This article has been authored by Sarthak Mishra, a 3rd-year B.A., LL.B. (Hons.) student at National Law University, Jabalpur
Introduction
It’s fast, cheap, and private, which is why arbitration has become the top choice for handling disputes in business dealings. Its relevance is still murky, however, when it concerns a sector as important as labour and industrial relations. Even so, the question of whether these disputes can be solved through arbitration is complex as it involves a compromise between the legal rights vested upon workers by labour laws and individual freedom. Examples of industrial disputes are boundless, but the more common ones include conflicts that arise between employers and employees at the unilateral determination of hire, unjust dismissal, and unfair bargaining and labour agreements. For the most part, labour legislation in various nations have provisions designed to uphold the interests of workers because there is an inherent imbalance in bargaining power between the employer and the employee. The questions are still, can these disputes be referred to arbitration and to what extent can the statutory law be ignored by the arbitral tribunals?
Indian jurisdiction on arbitrability of labour disputes
In India the most important statute dealing with labour disputes is the Industrial Disputes Act, 1947 (ID Act), which created the framework of the law. The Act specifies processes including but not limited to voluntary arbitration, conciliation, and labour court and industrial tribunal adjudications. As per section 10A of the ID Act, parties can voluntarily submit disputes for arbitration, however, there are legal limitations on the scope and enforcement of such arbitration. The Supreme Court of India has held many times that matters of social justice and public policy or for a right in statute cannot be resolved solely by private arbitration[1].
At issue here is the fact that industrial disputes involve not only the parties to the conflict but the entire workforce as well as society in general. Because Indian labour law is infused with welfare principles intended to protect the weakest sections of society, courts have been reluctant to allow private arbitration to override statutory processes. Several of them have contributed to the development of jurisprudence in India on the scope of arbitrability of industrial disputes. The Supreme Court laid down the law in Booz Allen & Hamilton Inc. v SBI Home Finance Ltd. v. 2011)[2] that it is possible to arbitrate disputes that concern private rights, known in law as rights in persona, but it is not possible to arbitrate disputes that concern public rights, known in law as rights in rem. This differentiation has been made with respect to industrial relations by holding that, because they pertain to social rights, disputes arising from collective bargaining agreements and statutory provisions are not arbitrable. In the same manner, the Supreme Court ruled that issues concerning the new entitlements that arise out of the labour law should be determined by the appropriate labour courts and tribunals, and not through privatized arbitration.[3] This judicial reasoning is consistent with the proposition that industrial conflicts should be resolved through labour laws instead of arbitration agreements, which lack the wider social context.
International view on arbitrability of labour disputes
Various views on the arbitrability of employment issues can be seen in the comparison of different foreign jurisprudence systems. Disputes concerning employment relations have rapidly developed in arbitration practice in the US after the Federal Arbitration Act (FAA) came into effect. Arguably, the outcome is consistent with the sovereignty of American contracting – U.S. courts have come to enforce arbitration provisions in employment contracts. As per the primary view of Gilmer v. Interstate/Johnson Lane Corp. (1991)[4], it is possible to arbitrate statutory employment disputes, but only where a specific agreement allows for arbitration. A lot of debate revolves around whether employees – especially low-wage earners – are actually given the discretion to decide whether or not to accept such arbitration clauses in light of the power differences within the employer-employee hierarchy.
On the other hand, the European Union (EU) tends to be opposed to the expansion of employment dispute arbitration. To ensure adequate protection of their workers, some member states of the EU pay significant attention to the role of labour tribunals in adjudicating such issues. For example, in France, a prevailing rule is that labour disputes are non-arbitrable unless one is dealing with high-ranking executive personnel who are considered to possess significant bargaining power.
Especially when it comes to accusations of discrimination or wrongful dismissal, there is a certain reticence in the courts to allow arbitration to displace any statutory remedies. Chesterfield Poultry Ltd v Secretary of State for Business, Innovation, and Skills[5], heard in 2011, emphasized that arbitration agreements that would infringe upon employees’ statutory protections cannot be used to do away with statutory employment rights[6].
Analysis
Arbitration and employment contracts’ judicial side is also a matter of research in India. Arbitration clauses are typically one of the contracts in business deals but if the common method would be applicable to the employment contracts is still a matter of debate. In K.K. Modi v. K.N. Modi (1998)[7] the apex court laid down that a place where statutory remedies are offered, in the mere presence of an arbitration clause issue cannot be arbitrable in the case. Vidya Drolia vs. Durga Trading Corporation of 2020[8] also presented the Court on this matter, with its main verdict that the disagreement of special legislation or the public rights should be settled by the statutory system and not by arbitration.
The very disputable subject, the appropriateness of arbitration clauses in cases concerned with unfriendly labor tactics or wrongful dismissal, is likewise another significant matter of concern in job arbitration. Courts gave repeatedly the justice in a case where arbitration clauses, which are included by employers in employment contracts in order to avoid obligations under the statute, contain provisions that are in conflict with the law. Referring to the verdict of the Supreme Court in a judgment dated Jagdish Chander v. Ramesh Chander (2007)[9], the application of the arbitration clauses in the contracts cannot invalidate the statutory provision ensuring the rights of employees.
Way Forward
The increasing use of arbitration in employment contracts, particularly by multinational corporations, aligns with international standards like SIAC and ICC. However, its enforceability in India is subject to judicial scrutiny and labor laws despite the pro-arbitration stance of the 2015 amendment to the Arbitration and Conciliation Act. Balancing efficiency with worker protections is crucial, potentially through specialized employment arbitration procedures akin to UK tribunals. While arbitration is prevalent in the U.S., statutory adjudication is favored in the UK and EU. India must develop a balanced framework that incorporates arbitration while safeguarding labor rights through legal oversight and judicial review.
References
[1] Industrial Disputes Act, No. 14 of 1947, § 10A, Acts of Parliament, 1947 (India).
[2] Booz Allen & Hamilton Inc. v. SBI Home Fin. Ltd., (2011) 5 S.C.C. 532 (India).
[3] Gujarat Elec. Bd. v. Hind Mazdoor Sabha, (1995) 5 S.C.C. 27 (India).
[4] Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).
[5] Chesterfield Poultry Ltd v. Sec’y of State for Bus., Innovation & Skills, [2011] U.K.S.C. 31.
[6] Employment Rights Act 1996, c. 18, § 203 (U.K.).
[7] K.K. Modi v. K.N. Modi, (1998) 3 S.C.C. 573 (India).
[8] Vidya Drolia v. Durga Trading Corp., (2020) 17 S.C.C. 366 (India).
[9] Jagdish Chander v. Ramesh Chander, (2007) 5 S.C.C. 719 (India).