ARBITRATION TYPES SERIES – 4 / COMPULSORY ARBITRATION

This week, we will discuss the topic of “Compulsory Arbitration,” which is the fourth in our series on types of arbitration. Compulsory arbitration has a long historical background as one of the legal dispute resolution methods. However, the practice of compulsory arbitration in its modern form has become more widespread, particularly after the 20th century.

As is well known, compulsory arbitration is a dispute resolution method in which the parties agree to apply to a pre-designated arbitration institution instead of resorting to the courts in the event of a particular dispute. In other words, when a dispute arises, the parties are required to have a decision made by a specific panel of arbitrators or an arbitration tribunal instead of a court. This requirement may sometimes be determined by a clause added to contracts or become mandatory through legal regulations.

In compulsory arbitration, a prior agreement or legal regulation between the parties requires them to resort to arbitration rather than going to court to resolve disputes. In arbitration, the parties agree to have their disputes resolved by a specific arbitrator or a panel of arbitrators, typically in an independent and rapid manner.

Looking at the application areas of compulsory arbitration, it stands out particularly in “Commercial Contracts,” “Labor Law,” “Consumer Law,” and “International Investments.”

• Commercial Contracts: Compulsory arbitration clauses may be present in major commercial agreements to resolve disputes.
• Labor Law: In some countries, compulsory arbitration may be imposed to resolve disputes between employees and employers.
• Consumer Law: In some consumer contracts, arbitration may be required instead of resorting to the courts in case of a dispute.
• International Investments: In international trade and investment agreements, compulsory arbitration may be applicable to resolve disputes between states and foreign investors.
  As with every type of arbitration, compulsory arbitration has its advantages and disadvantages.

Advantages of Compulsory Arbitration:

1. Fast Resolution: It provides a faster resolution compared to courts.
2. Expertise: Arbitrators in compulsory arbitration may be experts in the subject matter of the dispute.
3. Confidentiality: Arbitration procedures are generally confidential, offering a more private solution for the parties.
4. Lower Costs: Arbitration may be a more economical solution compared to the typically more expensive court proceedings.

Disadvantages of Compulsory Arbitration:

1. Limited Right of Appeal: The right to appeal arbitration decisions is limited, which can increase the risk of facing unfair decisions.
2. Parties’ Consent: Since compulsory arbitration can be applied without the consent of the parties, it may be disadvantageous for one party in some cases.

In Turkey, compulsory arbitration is applicable in specific situations and disputes. In Turkish law, compulsory arbitration is particularly applied in certain special fields. Regulations on compulsory arbitration in Turkey generally require the parties in specific sectors or legal relationships to seek a solution through arbitration instead of going to court.

I believe it would be useful to briefly mention some of the areas where compulsory arbitration is applied in Turkey:

1. Labor Law and Employee-Employer Relations: The Turkish Labor Law foresees the use of compulsory arbitration to resolve certain disputes between employees and employers. According to the Labor Law, disagreements related to worker rights such as severance pay and notice pay are initially attempted to be resolved through mediation. However, if mediation does not yield a solution, the parties can resort to arbitration. Compulsory arbitration is designed to protect workers’ rights.
2. Consumer Law: Some disputes related to consumer rights can be resolved through compulsory arbitration under the Turkish Commercial Code and the Consumer Protection Law. In conjunction with consumer courts, some disputes between consumers and sellers or service providers can be directed to specific arbitration boards.
3. Stock Exchange and Financial Markets: Certain disputes in the stock exchange and financial markets can also be resolved through compulsory arbitration. Particularly under the Capital Markets Law, compulsory arbitration mechanisms may exist to resolve disputes between investors and brokerage firms.
4. Compulsory Arbitration and Contracts: Some contracts in certain sectors may require the parties to resort to compulsory arbitration in the event of a dispute. For example, in the construction industry or certain areas of international trade, the parties may agree to compulsory arbitration in accordance with the contract.
5. Disputes Between Investors and the State: Turkey has adopted the arbitration method to resolve disputes with international investors. International arbitration rules (e.g., ICSID) are typically applicable for such disputes. However, the state also has regulations regarding specific local arbitration practices.

Compulsory arbitration is also widely used in certain countries and areas worldwide. It is commonly applied in fields such as trade, labor law, and consumer rights. However, each country’s legal system and regulations are different, so compulsory arbitration practices are not the same everywhere. In this regard, I believe it would be beneficial to mention some areas and countries where compulsory arbitration practices are common.

United States

The U.S. is one of the most controversial countries when it comes to compulsory arbitration practices. Compulsory arbitration clauses are common in commercial contracts and consumer contracts.

• Consumer and Worker Rights: In the U.S., compulsory arbitration is common, particularly in relation to consumer and worker rights. For example, some large companies include arbitration clauses in customer and employee agreements, ensuring that legal disputes are resolved through arbitration rather than going to court. One of the most prominent examples is the compulsory arbitration clauses in the user agreements of large tech companies.
• Federal Arbitration Act (1925): The Federal Arbitration Act laid the foundation for arbitration in commercial and business sectors in the U.S. However, compulsory arbitration, used to alleviate the burden on the judicial system, has drawn criticism due to power imbalances and the potential undermining of consumer or worker rights.

European Union

In EU countries, compulsory arbitration is generally preferred for resolving international trade and commercial disputes. However, some EU countries have adopted a more cautious approach to consumer and worker rights.

United Kingdom: Compulsory arbitration is common in trade and business sectors in the UK. However, the right to resort to courts is generally maintained in relation to consumer and worker rights. Although compulsory arbitration for labor rights is applicable under certain conditions, voluntary arbitration is more widespread.

France: France applies compulsory arbitration in certain areas, especially in commercial disputes, where parties may enter into compulsory arbitration agreements.

Canada: In Canada, compulsory arbitration regulations exist in some sectors, particularly in labor law and consumer disputes. Canada’s labor law contains provisions that require compulsory arbitration to resolve disputes between workers and employers. However, there is no general compulsory arbitration system in the country, and a careful approach is taken regarding workers’ rights.

Australia: Compulsory arbitration is common in trade and labor law in Australia. However, compulsory arbitration concerning consumer rights is generally limited, and the right to go to court is more protected regarding labor rights. Some commercial contracts, particularly those with large companies, may include compulsory arbitration clauses.

India: In India, compulsory arbitration is a common practice, particularly in the trade and business sectors. It is generally compulsory to resort to arbitration rather than going to court to resolve commercial disputes. India established legal regulations for arbitration through the Arbitration and Conciliation Act of 1996.

China : Compulsory arbitration is widely used in China, especially in regions with intense trade activities. Arbitration stands out as a legal solution for resolving commercial disputes, particularly with the increase in trade and foreign investments.

• China International Economic and Trade Arbitration Commission (CIETAC): CIETAC is one of the most important arbitration centers in China, and compulsory arbitration agreements are made for international trade disputes.

Brazil : In Brazil, compulsory arbitration is common for labor law and commercial disputes. However, there is more legal protection for workers in Brazil, and arbitration is not compulsory for consumers. However, compulsory arbitration clauses can be found in commercial agreements.

Middle East and Gulf Countries: In some Middle Eastern countries, particularly in the trade and construction sectors, compulsory arbitration practices are widespread. In areas like the Dubai International Financial Center (DIFC), compulsory arbitration is applied to resolve commercial disputes.

In conclusion, compulsory arbitration has evolved over time as a legal tool and has started to be applied in more areas. When looking at compulsory arbitration worldwide, it is commonly used as a solution in fields such as trade, labor law, and some other areas. However, each country has different legal regulations and application methods. While compulsory arbitration ensures faster resolution of disputes, it also faces criticism due to issues like power imbalances and a lack of transparency.
Nonetheless, it offers many benefits to the parties, such as speed, expertise, confidentiality, flexibility, and lower costs.

Sources

Burhan, ÖZDEMİR; “COMPULSORY ARBITRATION AND ILO PRINCIPLES CONCERNING LABOUR DISPUTES”, H.Ü. İktisadi ve İdari Bilimler Fakültesi Dergisi, Cilt 19, Sayı 1, 2001, s. 219-229.

https://www.forskerforbundet.no/en/news/2024/what-is-compulsory-arbitration

https://www.regjeringen.no/en/topics/labour/lonn-og-inntekt/innsikt/inntektspolitikk-og-lonnsoppgjor/questions-and-answers-about-compulsory-arbitration/id2971645/

https://superiorcourt.maricopa.gov/departments/superior-court/civil/arbitration/

https://blog.ipleaders.in/all-about-compulsory-arbitration/

https://philadelphiabar.org/?pg=SCLSArbitrationFAQ

https://www.courts.phila.gov/pdf/manuals/civil-trial/compulsory-arbitration-center.pdf

https://www.cambridge.org/core/journals/american-journal-of-international-law/article/abs/compulsory-arbitration-at-the-second-hague-conference1