Stepping In: Arbitration Can Benefit All Parties

by Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

  • Arbitration can be advantageous in employment disputes. It can be designed to be quick, simple, cost-effective, informal and efficient.
  • Senior employees are likely to recognise that there is much in it for them, especially if they know that the company itself will pay for the process, and that their compensation and perks will not be aired in public.

Arbitration can be a simpler, more effective alternative to the Labour Tribunal yet surprisingly few people are familiar with the process. It’s not for every employee, or for every dispute, but arbitration makes sense up there in the C-suite.

Most people in Hong Kong, if asked where they think disputes between employees and their bosses are resolved, will mention the Labour Tribunal. Some people, including HR professionals of course, may also know that some large or complex cases end up in court; for instance, if an injunction is needed to enforce terms imposing confidentiality or non-competition obligations.

But very few people, if any, are likely to mention a third possibility, which is that employment disputes can also be dealt with in arbitration.

A sometimes mysterious process

One possible explanation for this is that the concept of arbitration, and how it works, is a mystery to some.

According to the Hong Kong International Arbitration Centre (HKIAC), arbitration “…is a consensual dispute resolution process based on the parties’ agreement to submit their disputes for resolution to an arbitral tribunal usually composed of one or three independent arbitrators appointed by or on behalf of the parties”.

This means the dispute is settled by a private person who is not a judge, ie, an arbitrator. Arbitration can be advantageous in employment disputes. The procedure is malleable, so that, just like in the Labour Tribunal, it can be designed to be quick, simple, cost- effective, informal and efficient.

It enables sensitive disputes, which either or both parties want to keep out of the public domain, to be handled discreetly and confidentially.

In addition, however – and this is what makes it particularly attractive for disputes involving well-compensated senior members of staff – the arbitrator can be someone who has a real understanding of the relevant industry.

Expert in the field

With all due respect to Presiding Officers in the Labour Tribunal, and to professional judges in the court system, they may not be best placed to come to a view: they are unlikely to have worked in the sector in question, and they probably have no experience of the complex bonus arrangements that many employees working in the industry have.

Arbitration therefore provides the parties with an opportunity to pick their “judge”, ie, their arbitrator(s) according to their qualifications and experience, to agree on a bespoke procedure for getting to the bottom of the issue, and to resolve their dispute behind closed doors.

To get a dispute to arbitration however requires the employer and employee to come to an agreement. This agreement can either be included in advance in the employment contract, or one can be drafted after the dispute has arisen (the latter example is obviously rare: when people are in dispute it is generally challenging for them to agree about anything).

The catches

There is a legal issue however. Sometimes people forget or ignore that they have agreed arbitration, and start proceedings in the Labour Tribunal or court. This is obviously a breach of contract, but while both the law and the courts in Hong Kong are supportive of arbitration, and in a commercial dispute generally force the parties to honour their agreement, the position is less clear in an employment context.

Essentially, under the Employment Ordinance, the court has a choice between allowing the Labour Tribunal or court proceedings to go ahead, or to stop them and insist upon arbitration.

The court’s discretion is likely to be heavily influenced by how the proposed arbitration is intended to be run. If the arbitration is likely to be slow, complicated, expensive, unnecessarily formal or inefficient, or there is any combination of these factors present, the court may well be extremely cautious.

Good for all sides

And so, when viewed from the perspective of the employer, the challenge will be to demonstrate that the procedure agreed with the employee will provide a solution that is objectively at least as good from the employee’s perspective, if not better than he could get in the court or Labour Tribunal system.

This is done by carefully drafting the arbitration agreement. For example, the parties may agree upon arbitration rules that impose an obligation on the arbitrators to run the case in a way that avoids unnecessary delay, complexity and expense. Many of the arbitration institutions, including the HKIAC, have standard arbitration rules designed for those purposes.

In addition, the agreement could be employee-friendly in other ways. It may require mediation – a process by which a neutral person helps the parties to reach a negotiated settlement – before the case goes anywhere near arbitration; it might impose an obligation on the tribunal to decide the case within a limited time; or it may require the employer to shoulder most of the costs of the process.

Basically the agreement needs to be tailored to fit the circumstances and the people concerned. And in that respect the possibilities are endless.

Employees generally understand that the Labour Tribunal was set up for their benefit to provide a quick, simple, and cost-effective way to resolve disputes with their employers. They also know that, in the Labour Tribunal, lawyers are not permitted, and that if they lose, their financial downside is limited. They may well feel, therefore, that arbitration does not provide these advantages.

Employees may also be intimidated by the relatively opaque process of arbitration behind closed doors.

At the same time, however, senior employees, especially executives in the C-suite with generous base salaries and complex incentive arrangements, are likely to recognise that there is much in it for them, especially if they know that the company itself will pay for the process, and that their compensation and perks will not be aired in public.

But if, having agreed to arbitration, employees remain unconvinced about their decision, they can at least console themselves with the thought that the court or Labour Tribunal may agree with them that arbitration is inappropriate. There have not been many cases decided on how the court should exercise its discretion, and so far the courts have been pro- employee. But that may well change in Hong Kong’s current pro-arbitration environment.

Tailoring employment contracts to achieve the objectively correct outcome is therefore both sensible and advisable. Thus, giving the company the option of taking its dispute to arbitration is something HR professionals are likely to be thanked for, not the reverse.

Key takeaways for HR professionals

  1. Don’t assume that the Labour Tribunal, or the courts, are the only places to resolve disputes with employees.
  2. Some employment disputes are best resolved by an arbitration tribunal consisting of one or three independent arbitrators.
  3. The advantages of arbitration include a flexible bespoke procedure which can result in quick and cost-effective results, confidentiality and an expert panel.
  4. Consider inserting a carefully drafted arbitration clause in your contracts with senior employees: the court will not automatically enforce it, but unless it is there, you do not even have the option of insisting on arbitration.

This article originally appeared in the July/August 2017 edition of Human Resources, the official journal of the Hong Kong Institute of Human Resource Management, and is reproduced with permission from HKIHRM and Classified Post.


奧睿律師事務所合夥人 Charles W. Allen (香港商業訴訟與國際仲裁業務部主管)

•           仲裁有助排解僱傭糾紛﹐其過程可以設計得簡便快捷、符合成本效益﹐做法亦不拘形式、成效顯著。

•           資深員工傾向支持仲裁﹐尤其是如果他們明白公司將會承擔仲裁費用﹐他們亦毋須公開自己的薪酬福利。


普遍香港人認為解決僱傭糾紛的途徑離不開入稟勞資審裁處。大部分人士(包括人力資源專才)或者亦會知道嚴重或複雜的案件會鬧上法庭,例如一些須要申請禁制令、執行 保密責任或不競爭責任的案件。


























  1. 勞資審裁處或法庭並非解決勞資糾紛的唯一選擇。
  2. 由一名或三名獨立仲裁員組成的仲裁庭,可有效地解決某些僱傭糾紛。
  3. 仲裁的好處是其度身訂做的靈活程序可以令過程簡便快捷,符合成本效益,而且仲裁有利於資料保密,並可安排專家小組參與其中。
  4. 在與資深僱員訂立合約時,考慮加入經謹慎草擬的仲裁條款。雖然法庭無法自動強制執行該條款,但如果合約沒有仲裁條款,公司日後則連提出進行仲裁的選擇也沒有。 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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