This article has been written by Nikita Singh pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement from LawSikho.
This article has been edited and published by Shashwat Kaushik.
Table of Contents
Introduction
In today’s fast-changing world, ADR has become a necessity, as people don’t have time or patience for a lengthy resolution process like the traditional litigation system. Inversely, ADR has gained a lot of popularity because it is a less time-consuming, cheaper, confidential, and flexible alternative to litigation. Employment disputes, which have become almost inevitable, also use ADR to resolve them. Employment disputes can arise for many reasons, such as workplace harassment, unlawful termination, breach of contract, or any other conflict. All of these issues may have a negative impact on productivity and the overall workplace environment, and to resolve them quickly and confidentially, both the employer and the employee prefer to use ADR. So, what exactly is ADR, and how does it help resolving employment disputes?
ADR refers to a set of techniques or methods used to resolve disputes or disagreements outside the courtroom. Compared to traditional litigation systems, ADR is a cheaper, flexible, confidential, and less time-consuming process, which makes it desirable for speedy and cost-effective resolution. In this article, we will discuss the role of ADR in employment disputes, its methods, and the advantages and disadvantages of each.
What is ADR
Alternative Dispute Resolution (ADR), also known as External Dispute Resolution, refers to alternative methods to resolve disputes outside the courtroom. It functions as a substitute for the traditional litigation system. These methods usually involve a third party, who helps them settle the disputes. Arbitration, conciliation, mediation, and negotiation are the common forms of ADR; they are cost-effective, faster, and flexible alternatives to litigation. ADR is a mechanism of dispute resolution that is non adversarial, i.e., working together cooperatively to reach the best resolution for everyone. These methods help individuals in resolving conflicts and reaching a mutually acceptable solution. Each of these methods facilitates settlement in a unique way, with benefits and drawbacks depending on the nature of the conflict and the people involved.
Methods of ADR used in employment disputes
Arbitration
Arbitration is one of the most common forms of ADR used in employment disputes. An employment agreement usually includes an arbitration clause delegating the resolution of conflicts through arbitration rather than litigation. In arbitration, the parties appoint a neutral third party, known as an arbitrator or panel of arbitrators, and they agree to abide by the arbitrator(s) decision. Arbitrators are experts in their field or in the subject matter of the dispute they’re resolving, providing knowledgeable insights into the case. The arbitrator hears both parties’ arguments, examines their evidence, and, based on that, passes its decisions. The decisions of an arbitrator are called arbitral awards, and they are binding on both parties.
Advantages of using arbitration
Confidential
Arbitration is also a confidential process. The parties choose arbitration as a means of resolving their disagreement for a number of reasons, one of which is that it is a private and confidential process. The standard court system is open to everyone, but arbitration keeps things private. Parties can keep sensitive information and dispute details private in arbitration’s confidential setting.
Faster resolution
The traditional litigation system is a lengthy and time-consuming process; it can take up to months or even years to get fully resolved. In contrast, arbitration is a short and less time-consuming process that resolves disputes or disagreements within a few days or weeks.
Cost effective
Another advantage of arbitration is that it’s cost-effective, i.e., it’s a lot cheaper than traditional litigation systems. A traditional litigation process is rigid and goes on for a long period and includes constant payments such as court fees, attorney fees, and other fee-related payments. As arbitration doesn’t go on for a long period and gets resolved quickly, thus requires a smaller amount of money.
Expertise
Arbitrators are experts in their field or the subject matter of the dispute they are resolving, offering valuable insights into the case. Having a thorough understanding of the subject matter is important in order to make well-informed and accurate decisions when resolving disputes.
Disadvantages of using Arbitration
Lack of precedent
One major drawback of arbitration is the lack of legal precedent. Arbitration awards, in contrast to court decisions, do not set legal precedents for future cases. Given that arbitrators make their judgements independently, it is possible for inconsistencies to arise when resolving identical conflicts without considering case law.
Limited remedies
Arbitration offers limited remedies compared to traditional litigation. Arbitration might restrict the types of remedies or relief available, potentially limiting the ability to obtain comprehensive compensation or equitable relief, such as injunctions or specific performance. This limitation can be particularly disadvantageous in complex disputes requiring more extensive or non-monetary relief.
Might be costly
People often perceive arbitration as a cost-effective alternative to litigation, but it can occasionally be expensive. Arbitration expenses include not only arbitrator fees, but also administrative charges imposed by arbitration institutions and legal representation fees. These expenses can be quite challenging for individuals who are already facing financial difficulties.
Limited grounds for appeal
Arbitration awards are typically final and binding, with very limited grounds for appeal. Typically, only arbitrator misconduct or procedural irregularities allow parties dissatisfied with the arbitration awards to challenge the decision. This limited scope for appeal can be problematic if a party believes the arbitrator’s decision was unjust or incorrect.
Conciliation
Conciliation is also one of the ways of settling employment disputes outside the courtroom. The parties appoint a conciliator, a neutral third party, to hear and decide their disputes. The main function of a conciliator is to assist the parties in reaching an amicable settlement. In contrast to arbitration, where the arbitrator’s decision binds the parties, conciliation allows the parties to remain unbound by the conciliator’s decision. If they are dissatisfied with the decision, they will reject it. If they agree, the conciliator may assist them in creating a legally binding settlement or agreement.
Advantages of using conciliation
Confidential
Conciliation is a private and confidential process. Unlike court processes, which are public and can put sensitive information about the parties on public display, conciliation takes place in a private setting. This means that everything said during the conciliation process stays secret, allowing parties to keep their disagreements private and out of the public eye.
Enhanced cooperation
Conciliation allows the parties to work collaboratively rather than competitively. Parties can effectively resolve disputes and preserve their relationships through conciliation, preventing further damage. Keeping these relationships intact can lead to future chances to work together and help each other.
Control over outcome
Conciliation offers the advantage of controlling the outcome of disputes, in contrast to the traditional court system where the decision of a judge is final and binding. In conciliation, a conciliator aids the parties in achieving a mutually acceptable resolution but does not impose a decision; the parties are free to accept or reject the proposed solution.
Faster resolution
Faster resolution is another significant advantage of conciliation. The traditional litigation system is a lengthy and time-consuming process; it can take up to months or even years to get fully resolved. On the other hand, conciliation is a brief and less time-consuming process that resolves disputes or disagreements in a matter of days or weeks
Disadvantages of using Conciliation
Imbalance of power
In employment disputes, there can be a significant power imbalance between the employer and the employee. Conciliation may not fully address this imbalance, as the conciliator’s role is just to facilitate communication rather than advocate for either party. This can result in outcomes that favour the more powerful party, especially if the conciliator does not effectively address power imbalances.
Non-binding nature
Another drawback of conciliation is the non-binding nature of its outcome. In conciliation, the parties are not bound by the decision or suggestion of the conciliator; parties have the right to reject the resolution if they are not satisfied with it. Thus, any agreement reached through conciliation is not legally enforceable unless both parties voluntarily adhere to it.
Conciliator’s limited authority
Conciliation involves a conciliator who works to help the parties find a mutually acceptable solution. The conciliator lacks the authority to enforce decisions or impose outcomes, unlike a judge or arbitrator. If the conciliator’s efforts do not lead to an agreement, the parties might have to move on to other ADR processes or litigation, potentially extending the time frame and increasing costs involved in resolving the dispute.
No guarantee resolution
Conciliation is designed to encourage the parties to find common ground and reach a mutually agreeable solution with the help of a conciliator who actively works to bridge differences. However, if conciliation does not lead to an agreement, the parties may have to escalate the dispute to more formal ADR processes or litigation, potentially leading to additional delays and expenses in resolving the matter.
Mediation
Mediation is also one of ADR’s methods. It is a less formal and more flexible method. A neutral third party, called the mediator, assists the parties in reaching a mutually acceptable solution. A mediator doesn’t pass any decision; he helps the parties to negotiate with one another and reach an amicable solution. The objective of a mediator is to achieve a win-win outcome by addressing the interests and requirements of both parties. If the parties come to an understanding during mediation, the mediator may help to write a formal agreement. This agreement is generally voluntary and signifies the mutual comprehension of both parties.
Advantages of using mediation
Economical and faster resolution
Mediation is a cheap and speedy resolution process. Unlike litigation, which can drag on for months or even years, ultimately leading to significant legal fees associated with it, mediation resolves disputes within a few days or weeks, providing an economical and speedy resolution.
Flexible
Mediation is a less rigorous and more flexible method of ADR. Mediation provides parties with the flexibility and autonomy to select any location and time for the meeting, as well as to customize the process to their specific needs. This flexibility enables the mediation process to be more accessible by accommodating a variety of preferences and circumstances.
Enhance cooperation
In mediation, the parties have active participation with the mediator to reach a mutually agreeable solution. Mediation provides a cooperative environment rather than a hostile one. This cooperative environment facilitates reaching a desired solution while maintaining the relationship of the parties.
Control over the outcome
The mediation process provides substantial control over the outcome of the dispute. Unlike the traditional litigation system, where the court’s decision is final and binding, in mediation the parties themselves determine the outcome of the dispute, while the mediator just facilitates cooperation between the parties and provides a potential solution.
Disadvantages of Mediation
No guarantee resolution
Mediation doesn’t guarantee resolution of the dispute, as it is a non-binding process. This process is entirely based on the voluntary cooperation of the parties. If both parties do not come to a mutually agreeable solution, then the whole process of mediation becomes useless, and they have to opt for a different method of ADR or litigation to resolve disputes.
Mediator’s limited authority
In mediation, the mediator’s role is to facilitate communication and negotiation between the parties to help them reach their own agreement. The mediator does not have the authority to impose decisions or make binding rulings. If mediation does not result in a resolution, the parties may need to consider other dispute resolution methods or litigation, which can lead to increased time and costs.
Limited legal protection
Parties to a dispute have limited legal protection in mediation as it is an informal process. While court proceedings are strict, they provide protection and safeguard the interests of the parties. Mediation may not be able to provide the same level of protection as litigation. The power imbalance between the employer and employee often covers the employee’s interest in employment disputes.
Non-binding nature
Another drawback of mediation is the non-binding nature of its outcome. In mediation, the mediator does not have any authority to impose his decisions; instead, he relies entirely on the voluntary cooperation of the parties. Thus, any agreement reached through mediation is not legally enforceable unless both parties voluntarily adhere to it.
Negotiation
Negotiation refers to communication and discussion between parties to reach a mutually agreeable solution. It is almost always the first step in resolving disputes, and it involves voluntary communication between the parties; only when negotiation fails, parties opt for another technique to resolve the dispute. In negotiations, the parties themselves, or with the help of a negotiator, have a series of conversations to try to resolve the disagreement and reach a mutually agreeable solution. Negotiation is an informal, cheap, flexible, and efficient way to resolve disputes. Unlike the rigid structure of court proceedings, negotiation brings the parties face-to-face for direct discussions, allowing them to work together to find a resolution that suits everyone’s needs.
Advantages of negotiation
Cost effective
Negotiation is a much cheaper option than litigation or arbitration, as it does not involve any court fee or legal representative fee. Since negotiation is an informal setting and can be resolved quickly, the overall expenses are typically reduced.
Flexible
Negotiation is nothing but discussion between the parties; it’s an informal process, and the parties are provided with great flexibility as to the time, location, and even process of the negotiation; everything is decided by the parties themselves in accordance with their needs.
Control over outcome
Negotiation provides the parties with a great deal of control over the final outcome. Unlike litigation or arbitration, where the final decision of the authority is binding on the parties, negotiation allows the parties to reach a mutually agreeable solution that caters to both parties interests.
Enhance corporation
Negotiation encourages open communication and cooperation between parties. This cooperative approach can help in reaching a mutually agreeable solution as well as preserving positive relationships between employer and employee.
Disadvantages of using negotiation
Lack of expertise
In negotiation, the parties themselves try to resolve the disagreement through a series of communication and discussion. If the parties lack expertise in negotiation, they might struggle to effectively communicate their needs and interests, which might delay the process.
Emotional factor
Negotiation requires logical and practical discussion between the parties so they can reach a win-win situation. However, sometimes the personal or emotional issue of the parties might get in the way of negotiation: making the whole process challenging.
Lack of formal mechanisms for resolution
Negotiation completely relies on the parties to reach and agree to a resolution, unlike litigation or arbitration, where the authority makes the decisions that are binding on the parties. If parties fail to reach a decision then the whole negotiation process would be worthless.
Difficulty in addressing complex issues
In disputes of complex nature, negotiation may not be as effective or useful as litigation or arbitration. Complex disputes may require expert knowledge, which the parties might lack. This can stall the resolution process, and the party might end up spending more money and time on it.
Legal framework for ADR in employment disputes
ADR has played an important role in resolving disputes efficiently and amicably; it does not only aid parties to resolve disputes outside the court but also relieves the court from judicial burden. Various statutes and judicial precedents established the legal framework for ADR in India.
Code Of Civil Procedure (CPC)
Section 89 of the CPC talks about settlement of disputes outside the court through the mechanism of ADR. Section 89 of CPC provides that:
Where it appears to the court that there exist elements of settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and provide them to the parties for their observations. After receiving the parties’ observation, the court may reformulate the terms of a possible settlement and refer to an equivalent. The choices for outside the court settlement are between:
- Arbitration;
- Conciliation
- Judicial settlement including settlement through Lok Adalat; or
- Mediation.
Where a dispute has been referred-
- for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act;
- to Lok Adalat, the Court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;
- for judicial settlement, the Court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;
- for mediation, the Court shall effect a compromise between the parties and shall follow such procedure as may be prescribed
Arbitration and Conciliation Act, 1996
Arbitration and Conciliation Act, 1996 governs arbitration and conciliation in India. It aims to provide an effective and efficient dispute resolution mechanism outside the traditional court system. This Act is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. The Act provides a framework for the arbitration process, including the appointment of arbitrators, the conduct of arbitration proceedings, the jurisdiction of arbitral tribunals and the enforcement of arbitral awards. It also covers conciliation, providing guidelines for the conciliation process.
Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947 governs employment disputes in India and aims to protect the interests of employees/workers. It encourages the use of ADR methods to resolve employment disputes. It recognises arbitration and conciliation as effective mechanisms for resolving employment disputes. Under the Act, the government can appoint conciliation officers or the Board of Conciliation to mediate disputes between employers and employees.
Case laws
Kingfisher Airlines vs. Prithvi Malhotra and Ors.
This case involved the labour proceedings initiated by various staff members of the now discontinued Kingfisher Airlines for the recovery of unpaid wages and other salary benefits. While the staff instituted proceedings in the especially empowered labour courts, Kingfisher Airlines argued that the Court did not have jurisdiction because the employment agreement contained an arbitration clause. However, the application by Kingfisher Airlines to refer the case to arbitration was denied and the Labour Court retained jurisdiction over the proceedings.
Mayavati Trading Pvt. Ltd. vs. Pradyuat Deb Burman
In this case, the Supreme Court of India held that when parties agree to arbitrate disputes, the court’s role is limited to determining the existence of an arbitration agreement under Section 11(6A) of the Arbitration and Conciliation Act, 1996. The court should not examine the merits of the dispute during the appointment of an arbitrator.
MR Krishna Murthi vs. New India Assurance Co. Ltd.
In this case, the Supreme Court of India suggested that the government consider enacting an Indian Mediation Act to regulate mediation proceedings in the country. The Court also recommended amending the Motor Vehicles Act, 1988, to establish a Motor Accident Mediation Authority. Additionally, the Court directed the National Legal Services Authority (NALSA) to create a mediation cell to facilitate the resolution of such disputes.
Moti Ram (D) Tr. LRS & Anr. vs. Ashok Kumar & Anr.
In this case, the Supreme Court emphasised that mediation proceedings are inherently private and confidential. The Court ruled that the mediator should only submit to the court either a verified settlement agreement if mediation is successful or a statement indicating that the mediation was ineffective.
Conclusion
To conclude, Alternative Dispute Resolution (ADR) provides an effective solution for resolving employment disputes, providing a more cooperative and less adversarial approach than the traditional litigation system. By opting for methods like arbitration, conciliation, mediation, and negotiation, both employers and employees can work towards solutions that protect their interests while preserving their professional relationships. ADR not only saves the time and money of the parties but also offers the flexibility to tailor outcomes that align with need and interest. As workplaces continue to change, the role of ADR in employment disputes is likely to grow more, promoting environments where conflicts are addressed constructively with an emphasis on fairness and mutual respect.
