Key points

  • arbitration clauses cannot be relied upon where a partner has a potential claim in an employment tribunal
  • arbitration clauses can nonetheless be very useful
  • consider updating your arbitration clause to maximise the benefits, such as choosing the right person to arbitrate disputes

The recent case of Clyde & Co LLP v Van Winkelhof [2011] EWHC 668, has confirmed that even where members of an LLP have agreed to arbitrate their disputes in a Members’ Agreement, such an agreement cannot be used to force an aggrieved member to pursue arbitration in favour of a an employment tribunal where that partner’s complaints are of discrimination and whistle blowing.

There are many reasons why firms choose to have arbitration provisions. The benefits to the firm are that:

  • Arbitration stops the dispute from being heard in a public forum, such as the High Court; 
  • it can be cheaper to resolve a dispute through arbitration compared to the courts; 
  • The firm can exercise some control over the dispute resolution process through the drafting of the arbitration clause (for instance, by limiting the arbitrators to individuals who are familiar with the firm’s business sector); and
  • Failure to arbitrate might cause the defaulting partner to be in breach of the partnership agreement, which can affect how much money he receives on leaving the firm. 

However, in the Clyde & Co case the arbitration clause could not be relied upon to prevent the partner from pursuing her statutory claims in the Employment Tribunal.

Background


Ms Van Winkelhof was a senior equity partner in the law firm Clyde & Co. The Firm’s Members Agreement contained a detailed dispute resolution procedure which started with the Management Board trying to resolve the dispute and, after other steps, concluded with formal arbitration to finally resolve the dispute. 

Ms Van Winkelhof was expelled from the Firm. She did not follow the Firm’s dispute resolution procedure and instead lodged complaints of sex discrimination and whistle-blowing in the Employment Tribunal. In response, Clyde & Co sought an injunction to force Ms Van Winkelhof to comply with its dispute resolution procedures before she could continue the Tribunal proceedings.
 
An individual can only contract out of his ability to pursue most statutory employment claims, such as discrimination, whistle blowing and unfair dismissal, where certain specific statutory requirements are met. If the statutory contracting out requirements are not met, the limitation placed on those claims will be void. In this case the Court had to consider whether the Firm’s dispute resolution procedure was void under the contracting out prohibitions in the Employment Rights Act 1996 (regarding the complaint of whistle blowing) and the Equality Act 2010 (regarding the discrimination claim).

Decision and its implications

The High Court decided that the Firm’s dispute resolution clause could not force a stay of the Employment Tribunal proceedings: it was void under the relevant statutory contracting out provisions because it stopped the member from bringing or continuing any proceedings under the Employment Rights Act and also excluded or limited the provisions of the Equality Act.

The decision is another reminder for those dealing with partnership disputes that statutory employment rights can override the provisions set out in a written partnership agreement. Whilst arbitration and other alternative dispute resolution provisions remain useful because they can be used to resolve contractual disputes and certain statutory claims, many statutory claims such as discrimination, whistle blowing and equal pay can only be waived if the matter is settled through ACAS or under a carefully drafted compromise agreement. If the correct form of settlement is not used, it will not be binding and the departing partner could receive his settlement monies and still sue in the Employment Tribunal.

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