An Exclusive Jurisdiction Clause in an Employment Contract: Is It Actually a Case of Mighty Lion versus Timid Rabbit?

Introduction

The use of exclusive jurisdiction clauses in commercial contracts across sectors is common. Parties often agree to submit disputes to a pre-agreed court or forum for dispute resolution. At its core, an exclusive jurisdiction clause in a contract serves the following objectives:

(a) convenience of having visibility and familiarity with the practice and procedures of a particular court or forum;

(b) consolidation of disputes in one court or forum, especially from the perspective of large organisations which have widespread operations across India, including in remote locations;

(c) to avoid the risks thrown up by forum-shopping by either of the parties; and

(d) mitigate the risk of jurisdictional objections.

Exclusive jurisdiction clauses at a glance

Despite their practical appeal, exclusive jurisdiction clauses often draw objections under Indian law, most specifically under Sections 28¹ and 23² of the Contract Act, 1872 (ICA). Section 28 of the ICA renders any agreement that imposes an absolute restraint on a party’s legal recourse or effectively bars enforcement of contractual rights, void. Further, Section 23 of the ICA strikes down contracts that “defeat any provision of law” or are contrary to public policy, a catch-all phrase frequently invoked to highlight the unequal bargaining power between the employer and the employee. However, the Supreme Court in Hakam Singh v. Gammon (India) Ltd.³ held that where two courts already have jurisdiction, parties may, by agreement, choose one forum without running afoul of Section 28 or Section 23 of the ICA, so long as the selected court would, in any event, possess jurisdiction under law. In other words, if there are multiple courts having jurisdiction over the subject matter of a dispute, it would be permissible for parties to contractually confer exclusive jurisdiction on one of these courts. What remains impermissible is conferring jurisdiction on a court that would otherwise lack jurisdiction, either by virtue of Section 20⁴ of the Civil Procedure Code, 1908 (CPC) or any special statute like the Arbitration and Conciliation Act, 1996⁵ or the Industrial Disputes Act, 1947⁶.

As such, a combined reading of Section 20 CPC with Sections 23 and 28 of the ICA thus creates space for exclusive jurisdiction clauses. They occupy a middle ground between an absolute bar on legal action and deter forum shopping. This position has also been reaffirmed by the Supreme Court of India subsequently in Swastik Gases (P) Ltd. v. Indian Oil Corpn. Ltd.⁷, InterGlobe Aviation Ltd. v. N. Satchidanand⁸, and A.B.C. Laminart (P) Ltd. v. A.P. Agencies⁹.

The incorporation of an exclusive jurisdiction clause in an employment contract demonstrates the employer’s drive for certainty and control over dispute resolution. Of course, employment disputes do not exist in a vacuum but are often shaped by the special statutes. For blue-collar employees (or workmen), the Industrial Disputes Act, 1947 governs terms of service, retrenchment, and related proceedings. For white-collar employees, the State specific shops and establishments legislations and the contractual framework of their individual employment agreements takes precedence. It is pertinent to highlight that the classification of an employee as a blue or a white-collar employee is not determined by the mere designation of the individual. In practice, courts look beyond designations to the nature of an individual’s job profile or job description, functions, and the actual roles and responsibilities an employee discharges. In other words, a designation by itself may not be sufficient to avoid the industrial dispute law from being triggered unless, in fact and through cogent evidence, it can be demonstrated that the employee concerned is a non-workman. Once an employer assesses which regime applies to an employee, it is possible to assess how an exclusive jurisdiction clause interacts with statutory safeguards and procedural rules.

In practice, there is a tendency on the part of employees to portray themselves as “workman” irrespective of their job profile and roles and responsibilities to avail the benefits of the industrial disputes law. This is because the industrial disputes law provides for an exception to specific enforcement of a contract of service in the form of relief of reinstatement with back wages, which is otherwise not available to a white-collared employee. On the other hand, from the employer’s perspective, the intent is to oust the employee from the definition of “workman”, based on a managerial, administrative, or supervisory role, so that the scope of relief in case of a dispute is limited. Where an individual is ultimately deemed a blue-collared “workman”, the Industrial Disputes Act, 1947 takes precedence, as it is a well-settled principle that statutory provisions override contractual terms, and the forum-selection/exclusive jurisdiction clause must yield to mandatory requirement of the Industrial Disputes Act, 1947 that certain matters be exclusively adjudicated upon by a Labour Court or tribunal. This is in view of the settled position of law that one cannot contract out of a statute, and where a special statute is a self-contained code and provides for an adjudication mechanism, the specified adjudication mechanism prevails over any contractual understanding. For example, certain employment-related statutes, such as the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952¹⁰; the Employees’ State Insurance Act, 1948¹¹; and the Payment of Gratuity Act, 1972¹² constitute self-contained codes in dealing with aspects such as provident fund, employees’ State insurance or gratuity. Each statute prescribes its own mechanism and forum for dispute resolution, and courts do not uphold an exclusive jurisdiction clause in an employment contract to oust those statutory provisions. In essence, while an employer may seek the efficiency and convenience of a single agreed venue, any attempt to bypass a statutory forum mandated by a statute is struck down as invalid in law.

The recent HDFC Bank decision

The Supreme Court in Rakesh Kumar Verma v. HDFC Bank Ltd. (HDFC Bank decision)¹³ reaffirmed that an exclusive jurisdiction clause in an employment contract is valid so long as:

(a) it does not take away the right of access to justice (avoiding an absolute bar under Section 28 of the ICA);

(b) the designated forum is one that already possesses jurisdiction under Section 20 CPC; and

(c) the contractual language is clear and unambiguous in bestowing exclusivity on a particular forum.

In HDFC Bank decision¹⁴, the employment contract vested exclusive jurisdiction in the courts in Mumbai, and key employment events such as appointment, contract issuance, and termination took place in Mumbai. The employment contract exclusively conferred jurisdiction upon the courts in Mumbai without preventing employees from seeking legal remedies altogether, even though the place of work of the employee was at Patna.

The Supreme Court further expressly rejected the notion that employment contracts should be treated differently from commercial contracts based on unequal bargaining power or on public-policy grounds under Section 23 of the ICA, relying on the decision in the Swastik Gases case¹⁵. It affirmed that choosing among competent courts does not defeat any statutory provision and is not against public policy. While doing so, the Supreme Court also rejected the view of a Single Judge of the Delhi High Court in Vishal Gupta v. L&T Finance Ltd.¹⁶, who observed that an exclusive jurisdiction clause may be unfair due to unequal bargaining power in the context of an employment contract.

As such, the Supreme Court affirmed that employment and commercial contracts must be governed by the same legal principles, dismissing the “mighty lion versus timid rabbit” metaphor and affirming that enforceability turns on the validity of a clause and not on the relative strength of the parties.

This ruling is a welcome development for both employers and employees. By reaffirming the validity of a clear, mutually agreed forum-selection clause, the Court has reiterated the significance of contractual certainty. It also allows the parties to approach the pre-agreed forum, which the parties understand to be best suited to appreciate the nuances and legal complexities associated with present-day employment.

Practical considerations

An employer should not treat an exclusive jurisdiction clause as a mere boilerplate clause. An employer would be well-advised to seek proactive legal advice and draft these clauses taking into account the full statutory landscape, the job description, and actual roles and responsibilities of the employee, and potential challenges around enforceability. Clear, precise language and a solid understanding of how the clause interacts with special employment statutes will go a long way toward minimising the risk of jurisdictional objections in the eventuality of a dispute.

For an organisation which operates across multiple states and in remote regions, a well-crafted exclusive jurisdiction clause offers real strategic value. By consolidating all employment-related litigation at a single pre-agreed forum, a company can streamline its case management, reduce multiplicity of proceedings, and ensure that a consistent body of law and judicial practice applies to disputes with its employees. This not only enhances predictability and cost-efficiency but also affords greater clarity on potential legal exposure from the outset.