Writing for the Court, Chief Justice Charles Evans Hughes began by establishing the constitutional bounds of the National Labor Relations Act, noting that it only targets labor practices that “burden or obstruct” interstate commerce. Hughes broadened the Court’s interpretation of the Commerce Clause by establishing the “close and substantial relation” test. Under this standard, Congress possesses the power to regulate activities that may be entirely intrastate or local in character (such as manufacturing), given that those activities have a “close and substantial relationship to interstate commerce.” This test replaced the Court’s prior strict distinction between “production” and “commerce”, shifting the focus to the actual economic effect of an activity rather than on a categorical label.

Hughes emphasized that protecting the right of employees to self-organize and collectively bargain is critical to preventing the “paralyzing consequences of industrial war” that disrupt the national economy. Hughes rejected the argument that manufacturing is entirely local and exempt from federal regulation, explaining that the fact that the employees were engaged solely in “production” is not determinative and that what matters is the effect the labor practice has upon interstate commerce. He further explained that Congress’ power to protect commerce is not strictly limited to the flow or stream of commerce.

Applying these principles to the case at hand, Hughes examined Jones & Laughlin Steel Corporation specifically, finding that because the company operated a massive, highly integrated, and “far-flung” national enterprise, any stoppage of its manufacturing operations due to industrial strife would have an “immediate” and potentially “catastrophic” impact on interstate commerce. Therefore, Jones & Laughlin’s labor practices, even if they are local, fell squarely within Congress’ regulatory power.