Arbitration in 2017: Arbitrating bonus disputes

Few issues between employers and employees are as high value as disputes over bonuses in the financial services sector.

In a recent case, Petter v EMC Europe Limited, the Court of Appeal held that a dispute between a Massachusetts company and an employee of its UK subsidiary concerning an agreement to make stock awards was one related to the contract of employment of the employee for the purposes of the Brussels Regulation Recast. Consequently, the dispute had to be referred to the jurisdiction of the domicile of the employee (England) and the agreement’s Massachusetts exclusive jurisdiction clause was unenforceable. The result was that the Massachusetts company had to litigate the dispute in the non-chosen English court not the chosen Massachusetts court.

The Petter case was going to be heard by the Supreme Court in November but has now settled. The result was controversial, not least because the Court of Appeal confirmed that not only had the dispute concerning the stock awards to be litigated in England and not in to the contractually chosen jurisdiction, Massachusetts, but an anti-suit injunction was granted to prevent the Massachusetts company continuing with the Massachusetts court litigation.

The arbitration option

But what if the agreement between the employer and the Massachusetts company had contained an arbitration clause rather than a clause referring disputes to the jurisdiction of the Massachusetts court? Would that have made a difference?

It is certainly possible that it might have done. First, the Brussels Regulation Recast expressly does not apply to arbitration. So the provisions of the Regulation mandating that an employee should only be sued in his or her domicile does not apply to a claim in arbitration.

Furthermore, were an English court not to recognise an arbitration award from, say, a Massachusetts arbitration tribunal, that would arguably be contrary to the terms of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which takes primacy over the Brussels Regulation Recast.

So, should financial institutions consider inserting arbitration clauses in bonus agreements where they wish for disputes to be resolved in a jurisdiction other than that of the employee’s domicile? It is certainly possible that 2017 will see some institutions considering this option in the wake of the Petter case, but some uncertainty remains. This particular point has not been the subject of any decision and the withdrawal of the appeal to the Supreme Court in the Petter case means that there will be no clarification from the Supreme Court in the near future. But there would appear to be little downside in choosing to arbitrate bonus agreements, such as that concerned in the Petter case, rather than litigating in the courts.

An employee might still of course argue that an award from, say, a Massachusetts tribunal, should be enforceable in England pursuant to the New York Convention. The employee might well argue that the enforcement of such an award would be against English public policy, because the Brussels Regulation Recast reflects English public policy. If such an award were to be recognised it would certainly lead to the anomalous result that a Massachusetts arbitration award concerning a bonus would be enforced in England where a Massachusetts judgment about exactly the same issue would not.

But from the point of view of financial institutions, this may well be a risk worth taking.