Arbitration of employment disputes: what employers and employees need to know

Traditionally, arbitration has mainly been used for complex commercial disputes, often with an international element where there may be complex issues as to which country’s laws apply and which court has jurisdiction.  The greater flexibility arbitration offers can help to cut through some of the complexities that such disputes can involve.

The use of arbitration varies between jurisdictions, but in general is less common in countries such as the UK where there is a dedicated tribunal system for employment claims.  Indeed, there are certain jurisdictions where arbitration of employment matters is prohibited.  By contrast, in the United States where there is no dedicated court system for employment cases, lawyers are well-accustomed to arbitrating workplace disputes.

Although Bermuda has an Employment Tribunal, it also has a developed infrastructure for arbitration and access to trained arbitrators.  Further, many employers in Bermuda have employees who spend much of their time working or residing off-island.  Often these are senior individuals with complex and valuable remuneration arrangements, factors which can make arbitration more attractive.

There are potential advantages for both employer and employee in agreeing to arbitrate.  The process offers greater flexibility, with the parties able to agree procedural rules which diverge from standard civil litigation.  The process is also less formal.  Instead of being decided by a judge or jury, the arbitration panel is comprised of one or more private citizens (albeit usually with a legal background).  Employees could consider that they would get a more sympathetic hearing from a civilian than from a judge.

An arbitration process can also lead to a quicker decision than in civil proceedings.  Arbitration also offers finality, as the grounds for challenging the panel’s decision are very narrow, although the extent to which a party would see this as an advantage largely depends on their confidence in their own case.  The process can also be less costly than court proceedings, but the opposite is often true in practice.

One key difference to civil litigation is privacy.  All filings in the arbitration process are confidential between the parties, as is the arbitrator’s decision.  Employment disputes often involve sensitive matters which the parties may wish to avoid airing in public.  However, employees can see the publicity of a trial in open court as a strategic advantage, as employers often wish to avoid press scrutiny, even when they are confident of success.

Parties to a dispute can voluntarily choose to arbitrate after their dispute has arisen.  Although the possibility of future litigation is not usually at the forefront of the parties’ minds at the outset of a new employment relationship, employers can also seek to include in their employment contracts a mandatory requirement to arbitrate disputes.  In this case, it is important that the provision is well-drafted.  A good arbitration clause will usually deal with critical issues such as the location and language in which the arbitration will be conducted, the appointment and size of the panel, whether there are any exceptions to mandatory arbitration, how the parties will divide the costs, and even the procedural rules to be followed.

Employers should bear in mind though that the mere existence of an arbitration clause can be considered controversial.  In the US, in the light of negative publicity and employee pressure, Google announced last year that it would end mandatory arbitration of sexual harassment allegations.

Nonetheless, arbitration can still be a compelling option for resolving workplace disputes.  Employers wishing to include arbitration clauses in employment contracts would be well-advised to take legal advice on the suitability of an arbitration provision, as well as on the details of its drafting.