Post on 20-Jan-2023
TALLINN UNIVERSITY OF TECHNOLOGY Faculty of Social Sciences
Tallinn Law School
Anna-Liisa Aasrand
Constitutional Analysis of an Arbitration Restriction in Estonia
Regarding the Termination of Employment Contracts
Bachelor Thesis
Supervisor: Maria Claudia Solarte Vasquez LLM
Tallinn 2012
1
Declaration
I hereby declare that I am the sole author
of this Bachelor Thesis and it has
not been presented to any other
university of examination.
Anna-Liisa Aasrand
12 May 2012
The Bachelor Thesis meets the established requirements
Supervisor Maria Claudia Solarte Vasquez
“ ..... “ .................... 2012
Accepted for examination “ ..... “ ...................... 2012
Board of Examiners of Law Bachelor’s Theses
……………………………
2
Abstract
Purpose – The purpose of this paper is to examine the proportionality and justifiability
(necessity) of a ban of arbitration in cases of the termination of employment contracts as
stated in § 718 chapter 2, section 2 of the Code of Civil Procedure of Estonia. On the other
hand, § 11 of the Constitution of the Republic of Estonia maintains that rights and freedoms
may be restricted only in accordance with the Constitution. These restrictions must be
necessary in a democratic society and must not distort the nature of the rights and freedoms
restricted. Thus the question: Is the restriction of the use of arbitration in the termination of
employment contracts necessary in a democratic state and/or is there anything that can be
improved/changed in that matter?
Design/methodology/approach – The paper used a comparative study and analytical method,
specifically constitutional analysis. Comparison data were obtained from German,
Netherlands, Italian, Sweden and Great Britain legislations as well as UNCITRAL Arbitration
Rules, Model Laws and New York Convention of 1958 in order to test the research
hypotheses.
Findings – Results revealed that the arbitration ban restricts employees’ fundamental rights
and it is not a necessary restriction.
Originality/value – The paper uses comparative study and constitutional analysis to explain
the differences of (historically and geographically) closely connected points of legislation and
the reasons of these. Results support that the arbitration restriction regarding the termination
of employment contracts should be altered or removed from the Estonian arbitration law.
Paper type – Bachelor’s thesis
3
List of abbreviations
AAA American Arbitration Association
ACAC Advisory, Conciliation and Arbitration Service
ADR Alternative Dispute Resolution
AISCC the Arbitration Institute of the Stockholm Chamber of Commerce
ArbGG German Employment Courts Act (Arbeitsgerichtsgesetz)
CCP Code of Civil Procedure
ECHR the European Convention on Human Rights
ECOSOC United Nations Economic and Social Council
ECtHR European Court of Human Rights
ICC International Chamber of Commerce
UN United Nation
UNCITRAL United Nations Commission on International Trade Law
US United States of America
ZPO German Civil Procedures Act (Zivilprozeßordung)
4
Table of Contents
1. INTRODUCTION .............................................................................................................. 5
2. ALTERNATIVE DISPUTE RESOLUTION AND ARBITRATION ................................ 7
3. COMPARATIVE STUDY ON ARBITRATION ............................................................. 11
3.1. Germany .................................................................................................................... 12
3.2. Italy ............................................................................................................................ 14
3.3. The Netherlands ......................................................................................................... 15
3.4. The Great Britain ....................................................................................................... 16
3.5. Sweden ....................................................................................................................... 17
3.6. The New York Convention of 1958 .......................................................................... 18
3.7. UNCITRAL Arbitration Rules .................................................................................. 19
3.8. UNCITRAL Model Laws .......................................................................................... 20
4. CONSTITUTIONAL ANALYSIS ................................................................................... 21
4.1. Right of Recourse to the Court .................................................................................. 25
4.2. Free Self-realisation ................................................................................................... 28
4.3. Jurisdiction ................................................................................................................. 29
4.4. Independence of Courts ............................................................................................. 30
4.5. Accordance with the Constitution ............................................................................. 32
4.5.1. Formal requirements .............................................................................................. 32
4.5.2. Substantial requirements ........................................................................................ 34
4.5.2.1. Suitability ........................................................................................................... 35
4.5.2.2. Necessity ............................................................................................................ 36
4.5.2.2.1. Institutional vs. ad hoc proceedings ................................................................ 37
4.5.2.2.2. The institution ................................................................................................. 41
4.5.2.2.3. Future dispute clauses ..................................................................................... 42
4.5.2.3. Proportionality .................................................................................................... 43
5. CONCLUSIONS ............................................................................................................... 45
6. REFERENCES .................................................................................................................. 49
6.1. Books and Independent Publications ......................................................................... 49
6.2. Articles and contributions to edited works ................................................................ 50
6.3. Other sources ............................................................................................................. 51
6.4. Internet sources .......................................................................................................... 52
6.5. Table of cases ............................................................................................................ 54
6.6. Table of legislative acts ............................................................................................. 55
5
1. INTRODUCTION
“Discourage litigation. Persuade your
neighbourhoods to compromise whenever you
can.”
Abraham Lincoln1
As the worst possible solution to a dispute between states is going to war so too is going to
court in case of a conflict between corporations and individuals.
Estonia first regulated arbitration on January 1, 2006 in its Code of Civil Procedure. The CCP
of Estonia regulates both national and international arbitration (as well as ad hoc arbitrations)
whereas the UNCITRAL Model Law, from where the drafters retrieved most of the
provisions, regulates the international commercial arbitration.2
The CCP has defined the arbitral tribunal as an organisation that can finally and bindingly
resolve private law disputes, subject to the agreement of the parties (CCP § 746, point 2).
Arbitral tribunal can either be a permanent institution (CCP § 716) such as the Court of
Arbitration of the Estonian Chamber of Commerce and Industry or ad hoc organisation
established for a specific dispute. Estonia also recognises the rules of New York Convention
of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (the New York
Convention)3.
Poudret and Besson (2007) have adopted the following definition:
“Arbitration is a contractual form of dispute resolution exercised by
individuals, appointed directly or indirectly by the parties, and vested with the
1 Darek Mose and Brian H. Kleiner (1999). The Emergence of Alternative Dispute Resolution in
Business Today, Equal Opportunities International, Volume 18 Number 5/6, p. 54-61 2 Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, Tallinn,
p. 288 3 Villu Kõve (2010). Aegumise Peatumine Hagi Esitamise või Muu Menetlustoimingu
Tegemisega Kohtus või Kohtuväliselt, Juridica, no.7, p. 529
6
power to adjudicate the dispute in the place of state courts by rendering a
decision having effects analogous to those of a judgment.”4
One particular provision concerns this study; paragraph 718, section 2, point 2 of the Estonian
CCP states that “an arbitral agreement shall be null and void if its object is a dispute
concerning the termination of an employment contract.” 5 The argument to support this
restriction comes from the desire to protect the weaker party in the dispute, that being usually
the employee.6
The main claim presented in this paper is that such an arbitration restriction is not
constitutional. The following pages support the argument that the restrictive provision making
the arbitral award inaccessible option for dispute resolution in the matter of termination of
employment contracts is disproportionate and unnecessary. In order to test this hypothesis this
paper uses qualitative methodology. A comparative method and constitutional analysis to
contrast Estonian laws with other states’ laws that have been used in the drafting process of
Estonian arbitration laws, or that are otherwise relevant, e.g. sources to take into account
when developing Estonian arbitration laws in the light of this research (such as liberal English
and Swedish arbitration laws).
The comparative section includes an overview of arbitration provisions from the German,
Italian, Dutch and Swedish arbitration sections in Civil Procedure Codes, English arbitration
laws, as well as the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958, UNCITRAL Arbitration Rules and UNCITRAL Model Laws of
1985 will be included.
4 Jean-François Poudret and Sébastien Besson (2007). Comparative Law of International
Arbitration, Second Edition, published by Sweet & Maxwell Ltd, p. 3
5 Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 6 Adam Samuel (1989). Jurisdictional Problems in International Commercial Arbitration: A
Study of Belgian Dutch, English, French, Swedish, Swiss, U.S. and West German Law, published by
Schulthess Polygraphischer Verlag,, p. 141-143
7
The constitutional analysis consists of two parts: first, determination of restricted fundamental
laws and second, examination of the necessity/usefulness of the restriction. This last part is
subdivided into three: assessment of its suitability, necessity and proportionality.
2. ALTERNATIVE DISPUTE RESOLUTION AND ARBITRATION
There are two sub-forms of alternatives to going to courts – determinative and elective.
Determinative process involves a third party, an arbitrator, adjudicator or expert who
determines the outcome of the dispute, which is binding.7
Elective process on the other hand is built on the discussions and negotiations. It is more of a
creating a forum where to discuss the differences whereas the settlement of the dispute is up
to the parties. It may involve a legal expert or mediator who may express his/her opinion.8
The main Alternative Dispute Resolution (the ADR) procedures are negotiation as well as re-
negotiation, mediation, conciliation, binding and non-binding expert opinions, online dispute
resolution and arbitration.9
Out of the different methods of ADR procedures, arbitration is the most similar to litigation. It
is also the only method that is recognised by the courts.10
In fact, some forms of third party
involvement – like arbitration – as dispute resolution methods existed even before legal
procedures took shape. Now, the importance of this approach compared to courts has
diminished in Europe and it has left with a secondary position as a dispute resolution tool.
However, arbitration is still largely preferred in commercial law disputes and private law
disputes between states.11
The process of arbitration is much alike to the court proceedings since many of the litigation
elements are present: statements of the case, disclosure of documents, witness statements,
expert witnesses and an arbitrator(s) hearing the evidence and giving the judgement. Arbitral
7 Nigel Broadbent (2009). Alternative Dispute Resolution, Legal Information Management,
Cambridge Journals, no. 9, published by The British and Irish Association of Law Librarians,
available at http://journals.cambridge.org, downloaded on March 6, 2012, p. 195–198 8 Ibid.
9 Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, Tallinn,
p. 281 10
Ibid. 11
Ibid. p. 287
8
awards are also enforceable in courts and recognized internationally.12
However, the main
difference from litigation is that arbitration is based on the parties’ agreement as in a contract.
The choice of the tribunal, the scope of the arbitration, and the applicable rules of procedure
(including applicable law, place of arbitration, language and techniques of the proceedings) all
depend on the agreement of the parties.13
Now again, ADR gathers its popularity and it can be said that it is one of the fastest growing
areas of law. In arbitration proceedings the arbitrator serves mostly as a fact-finder and a
decision-maker, he assesses and decides the dispute, which could be binding but does not
necessarily have to be. If the decision is binding then one cannot go to court with the same
issue unless he tries to prove, among other things, that the arbitrator was biased or failed to
receive all the evidence (see also supra note 28).14
Estonian Code of Civil Procedure (the
CCP) for example, allows 30-day period to make a petition for annulment.15
ADR was introduced in the United States (the US) already after the World War I. The
Arbitration Society of America passed the first modern arbitration statute in 1920s’ in New
York. Around this time, a first company added an arbitration clause in its contracts. The
explosive growth of ADR started in the 1980s'. Now in many jurisdictions in the US there are
even compulsory court sponsored ADR programs to ease the court’s workload from cases that
could settle without litigation. However, in the field of labour arbitration there is growing
criticism and debate on the fairness and legality of mandatory employment arbitration. For
example, there is a lot of deliberation recently whether the in-house arbitration system that is
mandatory to the employee lacks fairness if the ‘judge’ is in fact his own employer16
or is
somehow connected to the employer, which gives rise to conflict of interests and possibly
lack of neutrality. Surely, the award may be challenged in a court and set aside if the
12
Nigel Broadbent (2009). Alternative Dispute Resolution, Legal Information Management,
Cambridge Journals, no. 9, published by The British and Irish Association of Law Librarians,
available at http://journals.cambridge.org, downloaded on March 6, 2012, p. 195–198 13
Ilona Nurmela et al. (2008) Rahvusvaheline Eraõigus, Loengud, published by Juura, Tallinn,
p. 287 14
Bennett A. Neale and Brian H. Kleiner (2001). How to Conduct Arbitration Effectively,
Managerial Law, Vol. 43, No. 1/2, p. 112-115 15
Code of Civil Procedure, § 752 (1), (RT I 2005, 26, 197), entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 16
Bennett A. Neale and Brian H. Kleiner (2001). How to Conduct Arbitration Effectively,
Managerial Law, Vol. 43, No 1/2, p. 112-115
9
procedures prove to be impartial or prejudiced. However, the courts in the US tend to look at
such claims very restrictively and giving large respect to the arbitrators’ decisions.17
In Britain, there were two different concepts of labour dispute: disputes of interest
(negotiation of terms of employment) and disputes of rights (interpretation and application of
existing terms). In 1974 the Advisory, Conciliation and Arbitration Service (ACAC) was
created, which was later given the duty to smooth industrial relations in the course of informal
dispute resolutions such as mediation, arbitration and conciliation. It runs both collective and
individual conciliations. The number of collective conciliations is however decreasing with
the lowering numbers of members in trade unions. Individual conciliations on the other hand
are becoming more numerous. If conciliation does not work out, then the parties may choose
to arbitrate. The conciliator helps the parties to draw up the terms of reference for arbitration.
The ACAC (if turned to that particular body) then appoints an arbitrator (or three for state
level issues) from a pool of persons they have listed. The hearing and arbitrator’s report are
private. 18
Arbitration agreement is typically described as a “private contract with procedural effects”. As
to the validity of the agreement, the civil law provisions apply. Usual requirements among
other things are the procedural and legal capacity of the party to enter into an agreement and
the right to dispute the specific issue. Some issues, such as the access to or custody of
children, are not dispositive, for example.19
Supporters highlight that the advantages of arbitration compared to litigation is its flexibility
as the parties are able to choose almost all aspects of the proceedings.20
They can choose the
arbitrator who may be a lawyer, engineer or architect, etc. depending on the nature of the
case.21
Having an expert or someone who is familiar with the details of the subject and laws
on the issue helps to save a lot of time, which make the proceedings time efficient and
ultimately faster than court proceedings. The parties can also select the rules, the applicable
17
David W. Rivkin and Donald Francis Donovan (2006). Debevoise & Plimpton LLP,
Arbitration World – Jurisdictional Comparisons, Second Edition, published by The European Lawyer
Ltd, p. 406 18
Ramsumair Singh (1995) Dispute resolution in Britain: Contemporary Trends, International
Journal of Manpower, Vol. 16 No. 9, p. 42-52. Published by MCB University Press 19
Bengt Lindell (2004). Civil Procedure in Sweden, published by Författaren och Iustus Förlag
AB, p. 228 20
LAWIN, Arbitration in the Baltics, 2008, p. 9 21
Bennett A. Neale and Brian H. Kleiner (2001). How to Conduct Arbitration Effectively,
Managerial Law, Vol. 43, No. 1/2, p. 112-115
10
laws and the place for the arbitration (the forum).22
The latter three options attach the
international arbitration also the notion of neutrality because the selection of a neutral forum
and laws may be more favourable than submitting the issue to a national court of one of the
parties to the dispute.23
Weigand (2002) has put it in a simple way “arbitration [...] provides
for a neutral tribunal in a neutral jurisdiction”.24
Another great benefit is confidentiality since
neither media nor public is allowed to take part of the proceedings and the awards are not
accessible to third parties.25
Estonian CCP § 741 ensures the confidentiality requirement
which binds the arbitrator to keep in private any information that became available in the
proceedings, unless the parties agree otherwise.26
In fact, this is held to be one of the most
important aspects of arbitration, especially in business disputes,27
where the parties may want
to maintain their trade secrets, for instance. Other benefits of the arbitrations are that the
proceedings are mostly cheap and fast (comparing to litigation). However, these aspects are
arguable. There are arbitral proceedings where the costs may even raise above the court
litigation fees due to the complexity of issues, necessity to rent rooms and counsel, etc.
Furthermore, there are instances where an arbitration institution is so overloaded that some
decisions take up to two years. Therefore, there are occurrences where it can be said that
arbitration is neither faster nor cheaper than litigation. On the other hand, as there are rather
few possibilities to appeal an arbitral award28
, it is nevertheless more common that
arbitrations end up being cheaper and faster than court procedures.29
Another positive aspect
22
Adrian Winstanley (2006). Arbitration World – Jurisdictional Comparisons, Second Edition,
published by The European Lawyer Ltd, p. ix 23
Geoff Nicholas and Bbriana Young, (2006). Ibid. p. xii 24
Frank-Bernd Weigand (2002). Practitioner’s Handbook on International Arbitration,
published by C.H.Beck oHG, p. 7 25
LAWIN, Arbitration in the Baltics, 2008, p. 9 26
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 27
Geoff Nicholas and Bbriana Young (2006). Arbitration World – Jurisdictional Comparisons,
Second Edition, published by The European Lawyer Ltd, p. xii 28
Under the UNCITRAL Model Law, which is widely adapted to Estonian arbitration law, there
are six grounds for challenging an arbitral award. There must have been an invalid agreement to
arbitrate, lack of due process in the proceedings, procedural issues (such as the tribunal did not act as
agreed by the disputants), arbitrability matters (discussed below), public policy concerns (award is in
conflict with the public policy of the place of the arbitration) or that the tribunal exceeded its
jurisdiction.
Alan Redfern et al. (2004). Law and Practice of International Commercial Arbitration, Fourth Edition,
published by Sweet & Maxwell Ltd, p. 413-421 29
Frank-Bernd Weigand (2002), Practitioner’s Handbook on International Arbitration,
published by C.H.Beck oHG, p. 7-10
11
of arbitration is the final and binding awards (subject to limited challenges brought out in
supra note 28) and enforceability (due to the widely accepted New York Convention, which
binds the member states to recognise and enforce foreign arbitral awards).30
Estonian CCP, for
example, sets clearly out in § 754, section 1 that the arbitral awards made in foreign countries
will be recognised and enforced according to the New York Convention of 1958.31
3. COMPARATIVE STUDY ON ARBITRATION
Arbitration is a private dispute resolution mechanism that is now, by some extent, regulated
with laws and international agreements. Most of the European Union (EU) member states
have arbitration laws or the arbitration is regulated in the Code of Civil Procedure.32
At the
same time, many states have used the United Nations Commission on International Trade Law
Arbitration Model Laws (the UNCITRAL Model Laws) of 1985 as guidance to regulate the
arbitration and many others the same Model Laws but the amended version (in 2006). Estonia
belongs to the latter group.33
Those states are also called as the ‘model law countries’.34
Therefore, the core principles of Estonian CCP emanate from the UNCITRAL Model Laws of
1985 with amendments as adopted in 2006 and the New York Convention of 1958.
Nevertheless, it became clear to the drafters that the international agreements alone are not
sufficient to prepare a competent law. Therefore, they used other sources, namely the German
Arbitration Law from the Tenth Book of Civil Procedures (Zivilprozeßordung; ZPO) as well
as the laws of the Netherlands and Italy.35
30
LAWIN, Arbitration in the Baltics, 2008, p. 9 31
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 32
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 287-
288 33
1985 - UNCITRAL Model Law on International Commercial Arbitration, with amendments
as adopted in 2006, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html 34
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 288 35
Draft of the Estonian Code of Civil Proceeding, 208 SE I, Explanatory Note (In Estonian),
available at
http://www.riigikogu.ee/?op=emsplain&content_type=text/html&page=mgetdoc&itemid=033370012
12
There are various limitations to arbitration in different countries in order to protect the
economically weaker party. These limits, however, are not uniform.36
Estonian CCP or any
other states’ arbitration laws do not define the concept of ‘arbitrability’. However, this term is
often used in case law or legal literature. Arbitrability means that the subject of the dispute is
“capable of settlement by arbitration”.37
Areas that are now and then seen as not appropriate
for settlement by arbitration are, for example, competition, intellectual property, consumer,
family, securities, bankruptcy and employment law-related disputes. States are free to decide
upon which disputes are or are not arbitrable.38
As mentioned before, the main protest to
allow arbitration in employment disputes comes mostly from the fright that the employer uses
his better bargaining power to leave the worker without his rights under the contract. Different
countries have approached this issue in different ways. Some prohibit employment arbitration
altogether, some try to build safeguards to protect the weaker party and others permit it
throughout.39
This part of the research explores whether any of the relevant states have
arbitration limits as regards to employment relations. In addition, the laws of arbitration in the
Great Britain and Sweden are also investigated because these states have extensive experience
on the field of arbitration. In addition, a short overview of UNCITRAL Model Laws and New
York Convention of 1958 is provided given that these are sources from where Estonia based
its CCP. In addition, UNCITRAL Arbitration Rules are briefly reviewed because these are set
of rules, which could be employed, among other circumstances, when creating a (national)
employment institution for arbitration, for example.
3.1. Germany
The German Civil Procedure (the ZPO) dates back to 1877. From then on, the provisions
about arbitration were subject to some changes but the main structure remained the same.
Since 1998, however, the arbitration laws went through fundamental changes. Germany
substituted most of the old provisions with UNCITRAL Model Laws.40
The importance of
36
Jean-François Poudret and Sébastien Besson (2007). Comparative Law of International
Arbitration, Second Edition, published by Sweet & Maxwell Ltd, p. 314 37
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 307 38
Ibid. 39
Adam Samuel (1989). Jurisdictional Problems in International Commercial Arbitration: A
Study of Belgian Dutch, English, French, Swedish, Swiss, U.S. and West German Law, published by
Schulthess Polygraphischer Verlag, p. 141-143 40
Prof. Dr. Gerhard Wagner (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 685
13
arbitration has been steadily increasing from then on.41
According to the old law, the idea of
arbitrability was attached to the power of the disputants to settle their issue. In other words, if
they did not have the right to dispose of the dispute on their own then they did not have the
right to arbitrate it as well (normally, it means the party may not be a minor or under a
guardianship). After the modifications, the ZPO indicates that the requirement of ‘the parties’
power to settle the dispute’ is limited to the non-fiscal issues. Now, all monetary claims are
arbitrable as such.42
Section 1030 of ZPO provides:
“(1) Any claim involving an economic interest can be the subject of an
arbitration agreement. An arbitration agreement concerning claims not
involving an economic interest shall have legal effect to the extent that the
parties are entitled to conclude a settlement on the issue in dispute.
(2) An arbitration agreement relating to disputes on the existence of a lease of
residential accommodation within Germany shall be null and void. This does
not apply to residential accommodation as specified in section 549 subs. 1 to 3
of the Civil Code.
(3) Statutory provisions outside this Book by virtue of which certain disputes
may not be submitted to arbitration, or may be submitted to arbitration only
under certain conditions, remain unaffected.” 43
Despite the clear language of the first sentence of Section 1030 ZPO, the drafters insisted that
some monetary claims should not be allowed to be referred to arbitration. By now, the
German Federal Supreme Court has also held that there are some restrictions on arbitrability
of certain pecuniary matters. The main concern, however, is protection of the interests of third
parties.44
The legislator also intended to protect the public interest and thus added § 1030
Section 3, which holds that some provisions not written in the ZPO could nevertheless
constitute as exceptions to the arbitrability of certain subject matters. The reason for limiting
41
Dr. Wolfgang Kühn and Ulrike Gantenberg (2006). Arbitration World – Jurisdictional
Comparisons, Second Edition, published by The European Lawyer Ltd, p. 93 42
Prof. Dr. Gerhard Wagner (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 701 43
German Code of Civil Procedure, Tenth Book, published by Trans-Lex.org Law Research,
available at http://www.trans-lex.org/600550 44
Prof. Dr. Gerhard Wagner (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 702
14
arbitrability in these cases is to avoid private proceedings over which the national authorities
have no supervision. Such disputes are, for instance, over some aspects in intellectual
property, corporate issues, family law disputes and employment proceedings. The
Employment Courts Act (Arbeitsgerichtsgesetz – the ArbGG) covers employment arbitration
in Germany. §101 Section 3 in ArbGG provides that the arbitration in employment matters is
not governed by the ZPO and accordingly, § 1030 ZPO is not applicable in these issues. The
ArbGG sat up a system of arbitral proceedings which orders for the representation of the
parties (the management and unions) to collective wage agreements. Other labour issues are
not arbitrable in Germany45
, including disputes over the termination of employment contract.
3.2. Italy
Italian law of arbitration went through a full reform in 1994 when the Civil Procedural Code
was updated with the Act no. 25 of January 5. After this, Italian arbitration laws were found in
Civil Procedure Code (CCP) of 1940, Act no. 28 of February 9, 1983 (the Amendment) and
the Act no. 25 of January 5, 1994 (the Reform), altogether referred to as the Arbitration
Law.46
Arbitration is not particularly widespread in Italy. It takes only a small share of proceedings
compared to the courts. Most of the arbitrations are conducted on ad hoc basis. The reason for
this unpopularity is that the arbitration in Italy is portrayed as an expensive and highly
sophisticated mechanism.47
However, the laws of arbitration went through a reform in 2006 with the Decree no. 40 of
February 2, 2006 (the Arbitration Law). Those laws are now found in Articles 806-840 of the
Italian CCP. The aim was to make Italian arbitration laws more international, modern as well
as flexible, and to lose the distinction between national and international arbitration. After this
there has been a growth of popularity in using particularly institutional arbitrations.48
These
reasons and the pattern is similar to one in Estonia.
Article 806 of the Italian Code of Civil Procedure provides:
45
Rolf Trittmann and Inka Hanefeld (2007). Arbitration in Germany, published by Kluwer Law
International, p. 112-126 46
Dr. Mauro Rubino-Sammartano (2002), Practitioner’s Handbook on International
Arbitration, edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 831 47
Ibid. p. 832 48
Nadia Milone (2011) Arbitration: the Italian Perspective and the Finality of the Award, Oñati
Socio-Legal Series, vol. 1, no. 6, p. 3
15
“The parties may have the disputes arising between them decided by
arbitrators, with the exception of the disputes provided for in Articles 409 and
442 (1), those concerning issues of personal status and marital separation and
those other disputes which may not be the subject of a settlement”.49
As to the employment disputes, the Sections 4 and 5 of the Statute no. 553 of August 11, 1973
maintained that these are not arbitrable. Although, an exception is made, permitting arbitration
if it is provided for by the law or by domestic collective agreements. Nonetheless, in these
cases, too, the parties could have start court proceedings instead of arbitrations if they want.50
The new Arbitration Law provides the same conditions regarding employment arbitration.51
3.3. The Netherlands
Arbitration laws in Netherlands are contained in the Arbitration Act, which is Book Four in
the Code of Civil Procedure of 1986, consisting of Articles 1020-1076. This act includes a
significant part of the case law that had developed before 1986. When composing this act the
drafters used French and Swiss modern arbitration statutes as well as UNCITRAL Arbitration
Rules and Model Law of 1985 on International Commercial Arbitration.52
The Dutch
Arbitration Act does not make a distinction between ‘domestic’ and ‘international’ and it thus
applies equally on both levels.53
In this way, the Netherlands is similar to England and
Germany who have also decided to adopt a common law for both domestic and international
arbitration. Italy and Estonia took that step in 2006 when modernizing their arbitration laws.
Sweden, on the other hand, just added some of the international provisions to its arbitration
law. 54
49
Italian Code of Civil Procedure, Title VIII of Book IV – Arbitration, published by
lexmercatoria.org, available at http://www.jus.uio.no/lm/italy.arbitration/landscape.pdf 50
Dr. Mauro Rubino-Sammartano (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 831 51
Nadia Milone (2011) Arbitration: the Italian Perspective and the Finality of the Award, Oñati
Socio-Legal Series, vol. 1, no. 6, p. 4 52
Dr. Vesna Lazic and Gerard Meijer (2002). Practitioner’s Handbook on International
Arbitration, edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 889 53
Ibid. p. 890 54
Jean-François Poudret and Sébastien Besson (2007). Comparative Law of International
Arbitration, Second Edition, published by Sweet & Maxwell Ltd, Zurich, p. 881-882
16
Arbitration in Netherlands has considerably expanded in the 20th
century and is now broadly
used alternative, both institutional and ad hoc-wise.55
Unlike the old arbitration law, the
current Arbitration Act does not include a provision about the capacity of a participant to enter
into an arbitration agreement. The applicable provisions from the Civil Code or other statutes
determine this issue. However, the Act does define subject-matter arbitrability in Article 1020
Section 3: “The arbitration agreement shall not serve to determine legal consequences of
which the parties cannot freely dispose“56
. This means that the issues of public policy are in
the jurisdiction of judiciary and not arbitrable. Consequently, the courts have sole jurisdiction
over disputes concerning the renting of houses, real estate and business accommodation as
well as agricultural leases, for example. However, unlike in Estonia, the disputes over
employment contracts are arbitrable in the Netherlands.57
3.4. The Great Britain
The arbitration laws of England emerge from both the common law (from 1698) and statutes.
Until 1997, the arbitration laws were fragmented between three Arbitration Acts of 1950,
1975 and 1979 as well as some other statutes and case law. This, however, was inconvenient
for the users of arbitration and therefore the Departmental Advisory Committee on Arbitration
Law was asked to work out a new act. There was a debate whether the UNCITRAL Model
Laws should be incorporated into English law but the Committee disapproved the idea.58
The
new Arbitration Act came into force in 1997 and its objective was to “improve arbitration as
fair, speedy and cost-effective way of resolving disputes”59
. It was added that the Act includes
UNCITRAL Model Law ‘as much as possible’.60
This Act was meant to be as a broad statute
but not as a complete code.61
As regards today, the use of arbitration is increasingly growing
55
Dr. Vesna Lazic and Gerard Meijer (2002) Practitioner’s Handbook on International
Arbitration, edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 890 56
Dutch Code of Civil Procedure, Book Four: Arbitration Act, Art. 1020, available at
http://www.jus.uio.no/lm/netherlands.arbitration.act.1986/1020.html 57
Dr. Vesna Lazic and Gerard Meijer (2002). Practitioner’s Handbook on International
Arbitration, edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 897 58
Karen Maxwell (2002) Practitioner’s Handbook on International Arbitration, edited by Frank-
Bernd Weigand, published by C.H.Beck oHG, p. 593 59
Ibid. p. 594 60
Ibid. 61
Audley Sheppard (2006). Arbitration World – Jurisdictional Comparisons, Second Edition,
published by The European Lawyer Ltd, p. 64
17
in England.62
In fact, London is claimed to be one of the leading international commercial
arbitration centres of the world.63
The new Arbitration Act does not address the questions of personal or objective arbitrability.
Concerning the personal arbitrability the Act provides that the power to make an agreement is
dependent on the laws of the state with which the agreement is most closely attached or the
laws of the parties’ residence or domicile. The issue of objective arbitrability is left intact
because it is not fully formed area with little judicial directions. The House of Lords
disapproved the suggestion to add a list of subjects that are not arbitrable. It based its
disapproval on the argument that it is ‘ultimately unachievable’ to make an exhaustive list of
such subjects.64
On the contrary, it is required by different legislations that some disputes must be passed on
“statutory arbitration”, such as disputes relating to industrial relations, for example. The
bottom line is, however, that the Act allows the courts to develop the rules on arbitrability as
custom to the Common Law countries. Although, criminal matters and family law disputes
are not deemed arbitrable.65
3.5. Sweden
Sweden has been recognising arbitration as an alternative for dispute resolution for a very
long time – the first statute regarding arbitrations was passed already in 1887. Current law on
arbitration is the Arbitration Act of 1999. The Act deals with both domestic and international
questions. The substance of it is very similar to that of UNCITRAL Model Law.66
The leading
arbitral institution in Sweden is the Arbitration Institute of the Stockholm Chamber of
Commerce (the AISCC).67
It was established in 1917 and it is interesting to observe that it
gained its popularity during the 1960s’ and 1970s’ while resolving disputes between the West
62
Karen Maxwell (2002). Practitioner’s Handbook on International Arbitration, edited by
Frank-Bernd Weigand, published by C.H.Beck oHG, p. 596 63
Audley Sheppard (2006). Arbitration World – Jurisdictional Comparisons, Second Edition,
published by The European Lawyer Ltd, p. 63 64
Karen Maxwell (2002). Practitioner’s Handbook on International Arbitration, edited by
Frank-Bernd Weigand, published by C.H.Beck oHG, p. 600 65
Audley Sheppard (2006). Arbitration World – Jurisdictional Comparisons, Second Edition,
published by The European Lawyer Ltd, p. 67 66
Kaj Hobér and Hans Strempel (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 1001 67
Ibid. p. 1002
18
and Eastern Europe.68
Every institution has its own rules and if the parties want to settle their
dispute in an institution, as opposed to ad hoc proceedings, then the institutional rules become
applicable. In case the parties choose to go for ad hoc arbitration then the provisions of
Arbitration Act apply.69
The Arbitration Act gives a rather wide range of the subject matters of arbitration when
stating in Section 1 that “matters in respect of which the parties may reach a settlement may,
by agreement, be referred to one or several arbitrators for resolution.” 70
However, it is
stressed that only the matters that can be resolved in a civil action can be referred to
arbitration. Issues requiring penalty or punishment (criminal matters) are not arbitrable. The
majority issues in family law are also not arbitrable. As regards to the employment issues,
though, the parties are apparently free to agree to arbitrate in current, as well as future
disputes.71
In general, it can be said that the Netherlands, Italy and Germany are more restrictive than
Sweden and England with their rather liberal approach towards arbitration.
3.6. The New York Convention of 1958
In the light of the growing use of international arbitrations, the United Nations saw the need to
create a uniform legislative framework for recognising and enforcing arbitral awards that are
rendered in other states or in the same state where tried to be enforced but have foreign
elements, such as some other state’s laws that are applied to the proceedings (non-domestic
awards).72
ICC produced the first draft in 1953 and it was called the “Convention on the Recognition and
Enforcement of International Arbitral Awards”. However, the concept of ‘international
68
Hans Bagner and Mattias Rosengren (2006). Arbitration World – Jurisdictional Comparisons,
Second Edition, published by The European Lawyer Ltd, London, p. cxxi 69
Kaj Hobér and Hans Strempel (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 1002 70
The Swedish Arbitration Act, Section 1, SFS 1999:116, Arbitration Institute of Stockholm
Arbitration Institute website, available at http://www.chamber.se/?id=23746 71
Jean-François Poudret and Sébastien Besson (2007). Comparative Law of International
Arbitration, Second Edition, published by Sweet & Maxwell Ltd, Zurich, p. 313 72
1958 - Convention on the Recognition and Enforcement of Foreign Arbitral Awards - the
"New York" Convention, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html, accessed on May 3,
2012
19
arbitral awards’ was too ground-breaking thought at the time and so the United Nations
Economic and Social Council (ECOSOC) changed the it to the “Convention for the
Recognition and Enforcement of Foreign Arbitral Awards”. 73
The fundamental idea of this framework was to avoid the discrimination of domestic arbitral
awards against non-domestic and foreign arbitral awards, and the uniform recognition of all of
these in every jurisdiction of the member states. The Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, shortly called as the New York Convention became
into force in June 7, 1958. All of the United Nation’s (UN) Member States, the states that are
Party to the Statute of International Court of Justice or any state, which is a part of some
specialised UN’s agency have the right to access and be a member of this Convention.74
There
are currently 146 Parties to the Convention, including Estonia (from 1993).75
As to the arbitral awards rendered on the subject of the termination of employment contracts,
this convention would be useful only under two conditions. Firstly, the arbitration should have
an international element and secondly, such subject matter should be arbitrable in Estonia.
3.7. UNCITRAL Arbitration Rules
The General Assembly of United Nations established the United Nations Commission on
International Trade Law (UNCITRAL) in 1966. UNCITRAL adopted its Arbitration Rules in
1976.76
UNCITRAL Arbitration Rules are a broad and thorough set of rules that regulate all
aspects of the arbitration, including how and on what terms the arbitrators are chosen, how the
arbitral proceedings are carried through, how the solution (award) is given – its formalities,
interpretation and the effect. It also provides a model clause that can easily be inserted in the
73
Pieter Sanders (1998). The Making of the Convention, “Enforcing Arbitration Awards under
the New York Convention: Experience and Prospects”, papers presented at "New York Convention
Day", United Nations Publication, June 10, p. 3, available at
http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/NYCDay-e.pdf 74
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) - the
"New York" Convention, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html, accessed on May 3,
2012 75
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). Status,
available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html,
accessed on May 3, 2012 76
The UNCITRAL Guide: Basic facts about the United Nations Commission on International
Trade Law, (2007). United Nations Publication, p. 1, available at
http://www.uncitral.org/pdf/english/texts/general/06-50941_Ebook.pdf, accessed on May 4, 2012
20
contracts. Those rules, upon agreement between the parties, may be used in both institutional
as well as ad hoc proceedings.77
In 2006, however, the Commission made a proposition that
the Rules should be modified in order to stay contemporary and viable. The main concern was
to make the proceedings (through more detailed rules) more efficient and reasonable. The
spirit and the structure of the original text, however, remained the same. The revised rules
have been in force since 2010.78
Although UNCITRAL Arbitration Rules are designed for
commercial disputes of national and international as well as institutional and ad hoc nature,79
parts or all of it may very successfully be applied to national employment dispute arbitrations.
3.8. UNCITRAL Model Laws
UNCITRAL Model Law on International Commercial Arbitration was adopted in 1985. The
intention behind this was to help the states to introduce reforms in their arbitration procedures
to make the arbitrations more efficient and international commercial arbitration friendly. The
Model Laws cover all phases of arbitration including all questions related to the tribunal and
the award. States can enact these model laws in whole or adopt part of these to their national
legislation.80
Estonia, as mentioned before, did so in 2006 by using UNCITRAL Model Laws
as guidance when drafting the arbitration section in its Code of Civil Procedure. The same
year some of the reforms were introduced in the UNCITRAL Model Laws itself in order to
make these more comprehensive and meet the needs of contemporary international contract
practices.81
One of the closest followers of UNCITRAL Model Laws is Germany, whereas it can be said
the opposite as regards to Sweden. England, on the other hand, has only taken its structure and
terminology, leaving the rest up to the traditional rules and case law to be determined. As
77
UNCITRAL Arbitration Rules (1976), available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1976Arbitration_rules.html, accessed on
May 3, 2012 78
UNCITRAL Arbitration Rules (as revised in 2010), available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2010Arbitration_rules.html, accessed on
May 3, 2010 79
Ibid. 80
UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments
as adopted in 2006, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html, accessed on
May 4, 2012 81
Ibid.
21
German laws are the main source of Estonian laws, it appears that Estonia, too, is one of the
closest followers of UNCITRAL Model Laws.
4. CONSTITUTIONAL ANALYSIS
Although according to the principle of private autonomy, the parties are free to shape their
legal relationships. Furthermore, approving arbitral tribunals only helps to save the costs of
courts to the state and reduce the national courts’ workload. However, it is apparent that
because of the public interests the states cannot leave all the disputes to be resolved by the
parties themselves. There is an understanding that the courts have to be assigned an exclusive
competence to resolve some specific disputes because of fundamental public policy concerns.
§ 718, section 4 of the Estonian CCP states that it may be established by laws to prohibit to
refer certain disputes to arbitration.82
For example, criminal matters are to be referred only to
court proceedings.83
Criminal matters (as well as family law disputes) are also not arbitrable
in England.84
Sweden as well, although being a very liberal state concerning the variety of
subjects it allows to be arbitrated, provides an exclusive jurisdiction to courts in criminal and
the majority of family law matters.85
Therefore, the arbitration clause in a contract must not provide for settling some issues that
are not resolvable by way of arbitration. Otherwise, the arbitral award is invalid and the
tribunal cannot conduct arbitral proceedings based on that clause. For example, in
international commercial disputes, the prohibition of resolving bankruptcy issues through
arbitration is justified because of the state’s interest to protect the functioning of its economy.
Estonian CCP, however, has also prohibited arbitration in connection with the termination of
an employment contract (CCP § 718, section 2, point 2).86
The disputed provision is relevant
because it raises a fundamental question: Why, in an individualistic and liberal state the
government still wants to intervene into people’s lives and make decisions on their behalf,
even if to protect the (arguably) ‘weaker party’? Whether the employee nowadays is certainly,
82
Code of Civil Procedure, RT I 2005, 26, 197, entered into force on January 1, 2006, available
also at https://www.riigiteataja.ee/akt/128122011044 83
Code of Criminal Procedure, RT I 2003, 27, 166, entered into force on July 1, 2004, available
also at https://www.riigiteataja.ee/akt/117042012006 84
Audley Sheppard (2006). Clifford Chance LLP, Arbitration World – Jurisdictional
Comparisons, Second Edition, published by The European Lawyer Ltd, p. 67 85
Jean-François Poudret and Sébastien Besson (2007). Comparative Law of International
Arbitration, Second Edition, published by Sweet & Maxwell Ltd, Zurich, p. 313 86
Maarja Torga (2007). Vahekohtuklausli Kehtetuse Alused Rahvusvahelistes
Kaubanduslepingutes, Juridica, no. 6, p.393
22
and in every case, the weaker party of a transaction, is an independent issue that could be
subject of further analysis.
Many legal professionals recognise the weakness of excessive regulating. Foreign authors
such as Mill (1859)87
, Bryce (1920)88
, Hardin (1979)89
and more recently Blair in his
autobiography (2010)90
state that the over-regulation puts restraints to economy and that issue
seems to be alarmingly growing. They seem to agree that not all people can be protected
against themselves in every aspect of life. In the domestic legal literature, former Chancellor
of Justice Jõks (2011) has also stated that over-regulation and abundance of different acts
obscures the clarity of legal order. He asserted that the inefficient and unpractical regulations
do not accord to the new needs of the society. Consequently, this may restrain the labour
market as well as competition and therefore slow down the economic growth of a state. In
order to improve these problems he suggests, among other things, to add thorough
explanatory notes with the draft bills which state precisely why the restrictions are established
and what are the purposes of these. He also stresses that every restriction has to have a
legitimate purpose and be proportional.91
Whether that arbitration restriction is necessary and whether it distorts the nature of the
restricted rights and liberties is examined in this chapter. If constitutional rights are somehow
restricted, then the first step in the analysis is to make clear what is the scope of that right or
freedom and what conditions have to be present to allow the restriction. It must also be
identified whether the restriction is necessary in a democratic society.92
§ 11 of the Constitution of the Republic of Estonia (the Constitution) states:
87
John Stuart Mill, Essay on Liberty (1859), Harvard Classics, Vol. 25, published by Longman,
Roberts & Green, available in internet at http://www.bartleby.com/130/, accessed on May 10, 2012 88
James Bryce (1920). The American Commonwealth, The National Government, the State
Government, vol. 1, published by Macmillan, 1920, p. 406 89
Clifford M. Hardin, Ph.D (1979) The effects of Over-Regulation, Food, Drug, Cosmetic Law
Journal, vol. 50, p. 50-57, downloaded from HeinOnline (http://heinonline.org) on May 10, 2012 90
Tony Blair (2010). A Journey, published by Hutchinson, p. 645, 668, 685-686 91
Allar Jõks (2011). Õiguskantsler Kaitseb Õigussüsteemi Legitiimsust, Riigikogu Toimetised,
No. 24, available in internet at http://www.riigikogu.ee/rito/index.php?id=11857 92
Taavi Annus, Berit Aaviksoo (2002). Riigi, kohalike omavalitsuste, perekonna ja muude
isikute kohustused põhiseaduslike õiguste tagamisel sotsiaalhoolekande valdkonnas, Juridica, Special
Edition, p. 6-61,
http://www.juridica.ee/juridica_et.php?document=et/articles/2002/Eriv%C3%A4ljaanne/46639.PRN.p
rv.php
23
“Rights and freedoms may be restricted only in accordance with the
Constitution. Such restrictions must be necessary in a democratic society and
shall not distort the nature of the rights and freedoms restricted”.93
This paragraph sets out three conditions that the restriction must meet. Firstly, every
restriction has to be in accordance with the Constitution (which means it has to be legal and
follow due process). Secondly, the restriction has to be necessary in a democratic society
(respectful of the doctrine of a free society) and thirdly, the restriction must not distort the
nature of the rights and freedoms that are restricted (it must not set an inconsistency so that
the initial meaning would be defeated in its purpose). 94
The question therefore is whether § 718, section 2, point 2 of the Estonian CCP which states
that “an arbitral agreement shall be null and void if its object is a dispute concerning the
termination of an employment contract” 95
restricts any of the rights and freedoms and if, then
is the restriction in accordance with the Constitution?
Rights and freedoms may only be limited in accordance with the Constitution. This means
that every restriction that limits any fundamental rights has to be comply with all norms of the
Constitution. 96
First, what are those 'fundamental rights'? Fundamental rights can be seen in two ways. These
can be seen as material or formal rights.
Fundamental rights in the material meaning are the rights that stem from the essential beliefs
of a state. In a liberal rule of law state, these rights are seen as the individual rights for
freedom. The flaw of this material view is that it bonds the meaning of fundamental rights
with a concept of the state. Thus, according to this view the right for education, for example,
93
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English et
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 94
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p.110 95
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 96
Ibid.
24
does not belong to the fundamental rights, as it is not an essential right for freedom in the
liberal traditions, even though it is placed in the II Chapter of the Constitution, which is
named as “Fundamental rights, freedoms and duties”. 97
In a formal view, on the other hand, all rights and freedoms that are placed in the II Chapter of
the Constitution are fundamental rights. Therefore, the fundamental rights are brought out in
Paragraphs 8-55 of the Constitution.98
In general legal practice, it is enough to handle the
fundamental rights as the rights that regulate the relationship between an individual and state.
This meets, in general meaning, the formal concept.99
Ernits (1996) was on the opinion that it
is more practical to tie the meaning of fundamental right to the formal criteria. There are also
various provisions throughout the Constitution that have the same function as fundamental
rights. Such is, for example, § 146 which gives the courts the independence to solely
administer justice in accordance with the Constitution and laws. Therefore, this provision can
be called as equal to the fundamental rights. 100
In contrast, Ernits (2011) has also brought out in one of his articles that (one of the strongest
advocates of the material principle) Carl Schmitt argued that the problem with the formal
criteria is that the constitution contains many other rights that are difficult to differentiate
from fundamental one. Moreover, some of the rights that are not evident in the text of the
constitution are nevertheless accepted as fundamental rights.101
In context of the current research, it is relevant to analyze the following provisions of the
Constitution: §15, 19, 24 and 146, and examine whether any of these rights are restricted by
this arbitration limit at issue.
97
Madis Ernits (1996). Põhiõiguste Mõiste ja Tähtsus Õigussüsteemis, Juridica, No. 9, p. 463-
471 98
Ibid. 99
Madis Ernits (2011). Põhiõigused, Demokraatia, Õigusriik, Tartu Ülikooli Kirjastus, p.142-
143 100
Madis Ernits (1996). Põhiõiguste Mõiste ja Tähtsus Õigussüsteemis, Juridica, No. 9, p. 463-
471 101
Madis Ernits (2011). Põhiõigused, Demokraatia, Õigusriik, Tartu Ülikooli Kirjastus, p.136-
137
25
4.1. Right of Recourse to the Court
§ 15 of the Constitution provide the right for everyone whose rights and freedoms are
infringed to turn to court.102
It demands prima facie flawless and as efficient judicial
protection as possible.103
The adverse effect of CCP § 718 section 2, point 2 to § 15 of the Constitution is that it
excludes the option to go for arbitration proceedings if the dispute rises over the termination
of employment contract and thus potentially deprives a person from effective legal protection.
Although quite on the contrary, it may seem that that this provision intends to assure the
maximum legal protection possible, it comes out from the following sections that this
standpoint is arguable.
The idea of effective legal protection is a central part of § 15 section 1, sentence 1, which
provides the general right to turn to the court – the right that the people are entitled to when
their rights and freedoms are violated. The general right to the judicial protection is
systematically essential to accord to the Rule of Law principle established in § 10 of the
Constitution. One must agree that the constitution, the laws and other rights and freedoms
contained in legislation would be useless if the legitimate rights of these individuals would
have no real chance to be defended, where appropriate, through fair and efficient judicial
process.104
It is, however, often that arbitration is the most efficient process and protection as possible. As
mentioned before, arbitration in flexible, confidential, and usually fast as well as cheap. For
many employees this would most likely be the best solution in order to resolve disputes over
termination of the contract. Furthermore, the necessity to solve the disputes over the
termination of employment contracts as quickly as possible stems also from the fact that the
issue concerns probably the only income of that person. Long proceedings however, may
102
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 103
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p.138 104
Indrek Teder, Chancellor of Justice (2012). Arvamus, Põhiseaduslikkuse järelevalve,
Kohtumenetluses KrMS § 385 punktis 26 sätestatud piirangu põhiseaduslikkus, Opinion no. 9-
2/120581/1201975, 23.04.2012
26
radically worsen his or her living standards. In any case, illegal termination of an employment
contract is not automatically void. In order to establish the illegality of the termination of a
contract, one has two options now: to turn to court or labour dispute committee.105
Here are
some arguments why arbitration should be as valid an option as these two.
It is said that the greatest advantage of the labour dispute committee is its speediness. Its
decision must not be made later than about one month from the filing date unless there are
some exceptional circumstances. However, the greatest flaw of this committee is that the
financial claim cannot exceed 10 000 Euros as set out the Individual Labour Dispute
Resolution Act.106
§ 100, section 4 of the Employment Contracts Act notes in its first sentence
that:
“If an employee cancels an employment contract extraordinarily for the
reason that an employer is in fundamental breach of the contract, the
employer shall pay the employee compensation to the extent of three months'
average wages of the employee.” 107
Therefore, if the employee's three months salary, for example, exceeds 10 000 Euros then the
claim will simply be reduced to meet the criteria. Another option is then of course the court
but according to principle of the ‘reasonable length of the proceedings’, the solution is usually
given in between a couple of months until a year or more, depending on the circumstances.108
The parallel could be drawn with Italy, for example, where arbitrations are mainly chosen to
avoid the slow legal proceedings (which can last for years) as opposed to arbitration that, in
2008, took typically around 170 days.109
In response to lengthy judicial proceedings, Park
105
Heli Raidve, Mari Rask (2010). Töölepingu Seadus Praktikas, Kolmas Raamat, published by
AS Äripäev, p. 104 106
Individual Labour Dispute Act, § 4 (11), RT I 2010, 22, 108, entered into force 1 January
2011, available also at https://www.riigiteataja.ee/akt/130062011005 107
Employment Contracts Act (Consolidated text), RT I 2009, 5, 35, entered into force 1 July
2009, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=XXXX060&keel=en&pg=1&ptyyp=R
T&tyyp=X&query=t%F6%F6lepingu+seadus 108
Kaia Läänemets (19 February 2010). Töövaidlus: Kas Pöörduda Kohtusse või
Töövaidluskomisjoni? Äripäev, available at
http://raamatupidaja.ee/article/2010/02/19/Toovaidlus_kas_poorduda_kohtusse_voi_toovaidluskomisj
oni 109
Nadia Milone (2011). Arbitration: the Italian Perspective and the Finality of the Award, Oñati
Socio-Legal Series, vol. 1, no. 6, p. 3
27
(2011) has aptly stated that “justice too long delayed becomes justice denied”110
. Section 28
(1) of the Rules of the Court of Arbitration of the Estonian Chamber of Commerce and
Industry, on the other hand, sets clearly out that:
“The Arbitration Court shall resolve the dispute as quickly as possible; however,
not later than within six months of the delivery of the statement of claim and its
annexes to the arbitrator or the arbitrator presiding over the arbitral tribunal.”111
Nevertheless, it is very common that parties do not file very complex claims in the labour
dispute committees but choose courts instead in order to receive approach that is more
competent.112
This indicates that the labour dispute committees are not (at least seen) as
proficient institutions.
Hence, there should be a third alternative which does not have a financial claim limit and is as
fast as labour dispute committee and as competent as a court. It is logical to presume that the
arbitral tribunal would be as competent as necessary since the parties themselves can choose
the right specialists to rule on the dispute.113
In any case, adding another alternative makes the
proceedings faster in every level and reduces the excessive workload of both the courts and
the labour disputes.
Moreover, ‘freedom of choice’ is a philosophical question, which will not be analysed further
in this paper and it has already been well done by Aristotle (350 BC) who described the
ability to ‘choose’ as one of the distinguishing features that differs humans from lower
110
William W. Park (2011). Arbitration in Autumn, Journal of International Dispute Settlement,
Vol. 2, No. 2, p. 287–315, downloaded from http://jids.oxfordjournals.org/ at eIFL - Estonia (2005)
on April 18, 2012 111
The Rules of the Court of Arbitration of the Estonian Chamber of Commerce and Industry,
entered into force on January 1, 2008, available at
http://www.koda.ee/public/ECCI_Court_of_Arbitration_Rules.pdf, accessed on May 1, 2012 112
Kaia Läänemets ( February 19, 2010). Töövaidlus: Kas Pöörduda Kohtusse või
Töövaidluskomisjoni?,Äripäev, available at
http://raamatupidaja.ee/article/2010/02/19/Toovaidlus_kas_poorduda_kohtusse_voi_toovaidluskomisj
oni 113
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, Tallinn,
p. 287
28
animals.114
In most circumstances, people should be given the opportunity to exercise this
ability.
4.2. Free Self-realisation
The need for alternatives and freedom of choice bring us to the first sentence of § 19 of the
Constitution which provides us with the right to free self-realisation.115
This provision is
relevant because CCP § 718 section 2, point 2 does not allow to choose arbitration
proceedings when the issue of the dispute is the termination of employment contract and thus,
violates the fundamental right to freedom set out in § 19 sentence 1.
Although this paragraph sounds laconic, its meaning as the centrepiece of fundamental rights
must not be underestimated. The general right to freedom is derived from this provision. As
the sentence 1 of § 19 has no particular object of freedom, the term ‘free self-realisation’ can
be interpreted in countless ways. However, on the abstract level it has been viewed in two
fundamentally different ways. First, it can be assumed that all of the important fundamental
rights are named in the II Chapter of the Constitution. If so, then sentence 1 of § 19 should
cover only the most dignified ways of self-realisation, i.e. those freedoms that are at least as
important as the liberties listed in the catalogue. In that way, this provision would merely fill
in the gaps, given that it covers only the areas of freedoms that were just inadvertently
overlooked by the legislators. 116
Another approach is that since, unlike other fundamental
rights, it has no concrete object of freedom; the purpose of it is the freedom itself, i.e. the
general right to freedom. By that approach, the first sentence of § 19 covers all lawful
freedoms. Lawful freedom consists in the permission to do and not do everything and
anything that a person wants as long as the law does not prohibit it. It is also said that free
self-realisation can be free only if everyone can define it in his or her own way 117
§ 19, sentence 1 is lex generalis, which falls back whenever some specific right to freedom is
restricted. This means that it has a subsidiary character, which means that its violation will not
114
Aristotle (350 BC). The Nicomachean Ethics, Book III, Chapter 2, translated by W. D. Ross,
available also at http://www.constitution.org/ari/ethic_00.htm 115
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 116
Eerik-Juhan Truuväli et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.196 117
Ibid. p. 197
29
be investigated when the scope of some other fundamental right is violated. Thus, it can be
argued that as of employment relations, § 29 apply instead, which in essence covers the
employment matters.118
However, the Supreme Court has ruled on that matter that § 29 do not
regulate ongoing employment relations.119
The act of termination of a contract is nevertheless
‘still’ an ongoing relation and thus falls under the scope of § 19. Based on this, the possibility
and ability to choose the best approach to solve a dispute through arbitration is free self-
realisation, which is breached with this arbitration restriction.
4.3. Jurisdiction
The Constitution prohibits involuntary change of jurisdiction. Paragraph 24 declares in its first
sentence that “no one shall be transferred, against his or her free will, from the jurisdiction of
the court specified by law to the jurisdiction of another court”. 120
The purpose of this
principle is to ascertain that firm and objective criteria is used to determine the most
competent court and at the same time to avoid that the desired outcome dictates the choice of
the court. 121
The invalidation of arbitration awards given in a dispute over termination of employment
contract could be seen as involuntary transfer of arbitration's jurisdiction to other dispute
resolution bodies. As mentioned previously, however, in many circumstances arbitration body
would be the most competent and effective institution to solve a dispute. Nevertheless, it is
clearly brought out in the commentary of the Constitution that the prohibition of involuntary
change of jurisdiction principle covers ‘only’ state courts and not arbitration courts.
On the other hand, it is also said that the reasons for regulating the rules of jurisdiction are to
ensure as equal workload as possible throughout different courts and the best access to justice
as possible.122
This raises a principal question of ‘why’ the prohibition of involuntary change
118
Ibid. p.196 119
RKPKJKo 11.06.1997 – RT I 1997, 50, 821; RKPKJKo 06.10.1997 – RT I 1997, 74, 1267;
RKPKJKo 27.05.1998 – RT I 1998, 49, 752 120
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 121
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p. 211 122
Ibid. p. 212
30
of jurisdiction covers only litigation and excludes all other dispute resolution methods if the
aim of this provision is only to make the administration of justice smoother and more just?
4.4. Independence of Courts
§ 146 - “Justice shall be administered solely by the courts. The courts shall be
independent in their activities and shall administer justice in accordance with
the Constitution and the laws”.123
This paragraph is not placed in the II Chapter of the Constitution (Fundamental Rights,
Freedoms and Duties). However, as mentioned previously there are various provisions
throughout the Constitution that have the same functions as fundamental rights. These
provisions can be ranked at the level of the fundamental rights. § 146 is one of these.124
This raises the question whether the fact that the use of arbitration is limited and that
accordingly, arbitral courts are dependent in their activities, restricts this provision. Although
Paragraphs 148 and 149 of the Constitution define 'courts' as country, city, administrative,
circuit and Supreme Court,125
there are other bodies created by different laws that have the
duty to administer justice. Such bodies are for example arbitration courts, labour dispute
committees and the Industrial Property Board of Appeal. The purpose of these is to reduce the
courts' workload and speed up the settlements of disputes. However, it is stated in the
commentary of the Constitution that these organs do not belong to the ‘national court
system’.126
Then again, CCP § 4, section 4, sentence 1 provides:
“During proceedings, the court shall take all possible measures to settle the
case or a part thereof by compromise or in another manner by agreement of
the parties if this is reasonable in the opinion of the court.”127
123
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 124
Madis Ernits (1996). Põhiõiguste Mõiste ja Tähtsus Õigussüsteemis, Juridica, No. 9, p. 463-
471 125
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p. 608 126
Ibid. p. 609 127
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
31
The same section lists three ‘compromise procedures’: a draft of a contract of compromise
presented to the parties, a proposal that the parties settle the dispute out of court or the use of
the assistance of a conciliator.128
All these approaches are of essence the ADR methods.
Furthermore, all these three options brought out above, as well as arbitration, are part of the
‘three-way system’ of ADR methods (means that the dispute is solved by an impartial and
independent third party) as opposed to negotiations, for example. Negotiations and re-
negotiations are ‘two-way systems’ because the compromise is made between the parties
themselves (no matter how many there are) and not proposed or decided by an intermediary, a
third person129
(which would indeed leave the weaker party in a much unprotected situation).
On these grounds, this paper suggests that arbitration should also be one legitimate
compromise measure in the context of CCP § 4, section 4.
As mentioned already, it is stated in the commentary of the Constitution that arbitration courts
do not belong to the national court system. However, among many other academics, Maruste
(1998), a former judge of the European Court of Human Rights, has discussed in one of his
articles that the Constitution should be read progressively in the light of the changes and
developments that take place in time, both nationally and internationally. Additionally, he
maintains in the same way that our lives evolve and that should also be taken into
consideration. History has shown that the interpretation of the role and substance of every
constitution have changed during time.130
Arbitration has proved to be an effective dispute resolution system in many countries,
including, in forefront of course the US131
and Sweden,132
due to the long history of practice
and liberal view towards ADR methods. Additionally, the Supreme Courts in the US have
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 128
Ibid. 129
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, Tallinn,
p. 281 130
Rait Maruste (1998). Põhiseadus ja Justiitsorganite Süsteem, Juridica, no.7, p. 326-327 131
Bennett A. Neale and Brian H. Kleiner (2001). How to Conduct Arbitration Effectively,
Managerial Law, Vol. 43, No. 1/2, p. 112-115 132
Kaj Hobér and Hans Strempel (2002). Practitioner’s Handbook on International Arbitration,
edited by Frank-Bernd Weigand, published by C.H.Beck oHG, p. 1001
32
strongly supported arbitration as an alternative to litigation by respecting its procedures and
autonomy.133
4.5. Accordance with the Constitution
The second aspect to look at is what is meant by 'in accordance'? Assessing the accordance
has formal and material (substantial) dimension. In other words, fundamental rights are
infringed if the restriction is either formally or substantially in breach with the Constitution.134
4.5.1. Formal requirements
In order for a restriction to formally accord with the Constitution, the restriction has to meet
all jurisdictional, procedural and formal rules that are in the Constitution. If the law is
formally conflicting with the fundamental rights then there is no need to analyze the
substantial constitutionality anymore.135
In fact, in a democratic rule of law state, no law is
valid if it has not followed an established legal structure. Pursuant to the January 1, 2012
judgement of the Supreme Court of Estonia number 3-4-1-111-11, an act is illegal if the
statutory procedures for passing a law have been breached.136
For example, laws have to be
properly pronounced (§107 of the Constitution) and publicised (§3 and §108 of the
Constitution) in order to be “sufficiently available”.137
Therefore, the law is considered
sufficiently available if it is publicised electronically in Riigi Teataja website
(http://www.riigiteataja.ee)138
and pronounced by the President.139
The President properly
pronounced the CCP on May 9, 2005 as a decision no. 829140
, it was published in Riigi
Teataja on May 19, 2005 and came into force on January 1, 2006.141
The formal validity of a
133
134
Robert Alexy (2001). Põhiõigused Eesti Põhiseaduses, Juridica, Special Edition, p. 5-13 135
RKÜKo 03.12.2007, 3-3-1-41-06, para. 27 136
RKPJKo, 11.01.1995, III-4/A-12/94 – RT I 1995, 9, 112 137
RKPJKo 03.05.2001, 3-4-1-6-01 – RT III 2001, 15, 154 138
Eerik-Juhan Truuväli et al (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.125 139
The Consitution of The Republic of Estonia, entered into force 03.07.1992, RT 1992, 26, 349,
available also at https://www.riigiteataja.ee/akt/127042011002 140
RT I 2005, 26, 197, available at https://www.riigiteataja.ee/akt/898136 141
Code of Civil Proedure, Draft Procedures, The Parliament of Estonia, available at
http://www.riigikogu.ee/?page=eelnou2&op=ems&eid=208&assembly=10&u=20120408055504
33
law can also be tested attending to the following requirements, for example the principles of
‘clarity’ and ‘legislative reservation’.142
The principle of clarity means that the restrictive law has to be sufficiently definite.143
Unclear
regulation gives the public authorities the possibility to make arbitrary decisions.144
Thus, the
norms have to be clear and comprehensible so that the subjects can reasonably foresee, with
certain probability, the consequences of their actions. As regards § 718, section 2, point 2 in
the CCP it seems that the wording: “An arbitral agreement shall be null and void if its object
is a dispute concerning the termination of an employment contract“ is sufficiently
unambiguous and predictable because it has both the condition and the effect presented in the
provision.
The principle of legislative reservation arose from the social contract theory whereby a state
authority is given a monopoly of power.145
In Estonia it means that the Parliament has
reserved the right to pass laws (’parliamental reservation’).146
This idea is embedded in
Paragraph 104 Section 14, which reveals that
“Courts Administration Act and court procedure Acts may be passed and
amended only by a majority of the membership of the Riigikogu“.147
When passing the CCP, 71 members out of 101 of the Parliament voted ‘for’148
and thus
properly adopted the legislation on March 20, 2005.149
142
Eerik-Juhan Truuväli et al (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.150 143
Ibid. 144
RKPJKo 12.01.1994, III-4/A – 1/94 145
Eerik-Juhan Truuväli et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p. 52 146
Ibid. p. 53 147
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&ptyyp=RT
&tyyp=X&query=p%F5hiseadus 148
Final voting, The Parliament of Estonia (April 20, 2005), available at
http://www.riigikogu.ee/?op=ems&content_type=text/html&page=haaletus&hid=67252&new=0&u=2
0120408140311 149
Code of Civil Proedure, Draft Procedures, The Parliament of Estonia, available at
http://www.riigikogu.ee/?page=eelnou2&op=ems&eid=208&assembly=10&u=20120408055504
34
4.5.2. Substantial requirements
On the material dimension, the restriction has to have a legitimate reason and it has to be
proportionate. The latter requirement comes from the second condition of § 11 (the restriction
has to be necessary in a democratic society) of the Constitution. This idea originates from
Articles 8-11 of the European Convention on Human Rights (the ECHR) and of Article 2 of
ECHR's 4th
Protocol.150
However, it is interesting to notice that ECHR never clearly mentions
the principle of 'proportionality' in any of its texts. The idea of proportionality in ECHR
system is related to the restrictions of the fundamental rights and freedoms and it is used in
analysis of whether the restriction is in accordance with the Convention. 151
The European
Court of Human Rights (the ECtHR) has interpreted this provision as a principle of
proportionality. 152
By now, the Supreme Court of Estonia has precisely defined what is meant
by the word 'proportional'. In one of its rulings, it states:
“The principle of proportionality stems from the 2nd
sentence of § 11,
according to which the restrictions of rights and freedoms have to be
necessary in a society. The conformity with the principle of proportionality is
examined on three following levels – the suitability of the measure, the
necessity and if it comes to that, the proportionality in its strict sense – the
reasonableness of the measure”.153
In other words, in a democratic society the law is seen as 'necessary' if it is suitable for its
purpose and both necessary and proportionate in the narrow meaning.154
The purpose of this
principle is to assure that the state interferes to personal freedoms only as much as it is
unavoidable.155
150
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p.111 151
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu, p. 19 152
Case of Funke v. France (February 25, 1993), A256-A, European Court of Human Rights,
Strasbourg, para. 55, available at
http://cmiskp.echr.coe.int/tkp197/view.asp?item=1&portal=hbkm&action=html&highlight=funke%20
%7C%20v%20%7C%20france&sessionid=91130985&skin=hudoc-en 153
RKPJKo 06.03.2002 – RT III 2002, 8, 74 154
Eerik-Juhan Truuväli et al. (2002). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Ministry of Justice, published by Juura, Õigusteabe AS, p. 112 155
Eerik-Juhan Truuväli et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, p.126, University of Tartu, published by Juura, p.126
35
4.5.2.1. Suitability
First step, therefore, is to analyse whether the restriction is suitable. ‘Suitable’ means that the
measure helps to achieve the intended purpose. Measure that does not promote its purpose is
indisputably disproportionate.156
It is not necessary that the measure achieves the purpose
with absolute certainty but rather that it is a step towards the right direction.157
Hence, what is the purpose of this arbitration restriction in the Estonian CCP? It is mentioned
earlier that certain arbitrations are prohibited in order to protect an economically weak party.
For example, in some Swiss Cantons disputes that arise out of employment relations are in the
jurisdiction of national courts only. In France and Belgium, on the other hand, settling an
arbitration agreement after the termination of employment contract is perfectly acceptable.
However, the parties cannot make an arbitration agreement regarding future disagreements. 158
It is assumed that the relationship between an employer and employee is unequal since the
worker usually lacks both the bargaining power and knowledge.159
The goal of this measure
that renders arbitral awards null and void if the subject of the dispute is the termination of
employment contract, is therefore to protect the weaker party, i.e. the employee. For instance,
the weaker party might not have the finances to hire a representative and consequently could
harm himself/herself in these informal proceedings. In a traditional litigation, if a party has
written an incorrect or defective lawsuit then the court will correct these faults.160
Furthermore, the courts and labour dispute committees use fixed rules and laws for every
issue161
whereas in arbitration the parties can agree on any rules or laws what they find
suitable. This, however, can end up damaging the employee’s case. If arbitration is not used
properly then it can cause significant drawbacks. This is one of the reasons why the European
156
RKPJKo 06.03.2002, 3-4-1-1-02, para. 15; RRKÜKo 03.01.2008, 3-3-1-101-06, para. 27 157
Eerik-Juhan Truuväli et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.127 158
Jean-François Poudret, Sébastien Besson (2007). Comparative Law Of International
Arbitration, published by Sweet & Maxwell, p. 366 159
Jana Koláčková, Pavel Simon (2011). At the Edge of Justice: Arbitration in Unequal
Relationships. The Constitutional Limits of Arbitration, The Relationship Between Constitutional
Values, Human Rights and Arbitration, Cczech (& Central European) Yearbook of Arbitration,
published by JurisNet LLC, Vol. 1, p. 185 160
Agne Narusk (September 28, 2010). Tööandjad Jätaks Töövaidluskomisjonid Arbitraaži
Rolli, Eesti Päevaleht, available at http://www.epl.ee/news/majandus/tooandjad-jataks-toovaidlus-
komisjonid-arbitraazi-rolli.d?id=51283633 161
Heli Raidve, Mari Rask (2010). Töölepingu Seadus Praktikas, Kolmas Raamat, Published by
AS Äripäev, p. 113
36
Court of Justice has ruled that arbitration clauses in the consumer contracts, which are in
essence similar to employment contracts, are void.162
If the goal of this measure is not to allow two parties on different positions to arbitrate in case
of termination of employment contract, then declaring that the award is invalid does indeed
clearly pursue that aim and thus is suitable.
4.5.2.2. Necessity
The second step is to look at whether the measure is ‘necessary’ in a strict sense – that is,
whether it is possible to achieve the anticipated objective with other more suitable means,
which are as effective as the first one.163
In other words, the measure is unnecessary if there is
another option, which is better for at least one subject but not worse for anybody.164
An
English judge Lord Diplock (1983) has provided an apt metaphorical comparison: “You must
not use a steam hammer to crack a nut, if a nutcracker would do.”165
When assessing the necessity requirement it is essential to find the most lenient one from the
suitable alternatives. That, however, requires that there are a number of alternatives in the first
place. If there are no suitable alternatives to the already selected measure then the application
of the principle of necessity is not feasible. In such situation, it can be concluded that the only
available policy option meets the criterion of necessity.166
Thus, the question arises, where to look for alternatives? In the context of legislative
measures, it has been noticed that the alternatives can be found from the drafting process of
the act or from other state’s practice. The identification of alternative measures requires the
analysis of the efficiency of the measures and the intensity of the infringement that these
cause. Therefore, the inspection of the conformity to the necessity requirement consists of the
162
Jana Koláčková, Pavel Simon (2011). At the Edge of Justice: Arbitration in Unequal
Relationships. The Constitutional Limits of Arbitration, The Relationship Between Constitutional
Values, Human Rights and Arbitration, Cczech (& Central European) Yearbook of Arbitration,
published by JurisNet LLC, Vol. 1, p. 183 163
Eerik-Juhan Truuväli, et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.127 164
Ibid. p. 128 165
[1983] 1 WLR 151, 155, cited from Günther Doeker-Mach (2004). Editor Klaus A. Ziegert,
Law and Legal Culture in Comparative Perspective, published by Franz Steiner Verlag Wiesbaden
GmbH, Germany, p. 291 166
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu , p. 77
37
analysis of the impact and subsequent comparison of the alternative measures. The alternative
measure should also be reasonably available and possible to be implemented.167
However, the softer alternative does not have to be necessarily intrinsically different168
or
consist of a different duty, meaning that it can be the same restriction but in another extent169
or just an alternative that is cheaper for the subject.170
Other things to consider as regards the
necessity requirement are the burden that the alternatives lay on the third parties and the
expenses to the state of applying these.171
Finally, if there are more lenient but less effective
measures then it must be explained why such measures are less efficient.172
This paper suggests two alternatives that are not as restrictive to the disputants as the total
arbitration ban. Firstly, it is reasonable to leave such arbitrations, where one party is
assumingly on a weaker bargaining position, only to the competence of institutional
arbitration as opposed to ad hoc proceedings. In order to provide employment disputes,
(including the disputes over the termination of employment contract) to be most efficiently
arbitrated institutionally, it is necessary to establish a permanent arbitration court specified to
employment matters. It should have set rules to specifically provide stronger protection to the
employees who are on the weaker bargaining position.
Another option that is also less restrictive is to forbid arbitration clauses regarding future
disagreements in the employment contracts and to recognise arbitration only if it is agreed
upon after the dispute arose. This, too, has an effect of protecting the allegedly weaker party
while it leaves a room for choice. Further comparison and reasons why and how those
alternatives offer protection, whereas being less restrictive than the ban at issue, are explained
below.
4.5.2.2.1. Institutional vs. ad hoc proceedings
In order to understand the benefits of institutional arbitration it is necessary to make the
difference between these two methods. Ad hoc arbitration is formed on a contractual basis to
167
Ibid. p. 79 168
RKHK 26.11.2002, 3-3-1-64-02, para. 19 169
RKPJK 13.06.2005, 3-4-1-5-05, para. 2 170
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu, p. 80 171
RKPJK 30.04.2004, 3-4-1-3-04, para. 31 172
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu, p. 83
38
settle one specific dispute. This is not a dispute settlement by a permanent institution and
every individual dispute arising from the same contract, for example, can be solved via ad hoc
method. In this type of process, the parties are the ones who create the rules of procedure,
except to the extent that the lex arbitri (law applicable to the arbitration) has been regulated
by imperative norms.173
As an example, the Estonian CCP § 732 section 1 sets out the
equality of the parties in the arbitration proceedings174
-- a provision that is not allowed to
deviate from. If institutional arbitration proceedings consist mostly of the rules of the
institution (CCP § 716 section 1) then in ad hoc arbitration the parties have to agree on the
rules themselves. A successful ad hoc arbitration requires good cooperation and the
possibility of this, to start with. 175
Problems may even occur in setting the arbitration off or in forming the arbitral tribunal, for
instance.176
The parties have to agree upon how many arbitrators they want to hear the case
and in addition, they have limitless discretion to choose the arbiters. The whole idea of
choosing the arbitrator is to have an experienced and unbiased neutral to analyze the facts.
However, if the parties have “unguided discretion” to choose such person then there is a
danger to leave one side in an unfair situation.177
Difficulties may also arise when the parties have to agree upon the arbitration fees
(administrative and arbitrator’s fees, the share/proportion of how much each side pays) or
setting the dates and time limits of proceedings. Even more so when the parties have their
own everyday tasks they are involved with.178
There is no reason to suppose that when the employer and employee are going to a dispute
over the termination of the contract then there is a likelihood of a smooth cooperation between
them. Logical conclusions drawn from here are that this sort of freedom to modify the course
173
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 291 174
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
available in English at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&ptyyp=RT&
tyyp=X&query=tsiviilkohtumenetluse 175
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 291 176
International Court of Arbitration, Dispute Resolution Services, available on
http://www.iccwbo.org/court/arbitration/id4089/index.html, accessed on May 1, 2012 177
Namrata Shah and Niyati Gandhi (2011). Arbitration: One Size Does Not Fit All: Necessity
of Developing Institutional Arbitration in Developing Countries, Journal of International Commercial
Law and Technology, vol. 6, issue 4, downloaded from HeinOnline (http://heinonline.org), p. 235 178
Ibid. p. 236
39
and thus the substance of the proceedings may turn out problematic to a party who has no
legal knowledge or a representative (bad bargaining position) to aid him/her in choosing
suitable rules to achieve satisfactory solution. In other words, this may lead to an
unpredictable outcome.
However, in ad hoc proceedings there is also a possibility for the parties to agree upon the
already existing UNCITRAL Arbitration Rules or opt for the arbitrator’s (or tribunal’s)
preferences179
if they have already been able to agree upon the arbiter.
On the other hand, in the institutional arbitration, the issue is brought to the competence of a
permanent organisation and the rules of that entity are applied to the proceedings. Permanent
institutions are, for example the International Arbitration Court operating by the International
Chamber of Commerce (deals with business disputes with international character)180
,
International Arbitration Institute operating at the Stockholm Chamber of Commerce (runs
both domestic and international disputes in conformity with its institutional rules or
UNCITRAL Arbitration Rules upon agreement by the parties, as well as provides information
concerning arbitration)181
, London Court of International Arbitration (deals with international
commercial disputes)182
, American Arbitration Association (areas of expertise are
commercial, international, construction, real estate, environmental, governmental, consumer,
electronic, as well as labour and employment disputes)183
, Deutsche Institution für
Schiedsgerichtsbarkeit (deals with both national and international arbitration and other ADR
procedures, applies mostly its own DIS-arbitration rules)184
and in Estonia there is the Court
179
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 291 180
International Court of Arbitration, Dispute Resolution Services, available on
http://www.iccwbo.org/court/arbitration/id4089/index.html, accessed on May 1, 2012 181
Arbitration Institute of the Stockholm Chamber of Commerce, SCC Arbitration, available on
http://www.sccinstitute.com/skiljeforfarande-2.aspx, accessed on May 1, 2012 182
The London Court of International Disputes, Arbitration and ADR Worldwide, available on
http://www.lcia.org/LCIA/Introduction.aspx, accessed on May 1, 2012 183
American Arbitration Association, Dispute Services Worldwide, available on
http://www.adr.org/aaa/faces/aoe/lee/employment/employmentarbitration?_afrLoop=85128945577218
&_afrWindowMode=0&_afrWindowId=99ui8fvnh_198#%40%3F_afrWindowId%3D99ui8fvnh_198
%26_afrLoop%3D85128945577218%26_afrWindowMode%3D0%26_adf.ctrl-
state%3D99ui8fvnh_262, accessed on May 1, 2012 184
DIS, German Institution of Arbitration, available on, http://www.dis-arb.de/en/4/content/dis-
id2, accessed on May 1, 2012
40
of Arbitration operating at the Chamber of Commerce and Industry (settles disputes of private
law as well as international commercial and business law nature)185
.
The common features of all of such institutions are the assistance of the parties in starting the
arbitrations, set institutional rules and model clauses, supervision over proceedings and fixed
fee schedules. The institution stands between the arbitrator(s) and the disputants to safeguard
that the proceedings are neutral, efficient and the rules applied uniformly.186
Arbitration institutions offer lists of trained arbitrators who are experienced in various fields
of expertise to choose from. Furthermore, the institution makes sure there are no inappropriate
connections between the arbitrator and the parties in order to avoid any favouritism or
prejudice. Institutions apply their own already developed rules through their specialised
arbiters, which however, bring up the question of flexibility of the proceedings – one of the
most valued characteristics of arbitration in general. On the other hand, applying a set of rules
that have been time-tested and therefore deal with various contingencies that might not be
foreseen when they first occur, make the proceedings probably smoother, faster and the
outcome more predictable. Furthermore, arbitral institutions also provide assistance in
choosing the appropriate arbitrators or help to solve procedural issues that might come up
during the proceedings. Another benefit is the administrative secretariat of the institutions.
The secretariat deals with administrative matters such as, among other things, the fixation of
various fees or time limits of the proceedings, which in turn promote speedy solution.
However, one does not get over the fact that institutional arbitration is more expensive than ad
hoc method. Nevertheless, the chances of the parties turning to court due to incorrect
decisions caused by incompetent or biased arbitrator or faulty proceedings are significantly
higher after ad hoc arbitrations as opposed to institutional proceedings. Turning to a court,
though, brings along even greater expenses and delay in finally solving the dispute. In short,
ad hoc method is cheaper to the parties but in the end, institutional arbitration provides
professionalism that proves to be more cost-effective. Comparing the risks and taking all of
185
Estonian Chamber of Commerce and Industry, Court of Arbitration, available on
http://www.koda.ee/index.php?id=11674, accessed on May 1, 2012 186
Namrata Shah and Niyati Gandhi (2011). Arbitration: One Size Does Not Fit All: Necessity of
Developing Institutional Arbitration in Developing Countries, Journal of International Commercial
Law and Technology, vol. 6, issue 4, downloaded from HeinOnline (http://heinonline.org), p. 234
41
the above mentioned into consideration, it seems reasonable to opt for institutional
arbitration.187
4.5.2.2.2. The institution
When employees face alleged wrongful termination or any other workplace dispute, they want
to resolve the issue quickly and efficiently. Therefore, this paper suggests a permanent
employment arbitration institution as an alternative to courts and labour dispute committees.
American Arbitration Association (AAA) provides guidance as to how such an institution
should operate188
to protect particularly the weaker party.
Firstly, this institution should have a specific system of cost sharing between the employer
and employee, whereas the employer bears higher administrative and arbiter’s costs in order
to provide affordable entrance to the arbitrations for the employee. For example, by the AAA
rules, the employer has to pay all of the administrative fees that exceed a specific amount
(which is usually a typical filing fee in court) as well as the arbiter’s fee.189
Secondly, the panel of arbitrators to choose from should consist of specialised experts in
employment field. The AAA rules propose corporate counsel, employment and labour
management lawyers, human resource experts and former judges.190
Such panel should ensure
the most professional and fair outcome of the dispute. Furthermore, those professionals should
have the duty to assist and advise both sides as to all issues that may come up during
arbitrations.191
In addition, the employees should be given an unambiguous notification that they have the
right for a representative and that the counsel of the institution may help to assign one. In
addition, to attract both employers and employees to choose the institutional arbitration there
187
Ibid. p. 236 188
Resolving Employment Disputes: A Practical Guide, amended and effective July 1, 2006,
downloaded at
http://www.adr.org/aaa/faces/aoe/lee/lee_search/lee_guide?mode=guide&type=219&division=3&exter
nal=true&_afrLoop=242476612479410&_afrWindowMode=0&_afrWindowId=ranamgyo7_34#%40
%3F_afrWindowId%3Dranamgyo7_34%26external%3Dtrue%26_afrLoop%3D242476612479410%2
6type%3D219%26mode%3Dguide%26division%3D3%26_afrWindowMode%3D0%26_adf.ctrl-
state%3D131enau6ms_4, accessed on May 3, 2012, p. 2 189
Ibid. p. 12 190
Ibid. 191
Nadia Milone (2011). Arbitration: the Italian Perspective and the Finality of the Award,
Oñati Socio-Legal Series, vol. 1, no. 6, p. 10
42
should be clearly presented fixed time schedules that guarantee a quick solution to the
dispute.192
When creating such an institution, one can use the numerous guidelines that other
institutions have designed. Such are the AAA Practical Guide for Resolving Employment
disputes, for example. For matters that are more particular there are the International Chamber
of Commerce’s (ICC) guidelines for Techniques for Controlling Time and Cost in
Arbitration,193
etc. Furthermore, same relief and remedies that would be available in court
should be offered in this alternative method.194
Finally, of course, the institution should have
its own set of rules, in accordance with the applicable laws, and which are stated and available
to all in a clear and simple language.
Employment arbitration institution should work in symbiosis with the national judiciary. This
means that the courts should support ADR and promote arbitrating by sending appropriate
disputes to be solved in the discussed arbitration institution. Shah and Gandhi (2011),
however, have brought out an interesting tendency to consider that is present today at least in
India. They claim that one of the reasons why institutional arbitration grows so slowly is that
the courts interfere to its freedom. A successful and beneficial relationship for both sides
would be to “encourage but not interfere”. Perhaps it is time to set aside the retired judges
who are used to impose the CCP and train new specialised arbitrators195
with fresh and
innovative approaches?196
4.5.2.2.3. Future dispute clauses
The second alternative, which is more lenient than forbidding arbitration, is to avoid the
clauses in employment contract that force the parties to arbitrate in case of future disputes.197
The parties have full autonomy whether or not to enter into an arbitration agreement (or
agreeing with an arbitration clause in an employment contract). However, once the parties
192
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu , p. 12 193
William W. Park (2011). Arbitration in Autumn, Journal of International Dispute Settlement,
Vol. 2, No. 2, p. 287–315, downloaded from http://jids.oxfordjournals.org on April 18, 2012 194
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu , p. 12 195
Namrata Shah and Niyati Gandhi (2011). Arbitration: One Size Does Not Fit All: Necessity of
Developing Institutional Arbitration in Developing Countries, Journal of International Commercial
Law and Technology, vol. 6, issue 4, downloaded from HeinOnline (http://heinonline.org), p. 238-239 196
Ibid. p. 239 197
Jean-François Poudret, Sébastien Besson (2007). Comparative Law Of International
Arbitration, published by Sweet & Maxwell, p. 366
43
have formed an agreement to arbitrate (including future disputes) then there is no turning
back. This is the ‘positive effect’ of an arbitration agreement.198
Article II Section 3 of the
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of
1958 establish:
“The court of a Contracting State, when seized of an action in a matter in
respect of which the parties have made an agreement within the meaning of
this article, shall, at the request of one of the parties, refer the parties to
arbitration.”
Section 2 of the same article defines the arbitration agreement also as an ‘arbitration clause’ in
a contract.199
According to Estonian laws, the legal basis of the courts not to accept the case
due to arbitration agreement stems from CCP § 371 section 1, point 8 and to refuse to hear an
action from CCP § section 1, point 6 (‘negative effect’ of an arbitration agreement).200
If the issue involves a dispute over the termination of employment contract, then another
option to protect the weaker party would be to recognise arbitration only if it is agreed after
the dispute arose because when agreeing to the arbitration clause in a contract the parties take
a serious decision in depriving the court of its jurisdiction over the matter.201
In the proposed
scenario, the arbitration clause that foresaw arbitration in case of future disputes would be
invalid. This offers the employee a possibility to choose where to settle the case, depending
on the circumstances of that particular time.
4.5.2.3. Proportionality
Thirdly, the measure is reasonable if it is ‘proportional’ to the desired outcome.202
Estonian
case law has defined that the restrictions cannot infringe the protected laws more than it can
be justified with their legitimate purpose.203
On this level, there is no comparison with other
alternative measures. The proportionality requirement relates most directly to the relationship
198
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 301 199
1958 - Convention on the Recognition and Enforcement of Foreign Arbitral Awards - the
"New York" Convention, available at http://www.uncitral.org/pdf/english/texts/arbitration/NY-
conv/XXII_1_e.pdf, accessed on May 3, 2012 200
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 302 201
Nadia Milone (2011). Arbitration: the Italian Perspective and the Finality of the Award, Oñati
Socio-Legal Series, vol. 1, no. 6, p. 3 202
Eerik-Juhan Truuväli et al. (2008). Eesti Vabariigi Põhiseadus: Kommenteeritud Väljaanne,
Second Improved Edition, University of Tartu, published by Juura, p.127 203
RKPJKo 28.04.2000, 3-4-1-6-2000, para. 13
44
between the mean and the aim. How to decide what is most adequately proportionate? Triipan
(2005) examined that the testing of proportionality requires ‘weighing’ in a strict sense.204
As
the violation of Paragraphs 19 and 146 of the Constitution are disputable and open for further
deliberation, the current paper will weigh the proportionality in a strict sense only as regards
Paragraphs 15 and 19.
The current Chancellor of Justice Teder (2012) has described in one of his constitutional
analysis that in order to weigh the proportionality (moderateness) of a measure one has to take
the extent and intensity of the intervention to the fundamental rights and compare it with the
importance of the aim.205
He also stated that the general fundamental right to effective judicial protection stemming
from § 15 section 1, sentence 1 is extremely important basic right. Fundamental right to
effective legal protection implies to an effective operation of judicial system, which is a
fundamental value and an integral ingredient of a democratic rule of law state.206
However,
prohibition to arbitrate matters relating to the termination of employment contract potentially
deprives the parties from an effective judicial protection in cases where the arbitration, as
discussed above, is the most effective dispute resolution option. Thus, the purpose of the
restriction intensively limits this fundamental right.
Furthermore, § 19 of the Constitution provides us with another fundamental value of a
democratic state – the right to free self-realisation. Prohibition to arbitrate matters relating to
the termination of employment contract deprives the employer and employee vigorously and
most straight-forwardly from the right to freely realise themselves and thus to make their own
decisions and act according to their own preferences.
The objective to protect the weaker party (employee) by depriving him/her from the right to
arbitrate disputes concerning the termination of employment contract, whereas there are other
less restrictive means to do so, undisputedly violates the fundamental rights set out in
Paragraphs 15 and 19 of the Constitution and thereby adversely affects the general legal order.
204
Martin Triipan (2005). Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis,
University of Tartu, p. 83 205
Indrek Teder, Chancellor of Justice (23.04.2012). Arvamus, Põhiseaduslikkuse järelevalve,
Kohtumenetluses KrMS § 385 punktis 26 sätestatud piirangu põhiseaduslikkus, Opinion no. 9-
2/120581/1201975, para. 34
206
Ibid. para. 35
45
Among other great philosophers and academics, Maruste (2004) has stressed in his book of
Constitutionality that freedom is a priceless value and this is the principle why people created
the state and the laws in the first place. Individual freedom is based, among other things, on
the freedom to self-realisation, i.e. how to live one’s life, seek the goals and pursue
happiness.207
Those freedoms are guaranteed in the II part of our Constitution and it is of
fundamental importance for a democratic state to follow these.
Therefore, this paper suggests that protecting the weaker party in these circumstances does not
justify violation of fundamental rights and thus, the restriction set out in CCP § 718, section 2,
point 2 is not a proportional restriction in a strict nor general way.
5. CONCLUSIONS
In broad terms, there are two ways to resolve disputes alternatively (out of courts). There is a
determinative, i.e. a three-party system where a neutral (third party) gives an opinion or a
resolution, and there is an elective, i.e. a two-way system, which takes place between the
parties themselves and consists mainly of negotiations.208
Arbitration belongs to the
determinative method since it includes an arbitrator or several of them, who give an award
(the solution) which, according to the agreement between the parties, is enforceable in courts
or not. Arbitration can also be formal, that is, arranged in a permanent arbitration institution or
informal, i.e. on ad hoc basis. The enforceability of an award is still up to the parties to
choose, regardless of the procedure they use.
The main attractions for the disputants to choose arbitral proceeding instead of conventional
court litigation or other available dispute methods are its confidentiality, neutrality, flexibility,
cheapness, speediness, and as to commercial disputes, the high possibility of continuing the
business relationships. In fact, the main use of arbitrations in the West is in the disputes that
arise in international commercial disputes. The UN has acknowledged it and thus created New
York Convention to smooth the recognition and enforcement of international arbitral awards
in foreign courts as well as UNCITRAL Model Laws and Arbitration Rules for states to take
guidance from and create more or less uniform legal frameworks for the better functioning of
international arbitrations.
207
Rait Maruste (2004). Konstitutionalism ning Põhiõiguste ja –vabaduste kaitse, published by
Juura, p. 83 208
Ilona Nurmela et al. (2008). Rahvusvaheline Eraõigus, Loengud, published by Juura, p. 281
46
However, this paper focused on a narrow matter: national arbitrations between an employer
and an employee (although, nowadays it is conventional that they are from different states,
thus giving the arbitrations an international edge). Namely, Estonian Code of Civil Procedure
forbids arbitration if the subject matter is the termination of an employment contract (§ 718
section 2, point 2). The probable reason for such a restriction (‘probable’ because it was not
explained in the draft bill of the CCP) is to protect the weaker party to the dispute who is
financially or otherwise on a worse bargaining position.
On the other hand, the Constitution provides that all restrictions have to be necessary and in
accordance with the Constitution (§ 11). The question thus was, whether this restriction meets
both of these conditions? Hypothesis of the paper was that such an arbitration restriction does
not meet those conditions and is therefore unconstitutional.
At first, the paper examined where Estonia has taken its arbitration laws and what is the
situation in some of the relevant states. Estonia, as many other states, has inserted a cocktail
of UNCITRAL Model Laws, principles of New York Convention of 1958 and some of the
other states’ arbitration laws (i.e. Germany, Netherlands, Italy) into the Code of Civil
Procedure under the section of ‘Arbitration’.
In different states, there are various limits to arbitrations. States are free to develop their own
public policy and consequently choose what is arbitrable or not. As to specifically
employment arbitrations, it turned out that different states have distinct approaches. Some
prohibit employment arbitration, some try to build safeguards to protect the weaker party and
others permit it. From the countries analysed, in Germany and Italy the employment matters
are not arbitrable. However, the Netherlands and Sweden (especially) have taken a liberal
view and allow employment arbitrations. England, on the other hand, has left the common law
(case-by-case basis) to settle the arbitrability issues, thus also going for the rather liberal way.
In order to test the hypothesis of the paper, a constitutionality analysis was carried through.
First step in such analysis was to determine what individual fundamental rights are restricted
and second step was to find out whether the restrictions to the rights (if there were any) are
necessary in a democratic state.
In order to determine the restriction of fundamental rights, it was first assessed what rights are
‘fundamental rights’ and what is the scope of these. This paper favours Carl Schmitt’s
standpoint that the fundamental rights should be looked in accordance with the material
47
principle which, to be simply put, basically means that all the rights that are primary, are
fundamental rights, as opposed to the formal view where only the rights described under the
heading ‘fundamental rights’ are fundamental rights. Therefore, this paper found relevant to
analyse Paragraphs 15, 19, 24 as well as 146 of the Constitution.
It turned out that CCP § 718, section 2, point 2 does fall under the scope and restrict § 15 and
19 of the Constitution and that by the current legislative situation the arbitration ban does not
fall under the scope of § 24 and 146 of the Constitution because these paragraphs protect only
the ‘national court system’. Nevertheless, this paper agrees with the authors of the
commentary of the Constitution on the matter that it is necessary to regulate the rules of
jurisdiction to ensure as equal workload as possible throughout different courts and also to
provide the best access to justice as possible. This, however, suggests that an arbitration in
Estonia should be given more competences.
As to the second step in the constitutionality analysis, the word ‘necessary’ in § 11 of the
Constitution has been given a meaning (by courts’ interpretations) which consists of three
principles: the suitability, the necessity in a strict sense and the proportionality in a strict
sense, i.e. the moderateness of the measure. In order for a restriction to be ‘necessary’ in the
meaning of § 11 it has to meet all three of those criteria.
It was easy to conclude that, as the restrictive measure prevents parties to arbitrate and the aim
of the restriction is to protect the weaker party from harming him-/herself in arbitrations, then
the measure is suitable to its purpose.
However, the measure is not necessary in a strict sense, as there are other, more lenient means
to achieve the same purpose. This paper provided such protective measures like allowing
employment arbitrations, where one party is or may be in a remarkably weaker position, to
take place only institutionally (also, a competent employment arbitration institution must be
created in the first place) or/and prohibit arbitration clauses in employment contracts
regarding future disagreements, leaving the parties with a choice where to solve the dispute.
Furthermore, the measure is neither moderate because it strongly restricts at least two of the
analysed fundamental rights. After taken all of the abovementioned into consideration
(available softer measures, importance to protect fundamental freedoms, the flaws in the
purpose of the measure to start with, etc.), it was difficult to conclude that the restriction is
proportional.
48
To end with, the arbitration ban restricts our fundamental rights but it is not a necessary
restriction. Firstly, there are other ways to achieve the same aim. Secondly, in a democratic
and liberal state the people should be left with freedom to choose themselves, among other
things, how and where to solve their disputes, on the condition that is not totally on the
contrary to public policy of a state. Thirdly, we should watch and learn from the states that
liberally and successfully use arbitration as a dispute resolution mechanism and use their
arbitration laws while discovering the reasons for their mistakes and success.
49
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50
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Arbitration in the Baltics, a Handbook, published by LAWIN 2008, p. 9
Code of Civil Procedure, Draft Procedures, The Parliament of Estonia, available at
http://www.riigikogu.ee/?page=eelnou2&op=ems&eid=208&assembly=10&u=20120408055
504
52
Draft of the Estonian Code of Civil Proceeding, 208 SE I, Explanatory Note (In Estonian),
available at
http://www.riigikogu.ee/?op=emsplain&content_type=text/html&page=mgetdoc&itemid=033
370012
Final voting of the Code of Civil Procedure, The Parliament of Estonia, April 20, 2005,
available at
http://www.riigikogu.ee/?op=ems&content_type=text/html&page=haaletus&hid=67252&new
=0&u=20120408140311
Läänemets, Kaia, “Töövaidlus: Kas Pöörduda Kohtusse või Töövaidluskomisjoni?” Äripäev,
19 February 2010, available also at
http://raamatupidaja.ee/article/2010/02/19/Toovaidlus_kas_poorduda_kohtusse_voi_toovaidlu
skomisjoni
Narusk, Agne, “Tööandjad Jätaks Töövaidluskomisjonid Arbitraaži Rolli”, Eesti Päevaleht,
September 28, 2010, available also at http://www.epl.ee/news/majandus/tooandjad-jataks-
toovaidlus-komisjonid-arbitraazi-rolli.d?id=51283633
Sanders, Pieter, The Making of the Convention, “Enforcing Arbitration Awards under the
New York Convention: Experience and Prospects”, papers presented at "New York
Convention Day", United Nations Publication, June 10, 1998, p. 3, available also at
http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/NYCDay-e.pdf
Teder, Indrek, Chancellor of Justice, Arvamus põhiseaduslikkuse järelevalve kohtumenetluses
KrMS § 385 punktis 26 sätestatud piirangu põhiseaduslikkuse kohta, Opinion no. 9-
2/120581/1201975, 23.04.2012
Triipan, Martin, Proportsionaalsuse Põhimõte Põhiõiguste Kaitsel, Master's Thesis, University
of Tartu, 2005, available also at
http://dspace.utlib.ee/dspace/bitstream/handle/10062/631/triipan.pdf?sequence=5
6.4. Internet sources
American Arbitration Association, Dispute Services Worldwide, available at
http://www.adr.org/aaa/faces/aoe/lee/employment/employmentarbitration?_afrLoop=8512894
5577218&_afrWindowMode=0&_afrWindowId=99ui8fvnh_198#%40%3F_afrWindowId%3
53
D99ui8fvnh_198%26_afrLoop%3D85128945577218%26_afrWindowMode%3D0%26_adf.ct
rl-state%3D99ui8fvnh_262, accessed on May 1, 2012
Arbitration Institute of the Stockholm Chamber of Commerce, SCC Arbitration, available at
http://www.sccinstitute.com/skiljeforfarande-2.aspx, accessed on May 1, 2012
Aristotle, The Nicomachean Ethics, Book III, Chapter 2, 350 BC, translated by W. D. Ross,
available also at http://www.constitution.org/ari/ethic_00.htm
Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, Status,
available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html,
accessed on May 3, 2012
DIS, German Institution of Arbitration, available at http://www.dis-arb.de/en/4/content/dis-
id2, accessed on May 1, 2012
Employment Contracts Act (Consolidated text), RT I 2009, 5, 35, entered into force 1 July
2009, English version available at,
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=XXXX060&keel=en&pg=1&
ptyyp=RT&tyyp=X&query=t%F6%F6lepingu+seadus, accessed on March 25, 2012
Estonian Chamber of Commerce and Industry, Court of Arbitration, available at
http://www.koda.ee/index.php?id=11674, accessed on May 1, 2012
Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,
English version available at,
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X90041&keel=en&pg=1&pty
yp=RT&tyyp=X&query=tsiviilkohtumenetluse, accessed on March 26, 2012
International Court of Arbitration, Dispute Resolution Services, available at
http://www.iccwbo.org/court/arbitration/id4089/index.html, accessed on May 1, 2012
Mill, John Stuart, Essay on Liberty, 1859, Harvard Classics, Vol. 25, published by Longman,
Roberts & Green, available at http://www.bartleby.com/130/, accessed on May 10, 2012
Resolving Employment Disputes: A Practical Guide, amended and effective July 1, 2006,
downloaded at
54
http://www.adr.org/aaa/faces/aoe/lee/lee_search/lee_guide?mode=guide&type=219&division
=3&external=true&_afrLoop=242476612479410&_afrWindowMode=0&_afrWindowId=ran
amgyo7_34#%40%3F_afrWindowId%3Dranamgyo7_34%26external%3Dtrue%26_afrLoop
%3D242476612479410%26type%3D219%26mode%3Dguide%26division%3D3%26_afrWin
dowMode%3D0%26_adf.ctrl-state%3D131enau6ms_4, accessed on May 3, 2012
The Constitution of the Republic of Estonia, RTI, 28.06.2007, 43, 311, entered into force 3
July 1992, English version available at
http://www.legaltext.ee/et/andmebaas/tekst.asp?loc=text&dok=X0000K1&keel=en&pg=1&pt
yyp=RT&tyyp=X&query=p%F5hiseadus, accessed on March 26, 2012
The London Court of International Disputes, Arbitration and ADR Worldwide, available at
http://www.lcia.org/LCIA/Introduction.aspx, accessed on May 1, 2012
The Rules of the Court of Arbitration of the Estonian Chamber of Commerce and Industry,
entered into force on January 1, 2008, available at
http://www.koda.ee/public/ECCI_Court_of_Arbitration_Rules.pdf, accessed on May 1, 2012
The UNCITRAL Guide: Basic facts about the United Nations Commission on International
Trade Law, United Nations Publication, 2007, available at
http://www.uncitral.org/pdf/english/texts/general/06-50941_Ebook.pdf, accessed on May 4,
2012
UNCITRAL Arbitration Rules (as revised in 2010), available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2010Arbitration_rules.html,
accessed on May 3, 2010
UNCITRAL Arbitration Rules of 1976, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1976Arbitration_rules.html,
accessed on May 3, 2012
6.5. Table of cases
Funke v. France, A256-A, European Court of Human Rights, Strasbourg, February 25, 1993,
available at
http://cmiskp.echr.coe.int/tkp197/view.asp?item=1&portal=hbkm&action=html&highlight=fu
nke%20%7C%20v%20%7C%20france&sessionid=91130985&skin=hudoc-en
55
RKHK 26.11.2002, 3-3-1-64-02
RKPJK 30.04.2004, 3-4-1-3-04
RKPJK 13.06.2005, 3-4-1-5-05
RKPJKo 12.01.1994, III-4/A – 1/94
RKPJKo 11.01.1995 – RT I 1995, 9, 112
RKPJKo 28.04.2000, 3-4-1-6-2000
RKPJKo 03.05.2001, 3-4-1-6-01 – RT III 2001, 15, 154
RKPJKo 06.03.2002, 3-4-1-1-02
RKPJKo 06.03.2002 – RT III 2002, 8, 74
RKPKJKo 11.06.1997 – RT I 1997, 50, 821
RKPKJKo 06.10.1997 – RT I 1997, 74, 1267
RKPKJKo 27.05.1998 – RT I 1998, 49, 752
RKÜKo 03.12.2007, 3-3-1-41-06
RRKÜKo 03.01.2008, 3-3-1-101-06
6.6. Table of legislative acts
Code of Civil Procedure, entered into force on January 1, 2006, RT I 2005, 26, 197, available
also at https://www.riigiteataja.ee/akt/128122011044
Code of Criminal Procedure, entered into force on July 1, 2004, RT I 2003, 27, 166, available
also at https://www.riigiteataja.ee/akt/117042012006
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 - the
"New York" Convention, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html, accessed
on May 3, 2012
56
Dutch Code of Civil Procedure, Book Four: Arbitration Act, Art. 1020, English version
available at http://www.jus.uio.no/lm/netherlands.arbitration.act.1986/1020.html
German Code of Civil Procedure, Tenth Book, published by Trans-Lex.org Law Research,
English version available at http://www.trans-lex.org/600550
Individual Labour Dispute Act, § 4 (11), entered into force 01.01.2011, RT I 2010, 22, 108,
available also at https://www.riigiteataja.ee/akt/130062011005
Italian Code of Civil Procedure, Title VIII of Book IV – Arbitration, published by
lexmercatoria.org, available at http://www.jus.uio.no/lm/italy.arbitration/landscape.pdf
The Constitution of the Republic of Estonia, entered into force 03.07.1992, RT 1992, 26, 349,
available also at https://www.riigiteataja.ee/akt/127042011002
The Swedish Arbitration Act, Section 1, SFS 1999:116, Arbitration Institute of Stockholm
Arbitration Institute website, available at http://www.chamber.se/?id=23746
UNCITRAL Model Law on International Commercial Arbitration of 1985, with amendments
as adopted in 2006, available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html,
accessed on May 4, 2012