Turkish Court of Cassation in Spotlight: The Court Rules Employment Disputes Non-Arbitrable

In a decision dated November 13, 2014, Turkish Court of Cassation (“the Court”) had ruled that arbitration clause in an employment contract does not bar employees from resorting to the local courts. Public policy concerns, as expected, lay behind the decision.

The dispute took place between a sports club and one of its employees working as a coach for the club. The employee initiated court proceedings for unpaid wages by turning a blind eye to the arbitration clause in the employment contract. While the court of first instance rejected jurisdiction referring to the exclusive jurisdiction of the arbitral tribunal, the Court of Cassation reversed the decision appealed by the respondent club.

In its core reasoning, the Court held that:

Considering the fact that the coaches do not directly engage with sports activities but their main task is only to train the team, they shall be regarded as an employee in the meaning of Labor Code. Accordingly, the disputes between the coaches and their employers-the clubs-arising out of an employment contract shall be resolved by labor courts. Since there is no provision in the Labor Code allowing the resolution of employment disputes through arbitration, the special provisions envisaging alternative methods for resolution of disputes in the legal texts created by the relevant sports associations cannot override the authority of labor courts.

The Court went on to find that:

Furthermore, it is out of question [for the Court] that the parties to an employment contract are not economically equal, and the employee is dependent on the employer in the conclusion and execution of the contract. The employee is at the disposal of the employer, and works under its supervision. He does not act in his freewill. This dependency disappears only after the termination of the contract. Therefore, it is not possible to argue that employee is bound by the arbitration clause that is inserted into an employment contract at the very beginning.

It appears that the Court intends to protect the weak party of the employment contracts; however, it is not easily understandable how an arbitration clause can operate to the detriment of the party in question: In Turkey, in similar to many other jurisdictions, it takes years for labor courts to render a decision. Almost all the decisions are appealed by the losing party, which also increases the duration in which a final decision is rendered. Under such circumstances, it would be no overstatement to argue that arbitration can function very well for the resolution of employment disputes in a more efficient and speedy manner compared to the labor courts.

While it is an undisputable fact that the employees usually win the cases in labor courts, one should also be aware that this is not because of the court itself, but this is so because of the pro-employee legal regulations governing the employment relationships. Moreover, the labor codes can still be applied by arbitral tribunals as the mandatory rules of the place of arbitration, or as the law chosen by parties so as to protect the weak party. Additionally, the Court of Cassation will still have the possibility to annul an arbitral award, if it concludes that the award violates the public policy as it breaches the mandatory provisions of the Labor Code. Accordingly, there remains no persuasive reason to exclude employment contracts from the scope of arbitrable matters.