With ongoing and seemingly unresolvable backlog in the Employment Tribunals and County Courts, employers are increasingly incentivised to explore alternative methods for resolving potential employment related disputes. Alternative Dispute Resolution (ADR) is an essential consideration, particularly where the cost and uncertainty of prolonged litigation are unsustainable. While negotiating a Settlement Agreement or a COT3 settlement agreement under the auspices of ACAS, remains a common approach in cases likely to give rise to Employment Tribunal proceedings, those processes can be challenging and if unsuccessful, costly. Some disputes arising out of or in connection with “employment” cannot be resolved in the employment tribunal and in those cases agreements for arbitration offer a viable and often underutilised alternative that can provide a quicker, more confidential, and cost-effective path to resolution than the civil courts provide, or the Employment Tribunals allow.
What is Arbitration?
In England and Wales, arbitration is governed by the Arbitration Act 1996, as amended by the Arbitration Act 2025, which came into force on 1 August 2025.
Arbitration provides a mechanism for resolving disputes through a neutral third party, either a sole arbitrator or a panel, chosen by the parties themselves. A key advantage of arbitration lies in the degree of control it gives the parties, particularly in preserving confidentiality. It is also generally quicker and more cost-effective than traditional litigation.
Under section 13 of the Act, statutory limitation periods apply to arbitration in the same way they do to civil court proceedings. For example, in a typical breach of contract case, a claimant has six years from the date of the breach to commence arbitration before the claim becomes time barred.
The Act forms the cornerstone of the legal framework for both domestic and international arbitration in the UK. The English Courts have affirmed that the Act’s principal aim is to empower parties to resolve disputes through arbitration as a genuine alternative to litigation.
What are the benefits of Arbitration?
Confidentiality is a key advantage of arbitration, particularly for employers, and, in some cases, employees, who prefer to keep the details of their disputes private. Unlike Employment Tribunal proceedings, which unless the tribunal grants a specific order for anonymity or restricted reporting are generally public, arbitration is inherently confidential. Both the proceedings and the resulting award remain private unless the parties agree otherwise. This confidentiality can be invaluable to employers, helping them avoid reputational damage that could result from an adverse public judgment.
Arbitration also offers significantly greater flexibility and efficiency compared to Employment Tribunal and Civil Court proceedings. The parties retain control over critical aspects of the process, including the appointment of the arbitrator, the location and structure of hearings, and the procedural timeline. Arbitrators tend to adopt a more hands-on and responsive approach than judges, often being copied into all correspondence and able to convene interlocutory hearings at short notice..
Importantly, arbitral awards are generally final, with very limited rights of appeal. Under section 69 of the Arbitration Act 1996, appeals on points of law are only permitted unless the parties have expressly agreed to exclude them, an option commonly exercised in institutional arbitration rules. This opt-out mechanism reinforces the finality of arbitral decisions, providing closure and certainty for the parties involved.
The inherent confidentiality, flexibility, and finality of arbitration make it particularly well-suited to resolving disputes involving traditional partnerships and [limited liability partnerships, enabling, for example, the swift enforcement of post-termination restrictive covenants in traditional partnerships, and addressing complex contractual disputes between partners or LLP members and the LLP.
What are the limitations and disadvantages of arbitration?
While arbitration can offer a faster and more streamlined route to resolution, it is not without the attendant cost, the arbitrator’s professional fees and the administrative costs of the arbitration body have to be funded and ultimately borne by the parties. Fees and expenses can quickly escalate, particularly when the established commercial arbitration institutions such as the London Court of International Arbitration are involved. For some employers, LLPs, partnerships or ‘quasi partnerships’ in shareholder disputes, the prospect of a prompt and confidential outcome may however justify such cost. Furthermore, in many courts of arbitration the established rules and principles that govern the award of costs apply, so the substantial loser will have to pay the successful party’s costs.
It is important to recognise that arbitration cannot override or exclude statutory protections afforded to employees and workers; arbitration agreements cannot oust the jurisdiction of the Employment Tribunal in relation to certain rights. This principle was affirmed in Clyde and Co LLP and another v Krista Bates van Winkelhof [2011] EWHC 668 (QB)], where Slade J held that the arbitration clause in the defendant’s ‘deed of adherence for conflicts to be solved’ contravened the contracting-out provisions of both s.203 of the Employment Rights Act 1996 and s.144 (1) of the Equality Act 2010.
As such, arbitration is not suitable for matters involving allegations of discrimination, whistleblowing, or claims for statutory redundancy payments.
