While the benefits of arbitration clauses in employment documents with US employees are highly publicized and well known, arbitration clauses with employees outside of the US (OUS) are much less prevalent due to enforceability issues and administrative hurdles.
Unlike in the US, where arbitration can often be quicker, limit opportunities for appeal, and affords greater confidentiality, this is not always the case OUS.
- In most OUS jurisdictions, arbitration agreements or clauses that are executed at the inception of the employment relationship and require the employee to prospectively waive their right to file a claim in local court are unenforceable.
- Often, the labor tribunals or courts have exclusive jurisdiction over any disputes arising out of the employment relationship.
A few countries (e.g., Belgium, Denmark, Hong Kong, and Sweden) enforce arbitration clauses for certain limited categories of employees or claims.
- For example, in Belgium and Denmark, employers may be able to secure a valid arbitration clause in an employment agreement with a limited subset of managerial employees. Belgium also requires that the employee earn above a certain threshold per year in order for the arbitration provision to apply.
- Hong Kong only allows arbitration for certain non-monetary disputes, but arbitration is not common in practice since it may be slower and more expensive than litigation in the court system.
For a few jurisdictions where valid arbitration clauses are enforceable, they usually are not recommended.
- For example, in Canada, the civil court process typically involves the passage of time, so with civil employment law claims, it is more beneficial for employers to go to court than private arbitration as the additional time allows for mitigation of damages. In addition, Canadian civil law cases have a cost structure that allows the successful party to recover legal fees from the unsuccessful party.
- Similarly, in Singapore, while the parties may generally include provisions in the employment agreement subjecting disputes to arbitration, arbitration proceedings are generally longer and more expensive relative to court proceedings. Further, while international arbitration bodies have often built up expertise when it comes to a variety of commercial disputes, their familiarity with employment matters is often lagging.
With respect to independent contractors, arbitration clauses in independent contractor agreements should arguably be enforceable assuming the contractor is properly classified under local laws. That said, most jurisdictions have strict rules regarding the proper classification of service providers, and a misclassified independent contractor will be able to file a claim in a labor court and seek protections under local employment law.
For assisting developing employment litigation mitigation strategies in and outside the US, contact your Baker McKenzie lawyer.
(And to learn more about the enforceability of arbitration agreements in the US, click HERE and listen our podcast!)