Arbitrability Of Labour Disputes: An Overview
The concept of arbitration, in recent times, has gained significant traction as a preferred form of dispute resolution. Such traction is primarily because arbitration, with its multitude of benefits such as the speedy resolution of disputes, the autonomy of the parties to streamline the dispute resolution process basis their consent and budgeted expenditure, amongst others, has resulted in becoming extremely convenient for dispute resolution. However, the process of arbitration requires occasional checks and balances to ensure that there are no shortcomings while a dispute is adjudicated, as the validity and the value of an award passed in an arbitration corresponds to a judgment passed by any of the courts.
The Arbitration and Conciliation Act, 1996 (Arbitration Act) was introduced to provide a structured legal framework for adopting arbitration as a dispute resolution mechanism, by laying down guidelines on how the process must be undertaken, along with providing safeguards to ensure that there is no misuse of the system. It must be noted, though, that the Arbitration Act does not categorise disputes that may be adjudicated by an arbitration forum. This was examined by the Hon’ble Supreme Court of India (Supreme Court) in the case of Vidya Drolia and Others v Durga Trading Corporation [Civil Appeal Number 2402 of 2019] (Vidya Drolia), wherein the court categorised disputes into arbitrable and non-arbitrable, through a four-pronged test. However, it is interesting to note that the arbitrability of labour disputes was not examined in detail by the Supreme Court in this case. This subject was examined in detail by the Hon’ble Bombay High Court in the case of Kingfisher Airlines Limited v Prithvi Malhotra [Writ Petition Number 2585 of 2012] (Kingfisher Airlines).
Through this article, we set out below the extant legal position on the arbitrability of labour disputes and explore options for dispute resolution in an employer-employee relationship.
Extant Legal Position and Analysis
The Supreme Court in the case of Vidya Drolia laid down the following four points to determine the arbitrability of any dispute:
While the factual matrix before the Supreme Court in Vidya Drolia did not pertain to a specific labour dispute, the Supreme Court referred back to one of its earlier rulings, Premier Automobiles Limited v Kamlekar Shantaram Wadke of Bombay and Others [(1976) 1 SCC 496] that dealt with the adjudication of labour disputes by emphasizing upon the existence of specialized forums of dispute resolution for such disputes. The Supreme Court was of the view that having a separate dispute resolution mechanism under the Industrial Disputes Act, 1947 (ID Act) impliedly ousts the jurisdiction of civil courts and also renders such matters to be non-arbitrable outside of the ID Act. By focusing on the intent of the legislature, the Supreme Court noted in this case, that as a special right, a judicial forum has been constituted to exclusively deal with the protection of the interest of workmen. The Supreme Court further opined that only labour courts and tribunals are designated to lay down “new industrial policy for industrial peace and order, or reinstatement of dismissed workmen”, which civil courts otherwise may not be authorized to do. Accordingly, it is a settled law that labour disputes must be adjudicated solely as per the mechanism provided under the ID Act and this aspect was addressed in detail in the case of Kingfisher Airlines.
The matter in the Kingfisher Airlines case was with regard to a few labour recovery proceedings brought forth by certain pilots and other members of Kingfisher Airlines. The dispute was being adjudicated by the specialized Central Government Industrial Tribunal-cum-Labour Court for non-payment of wages and other additional benefits. Here, Kingfisher Airlines challenged the jurisdiction of the Labour Court on the grounds of the existing arbitration clause in the employee’s employment agreements. This was rejected by the Labour Court and was further affirmed by the Bombay High Court when Kingfisher Airlines moved the Bombay High Court to review the decision passed by the Labour Court. The Bombay High Court held that arbitrability of disputes is not to be examined solely on the basis of whether the dispute is a right in rem or a right in personam, but it is important to assess whether the subject matter of the dispute is covered exclusively by a specific dispute resolution process. The court further cited strong public policy reasons to arrive at this conclusion by referring to the preamble of the Act and the scheme of resolution of labour disputes.
In another case of Rajesh Korat v Innoviti [Writ Petition Number 34537/2015 (L-TER)], the Karnataka High Court arrived at a similar conclusion as the Bombay High Court in the Kingfisher Airlines case, wherein it held that even if labour disputes are to be arbitrated upon, such a reference and the subsequent resolution has to be undertaken strictly as per the provisions of the ID Act and the Arbitration Act shall not take priority.
The Hon’ble Bombay High Court essentially focused on the public policy aspect of arbitration of labour disputes in the Kingfisher Airlines case and noted that in case a subject matter is required to be heard only by a forum which is vested with special powers of adjudication, then such subject matters must not take a different route of dispute resolution. However, for the sake of clarity, the courts in both the aforementioned cases did not hold that labour disputes cannot be arbitrated at all. The crux of these judgments is that labour disputes can be arbitrated, but the process and the guidelines for the same shall be governed by the ID Act and no other law can supersede the provisions of the ID Act.
The above rationale assumes significance also because of the unequal bargaining power between the two parties in terms of negotiation since the parties are not necessarily on an equal footing. However, it is imperative to understand that the crux of successful arbitration is to consider a situation where the parties in a dispute are on an equal footing and have equal bargaining power. Therefore, inserting an arbitration clause in such agreements where the potential of unequal bargaining power is very high, may not be valid, as the arbitration of any dispute will resultantly fail.
Arbitration Clause In Employment Agreements/Appointment Letters
While there is an embargo against the mode of adjudication of disputes vis-à-vis workmen under the ID Act (since it is restricted in terms of its applicability only to workmen), employers may adopt the arbitration route for dispute resolution for disputes pertaining to employees who are not workmen. The dispute resolution process through arbitration can be agreed upon with non-workmen by seeking their consent through employment agreements/appointment letters. However, it is imperative to ensure that such employment agreement/appointment letter is adequately stamped, as has been recently held by the Supreme Court in the case of NN Global Mercantile (Private) Limited v Indo Unique Flame Limited [Civil Appeal Number(s) 3802-3803 of 2020].
In view of the above, it is important for employers to consider undertaking a subjective assessment of the specific nature of the employees’ duties and responsibilities to ascertain his ‘workman’ status and accordingly assess whether arbitration can be adopted as a dispute resolution mechanism. This would ensure that the rights and obligations of the parties are safeguarded in accordance with the prevailing legal framework.
The views of the author(s) in this article are personal and do not constitute legal / professional advice of Khaitan & Co. For any further queries or follow up, please contact us at ergo@khaitanco.com.
