Employment disputes of lock in period are arbitrable – Arbitration Act, 1996?
Judgment dated 11.7.2024 of the High Court of Delhi in ARB.P.1210/2023 of Lily Packers Private Limited Vs. Vaishnavi Vijay Umak with connected matters.
Important questions of law arose for consideration and decision of the Delhi High Court
Whether the disputes relating to the lock in period in employment contracts are arbitrable in terms of the Arbitration Act, 1996?
Whether the lock in period in employment contracts is violative of the fundamental rights of the employees enshrined in the Constitution of India?
The petitioner – Employer Company filed applications for appointment of Arbitrator as per the Service Employment Agreement of different dates. The petitioner is engaged in the manufacturing and trading of corrugated packaging, sourcing, outsourcing of materials by way of hiring.
The agreement provided for (i) lock in period of employment for 3 years, (ii) that the employee will not work directly or indirectly for any other person, firm, company or organization, (iii) confidentiality clause & intellectual property clause and (iv) protection of data.
The Service Agreement provided for arbitration clause for dispute resolution.
The respondents – employees opposed the application on the ground that the disputes are not arbitrable, the clauses in question are violative of fundamental rights of the employees and therefore, they are not arbitrable.
It was contended that clause in respect of lock in period of employee is violative of Article 19 of the Constitution of India and also Section 27 of the Contract Act.
HELD that the fixation or prescription of lock in period in employment contracts merely means that the employee would serve the employer for a certain period. In employment. In employment contracts, the terms which the employees agree to, such as, the lock in period, pay fixation, emolument benefits, etc; are usually the subject matter of negotiation. Such clauses in an agreement are usually decided upon voluntarily, as also such employment contracts are entered into by the parties by their own individual consent and volition.
Disputes relating to lock in period in the Employment Service Agreement that apply during the subsistence of employment contracts are arbitrable in terms of the Arbitration Act, 1996.
It is also to be noted that such clauses in employment contracts may in fact be necessary for the health of the employer institution as it provides the required stability and strength to the employer institution and its frame work. Lock-in periods in employment contracts are especially prevalent at the executive levels in the trade and industry and are considered necessary for the purpose of stability and continuance of the employer organization. It also reduces the employee attrition levels.
The employees during the term of the contract were bound by other employment conditions such as the confidentiality clause, data protection clause, salary and benefits, etc. However, the employees sought to terminate their employment on their volition before expiry of agreed term of three years.
