THE ARBITRABILITY OF EMPLOYMENT DISPUTES IN AUSTRALIA

In Reeves v Alt Advisory (Jersey) Limited and Alt Financial Group Limited [2023] VSC 249 (Reeves), the Supreme Court of Victoria has enforced a private binding foreign arbitral award (arbitral award) issued pursuant to an arbitration agreement contained in an employment contract. The Court, of its own motion (the respondent did not appear in the enforcement proceedings), opined that the award granting an employee’s claims for damages in respect of unpaid wages and housing costs did not give rise to any issues with respect to the arbitrability of the dispute.

However, it is important to note that not all arbitration agreements and awards concerning employment matters will be enforced in Australia. In particular, there is a distinction between the arbitrability of employment disputes in:

• Domestic arbitrations, where Australian courts have consistently concluded that arbitration agreements contained in domestic employment agreements, and arbitration awards concerning domestic employment disputes are not enforceable by Australian courts;
• International arbitrations legally located (seated) in Australia, where it is likely an Australian court would adopt a uniform approach to that for domestic arbitrations and find that arbitration agreements contained in international employment agreements, and arbitration awards concerning international employment disputes seated in Australia are not arbitrable; and
• Foreign arbitrations, which remains an unsettled area of law and which will likely turn on whether the agreement or award concerns employment matters within the jurisdiction of the Fair Work Commission, Australia’s industrial relations tribunal.

Domestic arbitration in Australia

In Australia, each State and Territory has its own, but substantially similar, legislation governing domestic arbitrations, collectively referred to as the CAAs (Commercial Arbitration Act 2017 (ACT); Commercial Arbitration Act 2010 (NSW); Commercial Arbitration (National Uniform Legislation) Act 2011 (NT); Commercial Arbitration Act 2013 (Qld); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration Act 2011 (Vic); Commercial Arbitration Act 2012 (WA)).

Arbitral proceedings will be ‘domestic’ if, amongst other things, ‘the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in Australia’. As both the title and section 1(1) of the CAAs make clear, only domestic arbitrations of a ‘commercial’ nature fall within their scope.

While section 1 of the CAAs states that ‘“commercial" should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not’ (consistent with international usage of that term in the context of international arbitrations), courts in Australia have consistently concluded that labour or employment disputes are not ‘commercial’ and are therefore not arbitrable matters under the CAAs: ASADA v 34 Players and One Support Person [2014] VSC 635 (Croft J), [56]-[57]; Tayar v Feldman [2020] VSC 66 (Lyons J), [123].

Underlying these findings appears to be a public policy rationale against arbitral encroachment on the jurisdiction of Australian courts and the Fair Work Commission (FWC). The courts could have reached the conclusion that the arbitration agreements in these domestic employment contracts are not enforceable on the basis that the disputes arising from them are not capable of resolution by arbitration as a matter of public policy (i.e., they are not ‘arbitrable’), and that may have been the more preferred reasoning as a matter of principle rather than reasoning based on the scope of what is ‘commercial’. Ultimately, though, it is settled that arbitration agreements contained in domestic employment agreements, and arbitration awards concerning domestic employment disputes will not be enforced by Australian courts.

International arbitrations seated in Australia

The position appears to be the same with respect to international arbitrations seated in Australia. International arbitrations are governed by the International Arbitration Act 1974 (Cth) (IAA). Under section 16 of the IAA, the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (Model Law) has the force of law in Australia. Under Article 1(3) of the Model Law, arbitral proceedings will be ‘international’ if, amongst other things, ‘the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States’.

As with the CAAs, the application of the Model Law is confined to ‘commercial’ arbitrations. We are unaware of any Australian court cases considering if employment disputes are ‘commercial’ disputes under the Model Law. However, given the identical language and arbitration-specific context in which it appears, it seems likely that Australian courts would consider themselves bound to adopt the same reasoning and approach to the construction of the same term under the CAAs and, on that basis, find that they are not ‘commercial’ disputes. Consequently, Australian-seated arbitration agreements contained in international employment agreements, and awards arising out of such agreements would not be enforced by Australian courts.

Enforcement of foreign arbitral awards in Australia

The statutory regime for the enforcement of foreign arbitration agreements and awards is contained in Part II of the IAA. Part II defines ‘foreign’ awards as those made ‘in pursuance of an arbitration agreement, in a country other than Australia’. It follows that even an arbitration agreement contained in an employment contract between an Australian employer and employee that provides for arbitration seated in another country will be ‘foreign’, as will any resultant award.

Part II contains no qualification that such foreign awards must be ‘commercial’ to be enforceable. Further, Australia was not one of the Contracting Parties to the New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards that included a reservation concerning ‘commercial’ disputes when it ratified the Convention. However, under section 8(7)(a) of the IAA, an Australian court can refuse to enforce a foreign award where it ‘is not capable of settlement by arbitration under the laws in force in the State or Territory in which the court is sitting’.

There is scope for diverging views as to whether foreign arbitration agreements and awards concerning employment disputes are capable of settlement under Australian law, which will likely turn on whether the agreement or award concerns matters within the jurisdiction of the FWC or not.

In Nesbitt v Dragon Mountain Gold Limited [2014] FWC 5383, the FWC refused to stay unfair dismissal proceedings pending the outcome of an Australian-seated arbitration initiated under an arbitration clause contained in the parties’ employment agreement. The FWC held that a domestic employment dispute was not commercial and therefore not arbitrable. The FWC stated further that it would not ‘endorse employers inserting in contracts of employment a clause which ousts its jurisdiction’ (at [29]).

By contrast, in the recent decision, Reeves, the Court considered that an employment dispute with no relevant Australian connection was arbitrable. Reeves concerned an employee based in Jersey (Channel Islands) seeking to enforce an arbitral award issued pursuant to an arbitral agreement contained in his employment contract with companies registered in Jersey and Australia, respectively. In this case, the Court stated at [23] that there was:

[N]othing in the material before the Court to suggest that it should refuse to enforce the Final Award on the basis of any finding under s 8(7) of the Act, either because the subject matter of the award is not capable of settlement under applicable law, or that would be contrary to public policy to enforce the Final Award.

Whilst the decision in Reeves appears to open the door for the enforcement of foreign arbitral awards concerning employment disputes in Australia, given the commentary in Nesbitt, it remains the case that if a foreign arbitration agreement or award deals with matters within the FWC’s jurisdiction as set out in section 576 of the Fair Work Act 2009 (Cth) (FW Act) (for example, unfair dismissal, general protections or bullying) there is a real risk that Australian courts might take the view that the agreement or award concerns a matter that is not capable of settlement by arbitration. This would prevent employers from ‘forum shopping’ by seeking to arbitrate employment disputes in another country.

For example, while a foreign arbitration agreement or award dealing with a claim against a non-executive director based in Australia for breach of a restrictive covenant (such as a non-solicitation or non-compete clause) is likely to be arbitrable (because restrictive covenants are not within the FWC's jurisdiction_, a workplace sexual harassment claim against the same individual may be considered non-arbitrable on the basis that prohibiting workplace sexual harassment falls expressly within the FWC’s jurisdiction (section 576(1)(la) of the FW Act).

Key takeaways

Arbitration agreements in employment contracts providing for private arbitration seated in Australia and resultant awards are unlikely to be enforceable before Australian courts on the basis that employment disputes are not ‘commercial’ disputes and therefore fall outside the statutory regime for enforcing Australian seated arbitration agreements and resultant awards.

However, there is scope for enforcement of arbitration agreements providing for arbitration seated in another jurisdiction and resultant awards before Australian courts. Employers seeking to do so will need to ensure that they do not impermissibly seek to oust the jurisdiction of the FWC. However, employers wishing to take advantage of the privacy and confidentiality of arbitration, together with the ability to enforce arbitration awards readily around the world, may be able to do so for disputes outside of the scope of the FWC’s jurisdiction, such as for restrictive covenants.

For further information, please contact Chad Catterwell, Partner, Lucy Boyd, Executive Counsel, Imogen Kenny, Senior Associate, Cassie O’Regan, Solicitor or your usual Herbert Smith Freehills contact.