[Direct answer]When deciding whether to choose arbitration or litigation for corporate contract disputes, the key factors to consider are: whether there is a written arbitration agreement, whether confidentiality and efficiency are prioritized, and whether one can accept the finality of the arbitration award. If there is a valid arbitration agreement, only arbitration can be applied for. Arbitration is not public, the award is final, and the process is usually shorter. Without an agreement, litigation can be directly initiated in court, with two-instance final adjudication and complete procedural remedies, which is conducive to property preservation and enforcement. According to Articles 4 and 5 of the Arbitration Law, either arbitration or litigation can be chosen, with priority given to the arbitration agreement. For labor disputes, the pre-arbitration procedures must be completed first, and the arbitration statute of limitations is one year, while the statute of limitations for ordinary contract disputes is three years (Article 188 of the Civil Code). It is more important to draft correct dispute resolution clauses before signing the contract than to remedy the disputes after they occur.

I. Legal basis and interpretation of provisions

1. Articles 4, 5, and 9 of the Arbitration Law of the People's Republic of China (implemented on September 1, 1995)

Article 4 establishes the principle of voluntariness: the use of arbitration to resolve disputes shall be voluntary on both sides and subject to an arbitration agreement. If a party applies for arbitration without an arbitration agreement, the arbitration committee shall not accept the application. Article 5 establishes the rule of either arbitration or litigation: if a party files a lawsuit with the court after reaching a valid arbitration agreement, the court shall not accept the application. Article 9 establishes the finality of arbitration: once the arbitral award is made, it shall take effect immediately. Applications for arbitration or lawsuits regarding the same dispute after the arbitral award is made shall not be accepted. Whether the terms of the arbitration agreement are standardized (whether a clear arbitration committee is selected) directly determines the procedural direction and efficiency.

2. Articles 10 and 122 of the Civil Procedure Law of the People's Republic of China (amended on September 1, 2023)

Article 10 stipulates that the civil trial shall implement the two-instance final judgment system. If a party is not satisfied with the first-instance judgment or ruling, he/she may appeal, and if eligible, he/she may also apply for a retrial in accordance with the law; Article 122 stipulates the conditions for filing a lawsuit, including the plaintiff being qualified, having a clear defendant, having specific litigation requests and factual grounds, and belonging to the scope of acceptance by the court and the jurisdiction of the sued court. There is no need for a prior agreement for litigation. Jurisdiction is determined by law or agreement, and procedural means such as preservation, appraisal, and investigation orders are more complete, and the error correction mechanism is also more comprehensive.

3. The interpretation of the case by the actual adjudicators

In practice, there are general rules for enterprises to choose between arbitration and litigation: - When involving trade secrets, pursuing efficiency and confidentiality, or when the other party has assets in a foreign country, they tend to opt for arbitration. - When the disputed facts are complex, may require correction by a second-instance court, or rely on property preservation and enforcement deterrence, they tend to choose litigation. - In commercial arbitration, the arbitral award is final and binding. Remedies are limited to applying for the revocation of the award under Article 58 of the Arbitration Law (e.g., lack of an arbitration agreement, exceeding the scope of the arbitration, procedural violations, or forged evidence). - Labor disputes are not subject to commercial arbitration rules. They must first undergo labor and personnel dispute arbitration (according to Article 5 of the Labor Dispute Mediation and Arbitration Law, implemented on May 1, 2008). If dissatisfied with the arbitration award, they can then file a lawsuit. - The most common pitfall is signing "arbitration or litigation" clauses. Such agreements may be deemed invalid due to ambiguity, thereby increasing procedural costs.

II. Henglue Law Firm's Real Cases (Detailed Review)

Review of the case:In August 2025, A Company Limited issued "Notices of Termination of Labor Relationship" to 12 employees, including Zhang Li, Hu Fei, and Liu Gang, unilaterally terminating their labor contracts on the grounds that the recruitment procedures were found to be irregular during inspections. All 12 employees had been providing labor, accepting management, and receiving wages during their employment, and some of them had renewed their labor contracts. The employees entrusted Beijing Henglu Law Firm to handle the case.Feng NaThe lawyer applied for arbitration to the Labor and Personnel Dispute Arbitration Committee, demanding the restoration of the labor relationship and the improvement of the employment registration. The case went through three procedures: arbitration, first-instance trial, and second-instance trial. The lawyer represented the client throughout the entire process and won the case successively, fully demonstrating the statutory connection between the two types of procedures in dispute resolution.

The focus of the controversy:First, is the registration with the human resources and social security authority a prerequisite for the labor contract to take effect? Second, is the renewal of the contract without internal approval invalid? Third, does the rectification and dismissal during the inspection constitute a legal termination? Fourth, what are the legal consequences of an illegal termination?

Our position and that of the other party are as follows:12 workers requested to revoke the termination of employment, restore the employment relationship, and improve the employment registration system; the company claimed that the labor contract had not been registered, and the recruitment and renewal were in violation of regulations. It argued that the termination was legal based on the requirements of the inspection and rectification, and requested to confirm the legality of the termination and no need to continue the performance of the contract.

Attorney's Strategy and Legal Opinions:Attorney Feng Na argues her case in four layers: Firstly, according to Articles 7 and 16 of the Labor Contract Law, the employment relationship is established from the date of employment. A written contract becomes effective upon signature and stamping by both parties, and the filing with the human resources and social security authority is merely an administrative matter. Therefore, the company's claim that the contract is invalid due to non-filing lacks legal basis. Secondly, the principle of mutual consent applies to contract renewal. Internal or superior-level approval is part of the company's management process and cannot be used against workers. Thirdly, by comparing Article 39 of the Labor Contract Law and Article 19 of the Implementing Regulations of the Labor Contract Law, it can be seen that supervision, inspection, and rectification, as well as irregular recruitment procedures, are not statutory unilateral termination circumstances. The company's dismissal is essentially an illegal termination to evade legal obligations. Fourthly, according to Article 48 of the Labor Contract Law, if the worker requests continued performance and the contract can still be performed, the employer shall continue to fulfill its obligations.

The court's reasoning and the outcome of the case:The Labor and Personnel Dispute Arbitration Committee adopted the lawyer's core opinion and ruled that the dismissal was illegal, revoked the dismissal, and ordered the employer to continue to perform the contract; the first-instance court fully adopted the lawyer's opinion and ruled that the dismissal was illegal and ordered the employer to continue to perform the contract, with the company bearing the litigation fees; after the company appealed, the second-instance court dismissed the appeal and upheld the original judgment. The three consecutive victories of the 12 workers from arbitration to the second-instance court also demonstrate that in the "arbitration-before-litigation" connection process, solid evidence and legal arguments are needed at every stage.

This case is handled by Beijing Henglu Law Firm.Feng NaThe attorney (practice license number: 11101202211562923, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: If the contract includes an arbitration clause, can I still file a lawsuit in court?

No. A valid arbitration agreement excludes the jurisdiction of the court, and the court will not accept the lawsuit filed by one party (Article 5 of the Arbitration Law); if there are objections to the validity of the arbitration agreement, the parties may request the arbitration committee to make a decision or apply to the court for a ruling. The exception is the case of invalid provisions, such as the failure to select a clear arbitration institution, or the "arbitration or litigation" agreement being deemed unclear, in which case the parties may sue according to law. Writing the name of the arbitration institution correctly when signing the contract is the first step to avoid procedural delays.

Q2: How long does it take for arbitration and litigation, and what's the difference in cost between them?

Commerical arbitration is final and binding, usually faster than the "first instance plus second instance" process, but the arbitration fees are charged based on the amount of the dispute and are generally higher than the court litigation fees. The first-instance ordinary procedure of litigation is generally concluded within six months, and if the party is not satisfied with the judgment, they can appeal, which takes longer but costs less. Labor dispute arbitration is free of charge, and the case will be concluded within 45 days from the date of acceptance. For complex cases, the time limit can be extended by 15 days. When considering the time and cost, the subject matter, evidence, and relief needs should be taken into account comprehensively, and it is not advisable to focus solely on the cost of a single instance.

Q3: If the arbitration is final and binding, does that mean there's no hope of winning if you lose?

It's not absolutely hopeless. According to Article 58 of the Arbitration Law, a party may apply to the court for the revocation of the arbitral award within six months. The statutory circumstances include the absence of an arbitration agreement, the arbitral award exceeding the scope of the arbitration agreement, the arbitration tribunal's composition or procedures violating statutory procedures, forgery of evidence, concealment of evidence that could affect the fairness of the arbitral award, and arbitrators soliciting bribes or engaging in malpractice. If the conditions for non-enforcement are met, the party may also raise objections in the enforcement process. Litigation also has remedies such as appeal and retrial. The application for revocation must be supported by solid evidence, and procedural defects should be fixed as soon as possible.

Q4: Under what circumstances is it more advantageous to choose arbitration?

When confidentiality is required (such as closed-door hearings to prevent the leakage of trade secrets and business information), when efficiency is a priority, and when the other party's assets are located overseas and need to be enforced across borders, arbitration offers greater advantages. However, when the other party's creditworthiness is unstable, when property preservation and enforcement deterrence are needed, or when disputes over facts are likely to require correction in the second instance, litigation is a more reliable option. Enterprises can design dispute resolution clauses based on the creditworthiness of their trading partners, the location of performance, and the likelihood of enforcement during the contractual stage, rather than simply using templates. Once the clauses are finalized, it's difficult to modify them midway through the process.

Q5: Should labor disputes also be resolved according to this approach?

Not applicable. For labor disputes, the arbitration procedure must be initiated first through the labor and personnel dispute arbitration committee. If the party is dissatisfied with the arbitration decision, they may file a lawsuit with the court within 15 days from the date of receipt of the arbitration award. The commercial arbitration clause cannot exclude this procedure. The arbitration statute of limitations is one year, starting from the date when the party knows or should have known that their rights have been infringed. Disputes such as unpaid labor remuneration are not subject to the one-year time limit during the existence of the labor relationship. The party may file a claim within one year after leaving the job. When making a claim, attention should be paid to keeping the notice of termination and the wage certificates.

IV. Suggestions for Protecting Rights and Interests

  • When concluding a contract, it is necessary to draft clear dispute resolution clauses: either selecting a single, specific arbitration institution, or agreeing on statutory jurisdiction to avoid the situation of "either arbitration or litigation".
  • For those who already have an arbitration clause, apply for arbitration according to the agreement. Don't file a lawsuit impulsively, which may result in the case being dismissed and a waste of time.
  • Before filing a lawsuit or initiating arbitration, it is necessary to simultaneously sort out the clues of the property and apply for preservation in time to prevent the other party from transferring assets.
  • For labor disputes, it's important to grasp the one-year arbitration statute of limitations and the 15-day litigation period. First, secure the notice of termination and evidence of wages and attendance records.
  • Evaluate the other party's solvency and execution prospects before determining the procedures. For commercial contracts involving enterprises, you can refer to the relevant provisions.Business and contract dispute services for enterprises.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Labor arbitration legal services·Attorney Feng Na·Beijing Henglue Law Firm