TALLINN UNIVERSITY OF TECHNOLOGY Faculty of Social Sciences Tallinn Law School Constitutional...

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,



tyyp=X&query=tsiviilkohtumenetluse 16


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


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


Estonian Code of Civil Procedure, RT I 2005, 26, 197, entered into force 1 January 2006,




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






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


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


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



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,


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


Ibid. p. 890 54


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


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


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


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


published by The European Lawyer Ltd, p. 67 66

Kaj Hobér and Hans Strempel (2002). Practitioner’s Handbook on International Arbitration,


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



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


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


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


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


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





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


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


July 1992, available in English at





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

https://www.riigiteataja.ee/akt/13310847

https://www.riigiteataja.ee/ert/act.jsp?id=13120899

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






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






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






471 125



Ibid. p. 609 127



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



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


Managerial Law, Vol. 43, No. 1/2, p. 112-115 132



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,


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,


Ibid. 144

RKPJKo 12.01.1994, III-4/A – 1/94 145


Second Improved Edition, University of Tartu, published by Juura, p. 52 146

Ibid. p. 53 147





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


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



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




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



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,


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


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



RKPJK 30.04.2004, 3-4-1-3-04, para. 31 172


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







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


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


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


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


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


Nadia Milone (2011). Arbitration: the Italian Perspective and the Finality of the Award, Oñati

Socio-Legal Series, vol. 1, no. 6, p. 3 202



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



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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52

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56

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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


http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html,


https://www.riigiteataja.ee/akt/13310847

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