Commentaries From Our Desk

Is Arbitration Losing Meaning In Small Contracts For Employment?

Arbitration, once heralded as a streamlined alternative to litigation, is increasingly being scrutinized in the context of employment contracts in Kenya. While it offers confidentiality and expediency in commercial disputes, its application in employment matters raises significant concerns. The core issue lies in the inherent power imbalance between employers and employees, which often renders arbitration clauses in employment contracts inequitable. A pivotal case highlighting this concern is Okeyo v. Board of Directors HHI Management Services Limited & Another (ELRC Cause E970 of 2023) wherethe Employment and Labour Relations Court (ELRC) declined to enforce an arbitration clause within an employment contract, emphasizing that such clauses can undermine the employee's right to fair labour practices. The court recognized that employees often lack equal bargaining power and may be compelled to accept arbitration clauses without fully understanding their implications.

The financial burden of arbitration further exacerbates its unsuitability for employment disputes. Arbitration proceedings can be costly, and employees, especially those recently terminated, may find it challenging to afford the associated expenses. This financial strain can deter employees from pursuing legitimate claims, effectively denying them access to justice. Moreover, arbitration may not adequately address the nuances of employment law. Arbitrators, unlike judges in the ELRC, may lack specialized knowledge of employment legislation, potentially leading to decisions that do not fully consider the protections afforded to employees under Kenyan law. This gap in expertise can result in outcomes that are less favorable to employees.

The finality of arbitral awards also poses a significant drawback. Unlike court decisions, which can be appealed, arbitral awards are generally binding and offer limited avenues for recourse. This rigidity can be detrimental to employees who may have valid grounds for challenging a decision but are constrained by the lack of an appeal mechanism. In light of these considerations, both employers and employees should exercise caution when incorporating arbitration clauses into employment contracts. While arbitration has its merits in certain contexts, its application in employment disputes, particularly those involving small contracts, may not serve the interests of justice. Ensuring fair and equitable treatment in employment relationships necessitates dispute resolution mechanisms that acknowledge and address the inherent power imbalances present in the workplace.