India has slowly moved away from the 29 central labour legislations with consolidation and introduction of the four Labour Codes (which came into force on November 21, 2025) with the objective of modernising and simplifying the regulatory landscape. While the Central Government has notified and published the final central rules under the four labour codes on May 8, 2026, and a few States have notified and published their final rules¹, the overall operational framework continues to evolve.

Our earlier articles on the Code on Social Security, 2020 and the Code on Wages, 2019 are available @https://lexcounsel.in/newsletters/part-1-of-indias-new-labour-codes-code-on-social-security-2020/ and https://lexcounsel.in/newsletters/the-new-indian-code-on-wages-2019/ respectively. In this article we examine, the new contours of the term ‘industry’ and the key changes introduced by the Industrial Relations Code, 2020 (“IR Code”) read with the Industrial Relations (Central) Rules, 2026 (“IR Rules”), that substantially overhauls the legal regime governing trade unions, industrial disputes, and conditions of employment², and the significance of the recent Supreme Court decision for the emerging industrial relations landscape.

1. Change in the definition of ‘Industry’, Exclusion of Not-for Profit Institutions and the Recent Supreme Court Order

The definition of “industry” under the Industrial Disputes Act, 1947 (“ID Act”) was broad and covered any business, trade, undertaking, manufacture or calling of employers and included any calling, service, employment, handicraft or industrial occupation or avocation of workmen. Subsequently, the Bangalore Water Supply and Sewerage Board v A. Rajappa³ (“Bangalore Water Supply case”), a seven-judge bench of the Supreme Court, adopted a broader definition of “industry”, and introduced the “triple test” which provided that an establishment can be an “industry” if has:

• a systematic and organised activity;
• cooperation between employer and employee in the conduct of such activity; and
• the production or distribution of goods and services directed towards the satisfaction of human wants and wishes.

As a result, even the not-for-profit charitable organisations whose activities satisfied the triple test could qualify as an ‘industry’. However, Section 2(p) of the IR Code now expressly excludes, inter alia, institutions owned or managed by organisations wholly or substantially engaged in charitable, social or philanthropic service; activities relating to the sovereign functions of the appropriate Government; domestic service and such other activities as may be notified by the Central Government from the purview of ‘industry’. This exclusion may have a significant impact of excluding educational institutions, hospitals, clubs and other social welfare activities undertaken by charitable organizations from the ambit of the definition of ‘industry’ under the IR Code and thus impacting the rights of workmen therein. Presently, the IR Code does not prescribe clear criteria for determining what constitutes “charitable” or “philanthropic” activity, and the determination will depend on the dominant nature of activities, organisational structure, employment relationship etc., and may open more contentious litigation and judicial interpretation.

Recently, on August 20, 2026, a nine-judge bench of the Supreme Court of India delivered its judgment in State of U.P. v. Jai Bir Singh⁴ (“Jai Bir Singh case”) and resolved a nearly five decade-long interpretive controversy surrounding the definition of “industry” under Section 2(j) of the ID Act. In this case, the Supreme Court proposed a refinement of the third limb of the triple test by requiring the goods or services to possess a “discernible commercial character analogous to trade or business”. The Court however reiterated that the existence of a profit motive is not determinative and emphasised that the nature and character of the activity, rather than its label is relevant. Importantly, the Supreme Court did not interpret the corresponding definition of “industry” under the IR Code and held that the IR Code is an independent enactment and that Section 2(p), which defines “industry” under the IR Code, must be interpreted independently having regard to its own text, scheme and object.

2.Definition of Wages and Worker

The term ‘workman’ defined under the ID Act has been replaced with the term ‘worker’ under the IR Code with the latter adopting a much broader approach. Under Section 2(s) of the ID Act, a ‘workman’ included a person employed in any industry to perform “manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward”, subject to the exclusions prescribed therein. However, the IR Code, defines ‘worker’ more broadly to include persons employed in these categories as well as ‘working journalist’ and ‘sales promotion’ employees. Under the IR Code, the wage ceiling applicable to a ‘worker’ employed in a supervisory capacity has been enhanced from INR 10,000/- (Rupees Ten Thousand) (as provided under the ID Act) to INR 18,000/- (Rupees Eighteen Thousand) per month, or such other amount as may be notified by the Central Government from time to time.

3. Retrenchment, Lay-off and Closure

The definition of ‘retrenchment’ under the IR Code mirrors the corresponding provision under the ID Act, with a clarification that the termination of service of a ‘worker’ upon the expiry or completion of a fixed-term employment⁵ contract will not constitute retrenchment. While the substantive framework governing lay-off and closure remains the same as earlier provided under the ID Act, the IR Code enables the appropriate Government to prescribe a higher quantum of retrenchment compensation.

A significant change introduced by the IR Code relates to increasing the threshold for obtaining prior approval of the appropriate Government before effecting lay-offs, retrenchment or closure in factories, mines and plantations. Under the ID Act, such prior approval was required for industrial establishments employing 100 or more workers. The IR Code increases this threshold to 300 (three hundred) or more workers, while also empowering the appropriate Government to notify a higher threshold.

4. Strikes

While the ID Act required prior notice of a strike only in respect of public utility services, the IR Code extends this requirement to all industrial establishments.

In addition, the IR Code prohibits strikes and lock-outs during the pendency of conciliation proceedings and for a period of 7 (seven) days following their conclusion. This prohibition is now further extended to the pendency of arbitration proceedings and proceedings before a tribunal or a national tribunal and for 60 (sixty) days after the conclusion thereof. Strikes and lock-outs are also barred during the subsistence of any settlement or award, insofar as they relate to matters covered by such settlement or award.

5.Standing Orders

The provisions relating to standing orders, which regulate conditions of employment, are now uniformly applicable to all industrial establishments employing 300 (three hundred) or more workers. This is a departure from the earlier regime, under which differing thresholds of 50 or 100 workers applied across States and categories of establishments. The appropriate Government however retains the power to grant exemptions to specified establishments or classes of establishments.

Further, the standing orders that were duly certified and in operation prior to the commencement of the IR Code will be deemed to be certified under the IR Code, to the extent they are not inconsistent with the provisions of the IR Code.

6. Grievance Redressal Committee

The IR Code, in line with the ID Act mandates that every industrial establishment employing 20 (twenty) or more workers shall constitute one or more Grievance Redressal Committees (“GRCs”) for the resolution of disputes arising out of individual worker grievances.

While the concept of a GRC existed under the ID Act, the IR Code does away with the earlier exemption available to establishments that had an established grievance redressal mechanism in place. Further, an aggrieved worker may now prefer an application challenging the decision of the GRC directly before the conciliation officer, through the trade union, instead of preferring an appeal to the employer as required under the ID Act. This shift is expected to enhance the role of conciliation officers in the resolution of worker grievances.

7.Trade Union Relations

The IR Code introduces a framework for the recognition of trade unions by formalising the concepts of a ‘negotiating union’ and a ‘negotiating council’. Unlike the ID Act, which did not require employers to recognise trade unions, the IR Code makes such recognition mandatory and prescribes the various mechanism for recognising a union or negotiating council.

8. Worker Re-skilling Fund: Additional Liability for the Employer

One of the key reforms introduced by the IR Code is the establishment of a Worker Re-skilling Fund by the appropriate Government to provide financial assistance for the re-skilling and training of retrenched workers. Unlike the ID Act, which did not contain any such provision, the IR Code read with IR Rules mandates that, in cases of retrenchment, the employer must contribute to the Fund an amount equal to 15 (fifteen) days’ wages last drawn by each retrenched worker, or such other number of days’ wages as may be notified by the Central Government. Such contribution is required to be made within 10 (ten) days from the date of retrenchment.

Further, the employer is required to submit to the office of the Chief Labour Commissioner (Central) the details of the retrenched workers, including their names, the amount contributed in respect of each worker and their bank account details. The amount contributed to the Fund is thereafter electronically transferred by the office of the Chief Labour Commissioner (Central) to the bank account of the retrenched worker within 45 (forty-five) days of retrenchment, enabling the worker to utilise the amount for re-skilling. This contribution is in addition to the statutory retrenchment compensation payable by the employer to the worker and applies only to retrenched ‘workers’ as defined under the IR Code which excludes employees employed in managerial or supervisory capacities.

9.Change in penalties

The IR Code introduces a revised penalty framework for various offences, departing from the approach adopted under the repealed labour legislation. By way of illustration, under Chapter V-B of the ID Act, contravention of provisions relating to the retrenchment of workmen was punishable with imprisonment for a term which could extend up to 1 month and/or with a fine which could extend up to INR 1,000 (Rupees One Thousand). Under the IR Code, the same contravention is punishable with a monetary penalty alone, with fines ranging from INR 1,00,000 (Rupees One Lakh) to INR 10,00,000 (Rupees Ten Lakhs) effectively raising the monetary liability but reducing the criminal prosecution and imprisonment.

Conclusion

The IR Code seeks to modernise India’s industrial relations framework by balancing flexibility for employers with enhanced protection for workers. While certain reforms, such as the increase in the threshold for obtaining prior government approval for lay-offs, retrenchment and closure, may reduce the regulatory burden on employers, the Code at the same time also introduces new compliance requirements, including mandatory recognition of trade unions and the contribution to the Fund. The employer’s obligation to contribute to the Fund, in addition to the statutory retrenchment compensation, increases the overall cost of retrenching employees falling within the category of ‘workers’.

With the Central rules now in force and States progressively notifying their respective rules, the implementation landscape is expected to continue evolving. Employers should therefore closely monitor State-specific developments and review their policies, employment documentation, standing orders (if applicable) and other industrial relations practices to ensure continued compliance with the new legal framework.

Endnotes

^[1] As of September 29, 2026, the states of Andhra Pradesh, Gujarat, Bihar, Lakshadweep and Arunachal Pradesh have notified their final rules under the IR Code, whereas other states have circulated their draft rules under the IR Code and have invited objections and suggestions from the public and stakeholders before their final notification.

² The IR Code has repealed the following central legislations: (1) the Trade Unions Act, 1926; (2) the Industrial Employment (Standing Orders) Act, 1946 and (3) the Industrial Disputes Act, 1947; along with their allied rules and orders.

³ (1978) 2 SCC 213

⁴ 2026 INSC 897

⁵ As discussed in Part 1 of this series, fixed-term employment is a concept introduced under the four Labour Codes and refers to the engagement of a worker for a fixed duration pursuant to a written contract of employment. A worker engaged on a fixed-term basis is entitled to: (a) the same wages, allowances, and other benefits as are available to a permanent worker performing the same or similar work; (b) statutory benefits applicable to permanent workers on a proportionate basis, irrespective of whether the period of employment satisfies the minimum qualifying service prescribed under the relevant statute; and (c) gratuity, where such worker renders service for a period of 1 year.

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