International Jurisdiction and Governing Law in Labor Disputes
Jurisdiction and governing law may seem like dry, academic subjects that belong in a law school classroom or a legal brief. However, these two issues can have a tremendous impact on how courts handle and resolve labor disputes. Using the following hypothetical labor case, this article explores some of the significant jurisdictional and governing law issues that may typically arise in international labor disputes.
U.S.-based APEX Corporation entered into an employment agreement with Emiko, a Japanese citizen residing in Japan. Under the agreement, California courts have exclusive jurisdiction over any dispute involving APEX and Emiko, and California law governs the agreement. Emiko worked at APEX’s Tokyo branch under the terms of the agreement, but APEX abruptly terminated Emiko without cause as APEX was allowed to do under the agreement. California law permits this dismissal, but Japanese law does not. Emiko has sued APEX in the Tokyo District Court seeking damages under Japanese law. Can APEX get the case dismissed on the grounds that: (1) California courts have exclusive jurisdiction over the case; and (2) California law governs the agreement?
Under Japan’s Code of Civil Procedure (the “Code”), an employee who meets the following two conditions may bring suit in Japan even if they had agreed to submit to the exclusive jurisdiction of a court outside of Japan:
(1) the employee provided the employer with labor services in Japan; and
(2) the case involves a dispute between an individual employee and an employer over such issues as the employee’s retirement allowance, the validity of a dismissal, or the employer’s failure to pay overtime (this provision of the Code does not apply to a dispute between an employer and a labor union).
In the APEX example above, therefore, Emiko would be able to bring suit against APEX in Japanese court because Emiko performed her services in Japan.
Would the result be different if APEX and Emiko had instead agreed in the employment agreement to arbitrate their dispute? The answer is not clear. Because the Japanese Arbitration Act explicitly provides that an agreement to arbitrate does not apply to individual labor-related disputes, any arbitration clause in Emiko’s employment agreement would presumably be void. However, the Tokyo District Court ruled in a 2011 labor case that the Arbitration Act did not invalidate an employment agreement’s arbitration clause that provided for arbitration in the state of Georgia under U.S. arbitration rules. In its decision, the district court reasoned that the Arbitration Act applies only to arbitration clauses that provide for arbitrations in Japan even though the Arbitration Act itself makes no such distinction. Unfortunately, there are no appellate decisions that would validate the decision in the 2011 case, making any reliance on that decision risky at best. Therefore, in spite of the ruling in the 2011 Tokyo District Court case discussed above, it remains unclear whether a Japanese court could take jurisdiction in Emiko’s case against APEX if the parties had entered into an arbitration agreement governed by California law that provided for arbitration in the U.S.
The Act on General Rules for Application of Laws (the “General Act”) sets forth the governing law applicable to certain international cases. Assuming for the sake of discussion that the employment agreement between APEX and Emiko did not specify a governing law, the law of the place most closely connected to the labor contract would apply. The General Act provides that the country in which an employee performs their services is presumed to have the closest connection to the relevant employment agreement. In the APEX-Emiko case, therefore, Japanese law would apply if the parties had not selected a governing law.
In our example, APEX and Emiko had agreed that California law would govern the Agreement. However, the General Act provides special rules for labor contracts. Specifically, certain mandatory provisions of the law of the place most closely connected to the contract will govern a labor contract if the employee in some way demonstrates to the employer that the employee intends for those mandatory provisions to govern the agreement (Japanese law considers provisions concerning such things as dismissals, working hours, overtime and annual paid leave to be “mandatory”). Therefore, if Emiko had somehow communicated to APEX that she would prefer Japanese law to govern the legality of her dismissal, Japanese law would be the governing law in this case, even though the Agreement had specified California law. The General Act does not specify the form of this communication, but it would be fair to say that the bar isn’t especially high. Any reasonable or standard form of communication would probably suffice.
In light of the discussion above, it would be prudent to keep the following in mind:
● For an employment dispute concerning such issues as dismissals, overtime, or an employee’s retirement allowance, a jurisdictional clause in an employment agreement that specifies a non-Japanese court is effectively meaningless if the employee in question provides their services in Japan.
● In disputes between individual employees and their employers, Japanese law does not permit the enforcement of an arbitration clause that provides for arbitration in Japan. However, Japanese case law is unclear on whether that prohibition would apply to an arbitration clause that provides for arbitration outside of Japan.
● Even when an employment agreement specifies non-Japanese law as the governing law, an employee providing their services in Japan can easily have Japanese law apply to such issues as dismissals, working hours and annual paid leave simply by indicating in some way that the employee would prefer that Japanese law apply to those issues.
If you have questions about this topic, please contact any of the authors directly or our firm’s Litigation Practice Group through the contact information available on our firm’s website.
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