Part III: When should employers in KSA consider using arbitration as an alternative dispute resolution?

In the dynamic landscape of employment disputes, particularly for managerial positions, the choice of dispute resolution mechanisms plays a critical role in maintaining organisational harmony and efficiency. While arbitration is widely recognised as an effective alternative to litigating in local courts in many jurisdictions, it is not always permitted in an employment context.

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This article is part of a series examining the labour dispute framework in the Kingdom of Saudi Arabia (KSA). Part I focused on the framework for processing labour disputes, Part II explored class action mechanisms, and Part III delves into the use of arbitration clauses within the employment framework.

Arbitration is a form of alternative dispute resolution (ADR) where parties agree to submit their disputes to one or more arbitrators who make a binding decision. It offers several advantages, including confidentiality, efficiency, and the ability to choose expert arbitrators familiar with the subject matter.

In KSA, arbitration has, historically, rarely been utilised in employment dispute due to the associated costs and expenses. There has also typically been an assumption that, for public policy reasons, an arbitration clause in an employment contract would not be recognised by a Saudi labour court because it could deprive an employee of access to justice.

Nevertheless, the Saudi Labour Law does not explicitly prohibit arbitration as a dispute resolution option, and in fact should be considered by employers for more complex employment agreements such as sophisticated bonus arrangements or incentive plans which provide for the payment of deferred remuneration on completion of specific milestones or key performance indicators. The suitability of arbitration and the likelihood of it being accepted by a KSA Court if asserted in Court if a claim is brought, would likely hinge on the seniority of the employee with more senior employees being judged to be able to opt into arbitration by contractual agreement.

Benefits of Using Arbitration Clauses in Employee Incentive Plans

Arbitration clauses within employee incentive plans are becoming increasingly common in employment-related documents in KSA for the following reasons.

1. Efficient dispute resolution

Arbitration typically provides a quicker resolution to disputes compared to traditional court litigation. This efficiency is crucial in maintaining operational continuity and mitigating prolonged disputes that can disrupt business activities.

2. Confidentiality

Dispute resolution through arbitration ensures that sensitive information remains confidential which is especially important where the protection of trade secrets and business strategies is paramount. Arbitration helps avoid the public disclosure of potentially damaging information that could occur in court proceedings.

3. Expertise and specialisation

Arbitrators are often chosen for their expertise in specific fields relevant to the dispute. In the context of employee incentive plans, arbitrators with a more thorough understanding of employment law and financial incentives can provide more informed and fair resolutions than is typically available in local courts. This specialised knowledge is invaluable in complex cases which require more detailed analysis of whether or not an employee has satisfied the performance metrics and eligibility requirements of the particular incentive plan.

4. Enforceability of awards

Arbitral awards are generally easier to enforce internationally compared to court judgments, thanks to treaties like the New York Convention, ensuring that arbitral awards are recognised and enforceable across borders. This is particularly beneficial for multinational companies operating in these regions, facilitating smoother enforcement of dispute resolutions. However, there is a specific process for recognition of a foreign arbitral award in KSA

5. Flexibility in proceedings

Arbitration allows for more flexible procedures tailored to the needs of both parties. This flexibility can include the choice of language, location, and procedural rules. 

6. Alignment with regional legal frameworks

KSA has made significant strides in modernising its legal frameworks to support arbitration. The Kingdom has made efforts to promote arbitration through its adoption of the new Arbitration Law, which is based on the UNCITRAL Model Law. These developments ensure that arbitration clauses within employee incentive plans are well-supported by regional legal systems.

Conclusion

Arbitration remains a valuable tool for resolving atypical employment disputes, particularly among manager-level employees, offering efficiency, confidentiality, and tailored solutions to complex issues. While its applicability varies across jurisdictions, strategic use of arbitration clauses in employment contracts can enhance organisational governance and mitigate risks associated with employment disputes. 

At Clyde & Co, we offer expertise in navigating diverse legal landscapes and providing effective arbitration services tailored to managerial-level employment disputes. Contact us today to learn more about how arbitration can benefit your organisation and ensure fair and expedient resolution of employment conflicts.

If you would like further information or advice on the labour dispute framework in KSA, please contact Sara Khoja, Ben Brown, Jassar Aljohani and Sarit Thomas. 

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