The Supreme Court has in a recent ruling narrowed the definition of “industry” under the Industrial Disputes Act (IDA), 1947, dealing a significant blow to worker rights in the country. The ruling, delivered on August 20 by a nine-judge Constitution Bench headed by Chief Justice of India Surya Kant, has held there must be a “discernible commercial character” to an economic activity for employees to secure the protection of the IDA.The ruling followed requests from Uttar Pradesh, Maharashtra and Punjab to review a seven-judge ruling from 1978 that had defined industry under Section 2(j) with a much broader sweep. The review petition followed the Industrial Relations Code (IRC) coming into force in November 2025 and replacing the IDA.The majority on the Constitutional Bench led by Chief Justice of India Surya Kant, including Justices Satish Chandra Sharma, Alok Aradhe and Vipul M. Pancholi, agreed that the definition of industry under Section 2(p) of the IRC is not burdened by the existing (1978) interpretations of the repealed Section 2(j) of the IDA.The verdict is, in fact, closer to a 4-4-1 split than a clear decision. Justice P.S. Narasimha clearly did not endorse the “commercial character” test on its own terms, his reasoning being that the question had become largely academic since the IDA itself stands repealed now.Justice Joymalya Bagchi, on the other hand, went farther in the opposite direction. He agreed with Justices B.V. Nagarathna, Dipankar Datta and Ujjal Bhuyan that the 1978 test remains the correct interpretation of industry under the IDA. He joined the CJI’s opinion only on the narrower, practical question of how the new IRC should be read going forward – not on whether the old definition was wrong.Also, Justice Nagarathna’s opinion, finding the reference against the 1978 verdict “unwarranted” and not maintainable, was seconded by Justices Datta and Bhuyan.Therefore, four of nine judges affirmed that the 1978 test was correctly decided and needed no revision. At the same time, four judges said that “commercial character” would be treated as an essential element of industry.Though no clear verdict came through, the majority of the bench agreed that the 1978 decision did not need to apply to industrial disputes arising in the future.CJI Kant specifically stated that the 1978 judgment would not be regarded as the foundation (“sheet anchor”) of any future interpretations of the IRC or its provisions. That is, no new disputes under the IRC would get the protection of the landmark Bangalore Water Supply and Sewerage Board v. A. Rajappa, decision from 1978.‘Industry’ in 1978 and todaySo far, an enterprise was classified as an industry in India if it was engaged in a systematic activity that required employer-employee cooperation, and if it produced or distributed goods and services that satisfied human wants – other than purely religious or spiritual desires.The test whose contours the nine-judge bench has narrowed was laid down in the Bangalore Water Supply case, decided by a bench of Justices M. Hameedullah Beg, Y.V. Chandrachud, P.N. Bhagwati, V.R. Krishna Iyer, Jaswant Singh, V.D. Tulzapurkar and D.A. Desai. Their ruling was historic because it established, at least in principle, that the Indian state has a strong welfare orientation.Police deployed as workers protest for better wages in Noida, Uttar Pradesh, April 14, 2026. Photo: PTI/File.Justice Krishna Iyer had in that ruling formulated a triple test to establish the nature of industry under Section 2(j) of the IDA. Whether an activity was systematic, involved cooperative work and produced goods or services were part of this test. But there was more. He said:“If any principle can be said to be settled law in this vexed field it is this: the twin consideration of profit motive and capital investment is irrelevant for determining whether an activity is an industry. Therefore, activities which are dominated by charitable motives, either in the sense that they involve the rendering of free or near-free services, or in the sense that the profits which they yield are diverted to charitable purposes, are not beyond the pale of the definition of section 2(j).”Therefore, industry in 1978 was deliberately defined as indifferent to the profit motive. That is how hospitals, universities, municipal boards and government departments could all fall under the bracket of industry. The expansiveness of its definition reflected the state’s willingness to be legally implicated in the labour relations it presided over – no matter how unevenly it may have delivered on that promise in reality.The new test and labour rightsThe commercial character requirement described above is treated as essential only by the CJI’s opinion, backed by three other judges. But this requirement is now paired with a second, consequential move.The bench does not widen the exemption in the 1978 ruling given to sovereign functions. It explicitly retains Bangalore Water Supply‘s narrow construction of that exemption, tied to constitutional functions under Articles 310 and 311. Instead, the bench rejects the presumption that a government activity that fails to qualify as strictly “sovereign” defaults into the category of industry.When paired with the new commercial-character requirement, this opens a second, independent gate that allows welfare-oriented government activities that are neither classically sovereign nor commercial, such as Anganwadi centres and ASHA work or welfare boards to be read as not belonging to “industry”.ASHA workers protest against the state government over workforce cuts and other pending demands, in Bengaluru, February 27, 2026. Photo: PTIThis can be done without the sovereign function label ever being invoked, but with the same practical effect on coverage as if the exemption had been widened.As a result, a wide range of government and government-adjacent activities can now claim they are not “industry”, and workers employed in these sectors will lose the protection of the IDA. As Congress leader Jairam Ramesh has warned, a “Pandora’s box of litigation” might reopen, since protections granted to workers and employees will be up for review precisely at a time when private delivery of public services is expanding at breakneck speed.Informality by judicial fiatBy limiting the scope of the 1978 judgment, the court has delivered a systemic setback for workers, already reeling from three decades of liberal economic reform. It shows that the judiciary is formally distancing itself from both welfarist measures of the state and from legal interventions that can shield workers from the impact of these reforms.The 2026 ruling also shows that the courts and state now merely want to administer the law – not protect constitutional rights.The latest verdict also supplies a legal vocabulary for a state that no longer wants to be an employer. Disinvestment, the National Monetisation Pipeline, outsourced ASHA and Anganwadi work, contractual municipal sanitation and health staff, even outsourced exam systems – the state has withdrawn from direct employment in all these sectors are more.Around 90% of India’s workforce is employed in the informal sector, a segment that has expanded because the formal economy relies on this workforce that remains outside the purview of most labour laws. The court’s new test ratifies this informality, giving it doctrinal cover.An activity that functions exactly like an industry, in an organised, service-producing, dependent on employer-employee cooperation, can now be defined out of the category simply because it lacks a “commercial” veneer.Welfare boards, educational trusts, quasi-government service providers, institutions that look increasingly like enterprises in how they function are legally not to be considered “industry”. The effect will be to legitimise economic activity that depends on cheap labour.Whose commerce counts?There is a profound class and gender bias buried in the phrase “discernible commercial character” that the court uses to limit the definition of industry. Discernible to whom? A software exporter’s commercial character is obvious to any judge. But a municipal health worker, Anganwadi worker, a contract nurse’s commercial character may not be so easy to see. Feminised, welfare-coded and historically undervalued work, which the 1978 test easily saw past – are out of the reckoning of social protections again.The new test re-imports the tired assumption that “real” work looks like trade, whereas charity, service or duty are not real enough. In establishing the status quo this way, the court has restored a rigid hierarchy of labour that the 1978 judgment had unsettled.Further concernsThe new test applies prospectively, and old cases will retain the 1978 standard, but this concession is minimal. The entire future stock of Indian labour disputes will accrue under the narrower regime as the new codes take root in industrial relations.Indeed, the ruling is such that parliament would not need to legislate further if it sought to limit protections to labour. Through its interpretation, the court has done what a labour-sceptical legislature might have hesitated to do. The fact is that the scope of whom the state is answerable to has narrowed significantly even as it ceases to be an employer at a rapid pace.Boddu Srujana is Assistant Professor with the Department of Economics, Easwari School of Liberal Arts, SRM University-Andhra Pradesh. Anagha Tobi is Assistant Professor with the Department of Humanities and Social Sciences, Mahindra University.