial Relations Code. That separation could improve legal certainty. Investors do not necessarily fear regulation; they fear lack of clarity and unpredictability.
The Labour Codes are intended to simplify India’s fragmented labour law structure. The Industrial Relations Code consolidates the Industrial Disputes Act; Trade Unions Act, 1926; and the Industrial Employment (Standing Orders) Act, 1946. The broader objective is to combine worker protection with greater flexibility for enterprises.
The situation is more complex with reference to worker’s rights. For workers whose disputes arise under the old Industrial Disputes Act, the position is reassuring. The broad triple test framework remains available. However, in future disputes, they cannot assume that the same protections will automatically apply, as the exclusions in Section 2(p) fall outside the definition of industry. This does not eliminate labour rights in these areas, but the legal channels for asserting those rights may change.
The critical issue will be how courts distinguish a genuinely excluded activity from an economically-organised activity merely adopting a certain label. A government enterprise cannot necessarily become a sovereign function simply because it is government-owned; similarly, an organisation cannot avoid employment obligations just by claiming to be socially-oriented.
For employers, this judgement is likely to be welcomed as it promotes greater flexibility and legal certainty. India’s labour reforms aim to reduce fragmentation and simplify compliance. The Industrial Relations Code raises the threshold for establishments requiring prior government permission for layoffs, retrenchments and closures from 100-300 workers, which was the earlier limit under the Industrial Disputes Act.
These changes can make workforce restructuring easier for companies and may encourage investment, particularly in sectors where employment needs fluctuate. However, ease-of-doing business shouldn’t compromise labour responsibilities. An attractive business environment requires clear rules for employers, informed workers and efficient dispute resolution. If the new definition merely shifts uncertainty between provisions, true simplification won’t be realised.
Business flexibility, workers’ security
The outlook for industrial growth is mainly positive, as the new code can enhance legal certainty and adapt to today’s economy. While it offers some benefits for pending labour disputes, future protections for workers remain uncertain due to exclusions under Section 2(p), which may limit coverage under industrial relations law.
The challenge now lies with the courts and tribunals interpreting the Industrial Relations Code to avoid loopholes and maintain effective labour protection without discouraging legitimate businesses.
As India’s economy has evolved since 1978 with a shift towards services and complex contractual arrangements, it is crucial that the law adapts accordingly. Economic flexibility and worker protection can coexist, fostering an environment in which businesses can thrive and workers are safeguarded against arbitrary treatment. Ultimately, success will depend on whether Bharat can create productive enterprises and jobs without sacrificing worker’s rights in pursuit of flexibility.
S R Keshava | Senior Professor of Economics, Bangalore University
(Views are personal)
