31 October 2009 by

Private arbitration clauses: Where are we now?

Private arbitration clauses still feature prominently in many employment contracts, especially where senior or executive managers are employed. The rationale for this is mainly that employers do not wish the Commission for Conciliation, Mediation & Arbitration (CCMA) to adjudicate any dispute flowing from the contract.

Private arbitration clauses typically have one of two provisions in relation to the issue of cost of the arbitration, either that it will be borne exclusively by the employer or that both parties will carry the cost equally.

What is the position where an employment contract contains a private arbitration clause but the employee still refers an employment dispute to the CCMA? Section 147(6) of the LRA applies where it becomes apparent that a dispute ought to have been resolved through private dispute resolution.

The CCMA may exercise discretion in either referring the dispute to the appropriate private dispute resolution body or appointing a commissioner to resolve the dispute in terms of the Act. The CCMA has discretion to exercise jurisdiction over the dispute. One of the factors that it should consider is whether the costs of the private arbitration must be borne equally between the parties. If so, a dismissed employee, earning a modest salary, may be denied an opportunity to ventilate his dispute due to the costs associated by private arbitration. A CCMA arbitrator may more readily order that such a clause should not deprive the CCMA of jurisdiction and therefore deny the employee of the free statutory dispute resolution process. However, the same argument may not succeed if the employee was a senior employee earning a high salary. The senior employee may find it significantly more difficult to evade the effect of the agreement he concluded.

One also needs to consider the impact of a private arbitration clause where the parties' employment is regulated by a collective agreement.

In SACTWU obo Stinise v Dakbor Clothing (Pty) Ltd & Others [2007] 7 BLLR 659 (LC) the Court considered the validity of a private arbitration clause in an employee's contract of employment, where a collective agreement stipulated that disputes between the parties must be heard at the bargaining council. The issue the court had to decide was whether private arbitration clauses are valid where there is a bargaining council with jurisdiction over the matter.

The employee referred a dispute to the relevant bargaining council. The employer raised a preliminary point that the council lacked jurisdiction to hear the matter because a clause in the employee's contract of employment had the effect of referring disputes between the parties to private arbitration. The arbitrator agreed with the employer. The employee took the matter on review, arguing that the private arbitration clause was in conflict with the bargaining council's main agreement and contravened section 199 of the LRA.

The Court reviewed and set aside the arbitrator's decision on two grounds. Firstly, section 199(1)(b) of the LRA provides that a contract of employment may not permit an employee to be treated in a manner, or to be granted any benefit, that is less favourable than that prescribed by the collective agreement. The Court found that the employee was denied the council's compulsory and free dispute resolution procedure, which amounted to less favourable treatment. It found this to be against public policy and therefore void. It reasoned that if the employee referred the matter to private arbitration he (or his trade union) would be burdened with paying for half the costs of the arbitrator. This is less favourable than the collective agreement position of free arbitration.

The second basis for reviewing and setting aside the arbitrator's ruling was that section 199(1)(c) of the LRA provided that a contract of employment may not waive the application of any provision of a collective agreement or arbitration award. If so, such a provision is invalid. The Court found that the private arbitration clause attempted to exclude or waive the provisions of the collective agreement.

Private arbitration clauses contained in contracts of employment are enforceable provided that:

  • The private arbitration clause is not unduly prohibitive; and
  •  No collective agreement exists which regulates the resolution of disputes.

Aadil Patel, Director and
Sibusiso Mdluli, Candidate Attorney, Employment law

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