The Supreme Court’s decision that the 1978 interpretation of “industry” will not automatically apply to the Industrial Relations Code (IRC), 2020, could narrow labour law coverage, including retrenchment safeguards, for workers in hospitals, educational institutions and other service-oriented establishments, experts said.
Under the 1978 Bangalore Water Supply ruling, the apex court had adopted a broad test based on the nature of an establishment’s activity rather than its profit motive or legal form.
The Industrial Relations Code, however, has its own definition and expressly excludes institutions substantially engaged in charitable, social or philanthropic services, government activities relating to sovereign functions, and domestic service.
Priti Suri, founder and managing partner of law firm PSA, said the shift could affect establishments that came within the broad 1978 approach despite their non-commercial character, including hospitals, educational institutions, clubs, and similar bodies, which could fall within the definition unless they were engaged in strictly sovereign functions or other narrow exclusions. The new framework “may narrow coverage for establishments with non-commercial characteristics, depending on how courts apply the new definition”, she said.
“If an establishment falls outside the definition, workers may lose access to remedies which depend upon the Industrial Relations Code, including retrenchment safeguards, industrial-dispute adjudication and collective-bargaining mechanisms,” said Rishabh Gandhi, founder, Rishabh Gandhi and Advocates.
The main uncertainty will be around establishments with mixed characteristics, Gandhi said. A charitable institution could charge for services while operating through a large, organised workforce. “Whether it is nevertheless ‘wholly or substantially’ engaged in charitable, social or philanthropic service may become contentious,” Gandhi said.
Similar disputes could arise in the public sector over activities “relatable to the sovereign functions” of the government and where sovereign functions end and ordinary public-service delivery begins, he said.
The impact will also depend on whether individual employees qualify as “workers” under the Code. Employees mainly performing managerial or administrative functions, and certain supervisory employees, may fall outside the definition even if their establishment qualifies as an industry, Gandhi said.
If either the establishment or the employee falls outside the Code’s coverage, workers could lose access to its specialised industrial-relations machinery, while contractual and other statutory remedies may continue to be available, he said.
The ruling could particularly affect workers in hospitals and educational institutions, said Amarjeet Kaur, general secretary, All India Trade Union Congress (AITUC), adding that the change could weaken unionisation in these sectors.
Alay Razvi, managing partner, Accord Juris, said workers in establishments excluded from the Code could lose access to “industrial-dispute reference, retrenchment safeguards, lay-off protection and collective bargaining mechanisms”. However, “contractual claims, wage rights, social-security benefits, anti-discrimination protections and other statutory or civil remedies may remain available”, he said.
Puneet Gupta, Partner, People Advisory Services-Tax, EY India, said the Code creates a “distinct framework” for future disputes, with applicability depending on “the real nature of an organisation’s activities and employment relationships”, rather than labels such as governmental, charitable or educational.
The 1978 interpretation will continue to apply to pending disputes under the old Industrial Disputes Act, while future disputes under the Industrial Relations Code will have to be decided under its own provisions.
