Whether Employment Disputes can be settled through Arbitration?
Arbitration is usually regarded as efficient, fair and cost effective mechanism to resolve disputes.
Section 10A of the Industrial Disputes Act 1947 (“ID Act”) contains provisions for employers and workmen to voluntarily refer their disputes to arbitration by entering into written agreement. In case of employees not falling within the category of workmen, reference to arbitration can be again voluntary through written agreement executed between the employees and employer. Increasingly, the employers are inserting such arbitration clauses in the employment agreements to resolve future employment disputes.
In reality however, in employer-employee relationship, the employer is usually on a stronger footing and this may affect efficacy of the arbitration to resolve employment disputes. Therefore, arbitration is still may not be a preferred way of resolving employment related disputes in India.
Voluntary reference to arbitration
Section 10A under the ID Act provides for voluntary reference of disputes to arbitration . Accordingly, where any industrial dispute exists or is apprehended between an employer and workmen, then they may, at any time before the dispute has been referred to a Labour Court or Tribunal or National Tribunal, refer the dispute to arbitration by entering into written agreement.
It is imperative to note that two High courts have been faced with the question of arbitrability of industrial and labour disputes and have come to the conclusion that they are not arbitrable under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). These judgments have also called into question the increasing practice of inserting arbitration clauses in employment agreements.
The issue of arbitration of labour disputes first arose in Kingfisher Airlines v. Captain Prithvi Malhotra and others. In this case, the proceedings were instituted by pilots and other staff members in specially empowered Labour Court for recovery of unpaid wages and other salary benefits. Kingfisher Airlines contested the jurisdiction of the Labour Court by invoking Section 8 of Arbitration and Conciliation Act 1996 seeking reference to arbitration in terms of their employment agreements. On rejection of the application by the Labour Court, Kingfisher Airlines moved the Bombay High Court which reaffirmed the order of the Labour Court and held that claims under the ID Act are not arbitrable under the Arbitration Act and by extension, and where it is arbitrable, it must be in conformity with the requirements and procedure under the ID Act.
A similar issue arose a few years later in Rajesh Korat v. Innoviti. In this case, an application for reference to arbitration was allowed as per the terms of their arbitration agreement. The court concluded that there are strong public policy reasons to resolve labour and employment disputes exclusively by courts and tribunals under the ID Act and it is a self-contained code, and to that extent the Arbitration Act, does not have any application to matters governed by the ID Act. Although it does not expressly address this issue, the case implicitly endorses the proposition that any arbitration of labour disputes would have to conform to the procedure under the ID Act and not the Arbitration Act.
Having discussed the position in case of workmen, it is important to see the legal position in case of employees who are not falling within the category of workmen. Employees in the non-workmen category may agree to private arbitration in accordance with their employment agreements. It is necessary that such arbitration clauses, inter alia, meet the requirements of Section 7 of the Arbitration Act. From a practical nuance perspective, however, the employer is on a stronger footing in an employer-employee relationship and this may affect the efficacy of arbitration proceedings.
Conclusion
Industrial disputes arising out of claims of workmen have to be governed by the ID Act. In case of non-workmen, they shall be governed by the arbitration clauses in their respective agreements. For reasons mentioned above, it would be advisable to prescribe a mediation mechanism for amicable resolution of employment disputes. In case of disputes which remain unresolved through mediation, the parties may resort to a formal court process to address employment disputes rather than resorting to arbitration.
The article is authored by Mr. Anshul Prakash, Partner and Mr. Parag Bhide, Principal Associate, Khaitan & Co
