Private Arbitrations come at a cost

Private Arbitrations can come at a cost to your rights and review proceedings should be considered very carefully                                                           RexLex™

Private arbitration clauses are a common terms in employment contracts especially those of senior managerial employees or executives.

It is often thought that the private arbitration process (as opposed to the statutory CCMA process or bargaining council process) enables parties to have more control over the entire arbitration process.

The noteworthy case of Lawrence v Mutual & Federal (Pty) Ltd and another (JA77/2014) [2016] ZALAC 45, deals with relevant considerations when selecting private arbitration as an alternative form of dispute resolution and emphasises certain significant consequences that arise therefrom.

Cursorily, Lawrence (the employee) was a General Manager in the Claims Department of Mutual & Federal. It emerged that while he was manager of the employer’s claims department, claims to the value of R7million plus were allegedly allowed to prescribe. As a result, he was suspended by the employer and ultimately dismissed on a charge of gross negligence.

The employee believed his dismissal was substantively unfair and referred a dispute to the CCMA. The dispute was then withdrawn and referred to private arbitration.

The parties gave the private arbitrator the same powers and functions as contemplated in section 135 of the Labour Relations Act 66 of 1995, as amended.

The arbitrator found that the employee was only guilty of negligence but was not satisfied that dismissal was an appropriate sanction. The employer, Mutual & Federal, was ordered by the private arbitrator to pay six months’ compensation to the employee and 50% of the employee’s performance bonus.

Surprisingly, the employee was aggrieved that the arbitrator did not award re-instatement, and the employee pursued a review application in the Labour Court and argued inter alia that the private arbitrator had failed to consider the provisions of section 193(2) of the Labour Relations Act.

Section 193 of the LRA provides inter alia that if an arbitrator, appointed in terms of the LRA, finds a dismissal to be unfair “the arbitrator must require the employer to re-instate or re-employ the employee” unless certain exclusions set out in the LRA are applicable.

The Labour Court held that in this case the test for review was not the well-known Sidumo test in terms of the Labour Relations Act, rather that the applicable grounds of review were the grounds set out in section 33 of the Arbitration Act 42 of 1965, as amended, which are far narrower grounds of review.

The Labour Court dismissed all of the employee’s grounds of review, upholding only the review contention in regard to the performance bonus.

On appeal to the Labour Appeal Court, the employee persisted with his grounds of review.

It is apposite to note well that the Labour Appeal Court held that when parties select an arbitrator as the judge of fact and law, the arbitrator’s award is final, irrespective of how erroneous, factually or legally, the award is. Accordingly, the Labour Appeal Court dismissed the employee’s first three grounds of review.

On the point of re-instatement, the employee contended that because the parties agreed that the arbitrator had the powers contained in section 135 of the Labour Relations Act the arbitrator was also required to apply the re-instatement provisions of section 193.

The Labour Appeal Court held that section 193 would only have been applicable to the dispute if the parties had expressly agreed to it being applicable. Furthermore, that the arbitrator only had the powers contained in section 135, and no other powers could be ascribed to the arbitrator absent agreement by the parties. Accordingly, the Labour Appeal Court found that the arbitrator had acted in accordance with the terms of reference in the private arbitration agreement and, as such, the appeal had to fail.

It is therefore of critical importance that if parties wish to select private arbitration, rather than approach the CCMA or a bargaining council, they must come to terms with the fact that the grounds for reviewing the arbitrator’s final award are very narrow indeed.

Furthermore, the arbitrator will only have the powers which the parties agree to expressly.

Thus, while private arbitration indeed brings with it a greater measure of control, it also significantly limits the options available to a party in the event that the arbitration award is not in that party’s favour. 

RexLex™ Mediations & Arbitrations

17 May 2021

010 300 0825

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