Balancing opposing goals and promoting sustainable development : an analysis of labour and employment related case law in international investment dispute settlement

Foreign direct investment (FDI) is considered important for economic growth, and a vital component of sustainable development. To foster the potential benefits, states have concluded thousands of international investment agreements (IIAs). These IIAs are designed to facilitate, promote, and protect FDI, and they often include provisions on investor-state dispute settlement (ISDS). The resolution of investor-state disputes by arbitration has alarmed many scholars since these disputes often entail serious public interest implications. This research aims to contribute to the debate on the sustainability and development impact of ISDS and international investment law from the perspective of labour and employment law and policy. Against this backdrop, the research investigates how the interpretation and application of IIAs may affect labour and employment regulation and policies in host states. A targeted key word search was used to identify cases in the International Centre for Settlement of Investment Disputes (ICSID) case law database, followed by a legal review to come down to cases where substantive labour-related claims and arguments have been made. Beyond pinpointing vulnerabilities from the perspective of sustainable development, the case law analysis extends to researching the potential and real impacts of ISDS cases on host states’ domestic labour law and policy, drawing from the world polity theory within the socio-legal discipline. On this basis, recommendations are made in view of improving the sustainability-related outcomes of ISDS and international investment law. The research provides a rich set of findings. First, the research finds that labour-related issues have arisen in six per cent of ICSID cases with publicly available material. Labour-related claims and arguments have also been made in ISDS cases outside of the ICSID framework. Second, the research finds that tribunals have handled such matters with different approaches, ranging from teleological interpretation and “arbitral activism” emphasizing labour rights to literal and narrow interpretation techniques. Tribunals have only to a limited extent applied the provisions of other treaties binding on the disputing parties or general principles of international law. Further, several incoherencies can be identified in the case law. Third, labour-related arguments in ISDS have been made by both investors and host states. Many of the standard IIA provisions have provided the basis for such arguments, including standards of treatment, expropriation and actions tantamount to expropriation, exceptions clauses, preamble clauses and provisions on the definition of an investment, as well as provisions in investor-state agreements. These provisions and related ISDS jurisprudence are analysed in detail in the paper. Fourth, the research finds certain direct impacts of ISDS decisions on host states’ labour and social regulation, while other impacts may be implied, potential or may have appeared in a longer timeframe. Unarguably, ISDS will have had an impact on both state and enterprise spending and, consequently, policies. The case law analysed reconfirms the states’ “right to regulate” in a non-discriminatory manner, implying at times even a highly protected status for national labour laws. At the same time, the research finds various vulnerabilities and risks, including in cases where states use stabilization agreements, as well as where certain standard provisions are included in IIAs without careful framing of their content. Furthermore, the research points to varying ISDS outcomes in terms of labour protection depending on the choice of wording in specific labour-protection related clauses in IIAs. Lastly, different possibilities to improve the sustainable development and labour aspects of IIAs and ISDS are proposed by the research. The following topics are analysed in detail: improved legal basis and guidance, improved institutions, improved inclusiveness of investment policy making as well as international cooperation. The research suggests that sustainability-oriented treaty drafting would be required to improve the expected outcomes of adjudicated cases. Such drafting could take place at bilateral, plurilateral or multilateral level, focusing on clarifying the content and scope of standard IIA provisions, as well as on incorporating specific labour provisions. The research indicates that institutional improvements would be needed particularly at the preventative front at the national level, while also proposing improvements at the level of ISDS. For more balanced FDI promotion, institutions with expertise in labour matters at the national level could be linked to bodies in charge of preventing investment disputes. Improved inclusiveness in investment policy making entails broader consultations and key roles assigned to labour-related bodies in investment policy making. Lastly, international cooperation would be required to deepen technical assistance towards more sustainable IIAs as well as to provide platforms for consensus-building on more sustainable FDI promotion