United States: Arbitration 101: Why And How To Keep Your Company Out Of Court

Last Updated: April 19 2017
Article by Charles W. Allen

"Arbitration makes a lot of sense", Charles Allen states. A general commercial disputes lawyer and currently a partner at Orrick, Herrington & Sutcliffe in Hong Kong, he practices across a wide range of different things.

Human Resources magazine spoke to Allen about one of his fields of expertise: arbitration. "It's a particular area of interest to me that there seem to be so many employers around town who don't understand that arbitrating employment disputes makes a lot of sense," he shares. "Especially when you're dealing with senior employees, particularly people with complex compensation arrangements. And that's what's misunderstood I think."

To help alleviate some of the confusion, he talked us through the arguments for-, some of the inner workings of-, and HR's involvement in arbitrating employment disputes.

Q. What is the main difference between litigation and arbitration?

For me, confidentiality and expertise are the two main issues that set them apart.

Simply put, litigation is court. Your claim is heard by a judge who is a civil servant sitting in either the district court, the high court, or the labour tribunal – a specialist employment tribunal. It's heard in public and your judge may not be a specialist either in employment law or a specialist in the particular industry or sector that the dispute arises out of.

Contrast that to arbitration. Arbitration is a private form of dispute resolution and your arbitrator is somebody that the parties pay for and somebody that the parties choose. And what you can do, is choose an arbitrator who you know has got some experience in the particular industry, or somebody who might be familiar with the specific compensation arrangements that give rise to the dispute.

Additionally, arbitration is always conducted in private. So there's no washing your dirty laundry in public.

Q. You say you feel many companies in retrospect might have preferred arbitration to resolve their dispute. What do you think causes them to initially overlook it?

I can only speculate about why employers in general might not think about arbitration. One possible reason is that it's an afterthought. We all know that when commercial contracts are being drafted the dispute resolution clauses are the last to be negotiated. Because, particularly in this jurisdiction, but not limited to Asia, having a discussion about the possibility of a dispute is regarded as pretty poor form, or even unlucky.

As a result, these clauses end up being negotiated at midnight or 2 o'clock in the morning. It's not given much thought, somebody sticks in some boilerplate language and that's it.

Another possibility is that the employer makes an assumption that every dispute is going to end up in the labour tribunal anyway, and simply doesn't bother to consider the possibility of putting in an arbitration clause.

A final reason could be that they've heard somewhere that arbitration clauses in employment contracts are not enforceable. While there is some substance to this – a court is not mandated to stop court proceedings in breach of an arbitration clause – it's no reason not to put in the clause in the first place.

My thesis is that unless you put an arbitration clause in your employment contract, you don't even have the option to try and stop court proceedings once an employee has started those.

Q. So putting in an arbitration clause is mainly a safeguard for employers?

It gives the employer an option. And whether the employer decides to exercise that option may depend on the type of case.

For example, a relatively straightforward case for payment in lieu of notice after an employee misbehaved and was fired, is probably in good hands with the labour tribunal as far as the employer is concerned. It's not the company's conduct that will be under scrutiny, and the final payment, if any, is easy to calculate.

On the other hand, if there's dispute about a bonus payment to a highly compensated employee with complex bonus arrangements set out in their contract, an employer would most likely prefer the claim to be handled in arbitration.

Firstly, so that they could appoint an arbitrator who knows something about the industry. Secondly, because it keeps the whole thing out of the public eye, meaning any bonus arrangements that might for example be tied to investments made for the company can stay confidential.

Q. How would you go about finding the right arbitrator?

The idea is that both parties agree on one. If they can't agree, they can normally ask the arbitration centre to appoint someone on behalf of both parties.

You might want to go to a lawyer, a solicitor like myself, or a barrister, a retired judge, a professional arbitrator, or you might want somebody who has a deep background in HR.

The Hong Kong International Arbitration Centre maintains lists of arbitrators that you can pick from, and the website contains links to the CVs of the arbitrators so you can find one with the right professional background and experience.

Q. You mentioned arbitration is paid for by 'parties'. Could you elaborate on that?

The general rule in arbitrations is that the parties will initially split the arbitrator's fees and other costs, but the losing party will pick up all of the tab. Of course, that can be a problem in the context of employment disputes, because even highly compensated employees may not be able to afford the possibility of losing.

And so there are ways around this. The first step is to draft your clause in such a way that it doesn't go anywhere near arbitration. Ideally, you'd put in a mediation provision that has to be progressed through before you get to the point of anybody making a decision about going to court or arbitration.

Secondly, you can add provisions into your arbitration agreement that load the burden of cost onto one party, or have the winning party agree to not claim the costs back from the losing party.

Q. From an employment dispute perspective, how much legal knowledge should HR have?

My own experience is that HR professionals in Hong Kong are generally extremely well informed about basic legal principles. Having said that, the minimum any HR professional in Hong Kong should have is a working knowledge of the Employment Ordinance.

I'm not suggesting they need to necessarily know a lot about dispute resolution, but they do need to know what the ordinance says. Things like the factors that need to be satisfied before you can summarily dismiss someone, the basic entitlements of employees to holiday, to sick pay, notice periods, payments in lieu of notice – these are all things that are set up quite clearly in the Employment Ordinance.

Q. Is ensuring the clause is in the contract to begin with something HR could play a role in?

I think so, yes. I'm not saying an arbitration clause is appropriate for every kind of contract. But some disputes that start in the Labour Tribunal are really not appropriate to be dealt with there. So I'm really talking about the top tier of employees, not about your average employee or middle manager. But for the contract of a highly compensated employee, certainly.

HR's role is not just about knowing what the rules and laws are. It's not just about hiring and firing. HR's role also ought to include playing a part in trying to avoid and if necessary resolve disputes. Not necessarily by a formal process or mediation, but by simply communicating with all the relevant stakeholders. HR can be a fantastic asset, and should always be involved if ever there's a dispute.

This article was originally published by Human Resources magazine on April 6, 2017 and is reprinted with permission. The original article can be viewed online here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
21 Nov 2019, Webinar, California, United States

Please join Heather Sussman and Kyle Kessler for the Cyber, Privacy & Data Innovation practice's webinar “CCPA Compliance – It’s Not Too Late to Get Started!”

23 Nov 2019, Workshop, Washington, United States

Orrick’s Jill Rosenberg will serve as a panelist at the upcoming Law Firm General Counsel Workshop at Georgetown Law Center in Washington D.C.

25 Nov 2019, Speaking Engagement, New York, United States

Lorraine McGowen will be speaking on the upcoming “Evaluating the Financial Health of an Entity” panel at the New York session of the Pocket MBA: Finance for Lawyers and Other Professionals program, hosted by the Practising Law Institute.

Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions