This article is written by Pragati Yadav who is pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from Lawsikho.
Table of Contents
Arbitration is a process in which a dispute is referred, by consent of the parties, to one or more arbitrators who make a final decision on the dispute. In choosing arbitration, the parties opt for a confidential dispute resolution system instead of going to court.
In a number of ways arbitration varies from other forms of dispute resolution and some of the main aspects are listed below. Arbitration results in a final binding on the parties and enforceable against the losing party. There are certain things that need to be remembered while signing an Arbitration Agreement which is discussed in detailed in this article.
The article has been divided into five parts. Part I of this article will provide the introduction and meaning of “Arbitration Agreement’’. Part II provides the purpose and when one will enter into such agreement and why? Part III provides the necessary ingredient of Arbitration Agreement. Part IV provides the law & jurisprudence of Arbitration Agreement. Part V provides the conclusion of this article.
Meaning of Arbitration Agreement
The arbitration agreement usually lays the basis for arbitration. Identified as an agreement to arbitrate present or future disputes. Two main forms of this generic term include:
- a) A clause in a contract under which the contracting parties agree to arbitrate disputes which may occur in connection with that contract (arbitration clause); or
- b) An agreement by which the parties to a dispute that has already arisen submit the dispute to arbitration (submission agreement).
The arbitration provision would usually state that binding arbitration would apply to any disputes occurring in the larger contract. Often a contract will state that it will arbitrate only such conflicts.
Only the agreement will tell how the arbitration will be performed. This may prescribe the rules of arbitration, such as the rules of the American Arbitration Association (AAA), Singapore International Arbitration Centre (SIAC), Mumbai Centre for International Arbitration (MCIA) which may state that there should be one arbitrator or a group of arbitrators. The Agreement may also determine how to select the arbitrator.
Purpose of Arbitration agreement
To minimize costs and improve the conflict settlement process, companies often ask their clients and employees to sign an arbitration contract. And, sadly, since arbitration clauses frequently appear as “fine print” in lengthy standard contracts, people frequently sign arbitration agreements without knowing that they’re signing.
When will one enter such an agreement with one’s Employer and Why?
This is common for workers to be given stacks of paperwork to sign, and when they are new to their jobs, they also unintentionally sign arbitration agreements. The advancement, liberalization and globalization of international business relations required the development of a flexible, rational, beneficial and time-saving form of conflict settlement without requiring the parties to go through the lengthy, time-consuming and resource-exhausting procedure of the traditional justice system. One enters into an agreement with one’s Employer because of:
a) Minimization of court intervention
b) Reduction in costs of dispute redressal and resolution
c) Expeditious and timely disposal
d) Enforcement of awards through neutrality of arbitrator
e) Encouragement of foreign investment by recognizing the country as that having a sound legal framework
f) Effective conduct of and maintaining sound foreign relations
During these modern days, all of these have increased the need for arbitration.
Necessary ingredients of Arbitration Agreement
Unfortunately, your choices may be very limited if your boss asks you to sign an arbitration agreement. Courts have historically allowed employees to make a condition of employment or continued employment for the signing of an arbitration agreement. In other words, if you refuse to sign an arbitration agreement, it’s legal for the boss to reject a job offer. However, if you’re working at will — as the vast majority of workers are — your employer could fire you for refusing to register. And, if you don’t sign the agreement you can be putting your work at risk.
You can be able to negotiate some changes to the deal, if your employer is very keen to keep you there. In that case, you should read the agreement carefully. A typical arbitration agreement requires you to give up your right to sue your employer in court for a violation of your workplace rights. Instead, you decide by arbitration to settle these claims: a private, less formal process in which there is no jury and you have almost no right to appeal the decision. While several workers sign arbitration agreements immediately without giving them much thought, the decision will come back to haunt you if your employer breaks the law.
- Choice of arbitrator – When selecting the arbitrator, you should be given as much control as the employer. Given the arbitrator ‘s power, and given that you probably won’t be able to appeal the arbitration decision, you’ll want to have equal rights to your employer’s when choosing the arbitrator. You and the employer should be able to refuse at least one arbitrator, without giving a reason.
- Disclosure of information – A prospective arbitrator should be expected to reveal information about his or her business and personal interests to ensure that the arbitrator is not biased in the employer’s favour. The arbitrator, for example, would not be someone who is a stockholder of the company. You and the employer would be able to fire any arbitrator with a conflict of interest.
- Costs of arbitration – If the employer is the one that chooses to use arbitration proceedings then anything that costs money in the proceeding should be borne by the employer.
- Remedies available – Be sure you will seek all the relief you would have received by arbitration if you had lodged your lawsuit in a court of law. The agreement does not forbid you, for example, from seeking punitive damages or damages for emotional distress.
- Attorney representation – During the arbitration process you will have the right to be represented by an attorney.
Law and Jurisprudence of Arbitration Agreement
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 a written agreement. In the case of employees not falling under the workmen, referral to arbitration can be voluntary again by written agreement between employees and employer. The employers are gradually incorporating these arbitration provisions into the employment contract in order to settle potential workplace disputes.
Where there is or is apprehended some industrial dispute between the employer and employees, they may refer the dispute to arbitration by written agreement at any time before the dispute has been referred to the Labor Court or the National Tribunal.
It is imperative to note that two high courts addressed the question of the arbitrability of industrial and labor disputes and found that they were not arbitrable under the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Such decisions also challenged the increasing trend of incorporating arbitration clauses into 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 initiated in a specially appointed Labour Court by pilots and other staff members to recover unpaid wages and other pay benefits. In citing Section 8 of the Arbitration and Conciliation Act 1996, Kingfisher Airlines challenged the jurisdiction of the Labour Court, seeking recourse to arbitration in terms of their employment agreements Upon dismissal of the Labour Court’s appeal, Kingfisher Airlines moved the Bombay High Court, which reaffirmed the Labour Court’s order and held that claims under the ID Act are not arbitrable under and by extension under the Arbitration Act, and where it is arbitrable, it must be in accordance with the requirements and proceedings under the ID Act.
A similar issue arose a few years later in Rajesh Korat v. Innoviti. In this case, a request for referral to arbitration was permitted according to the terms of their arbitration agreement. The court held that, under the ID Act, there are clear public policy reasons for resolving labour and employment disputes exclusively by courts and tribunals and that it is a self-contained code and, to that degree, the Arbitration Act does not extend to matters regulated by the ID Act. While it does not discuss this issue directly, the case clearly endorses the presumption that any settlement of labour disputes will have to comply with the ID Act procedure and not the Arbitration Act procedure.
Having addressed the role for workers, it is necessary to see the legal situation for employees who do not fall into the category of workmen. Pursuant to their employment agreements, workers in the non-worker group can agree to private arbitration. Such arbitration provisions must, inter alia, meet the requirements of Section 7 of the Arbitration Act. However, from a realistic viewpoint, the employer in an employer-employee relationship is on a higher, more advantageous footing and this may impact the outcome of arbitration proceedings.
If a consumer contract involves a binding arbitration agreement, it is important that the customer recognizes this fact before signing the contract or approving it. Consumers will read all the agreements carefully before signing them to find out whether there is a binding arbitration clause in the contract. Consumers may also read updates or addendums of already signed contracts and can add an arbitration clause to an existing contract. If the consumer has that knowledge, he or she will make an informed decision about signing the contract or not.
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