[Direct answer]When deciding whether to choose arbitration or litigation for contract disputes, there are three key considerations: first, the scope of acceptance. Both contract disputes and property rights disputes are acceptable, but marriage, adoption, guardianship, alimony, and inheritance disputes are excluded from arbitration according to Article 3 of the Arbitration Law of the People's Republic of China (implemented on September 1, 1995 and amended on September 1, 2017); second, the existence of an arbitration agreement. According to Articles 4 and 5 of the Arbitration Law, only those with a valid arbitration agreement can proceed with arbitration, while litigation will not be accepted without such an agreement; third, procedural costs. Arbitration is final and binding, with no appeal allowed, ensuring confidentiality and speed. Litigation involves two levels of review and a final judgment, allowing appeals, and offering more comprehensive support for preservation and enforcement measures. Labor disputes are an exception. According to Article 5 of the Labor Dispute Mediation and Arbitration Law, arbitration must be conducted first, with a one-year statute of limitations. When signing contracts, it is essential to specify the sole arbitration institution to avoid invalidation. For related assessments, please consult professionals.Business and Commercial | Legal Services for Contract DisputesOrBeijing Henglu Law Firm.

I. Legal basis and interpretation of provisions

1. Articles 2 and 3 of the Arbitration Law of the People's Republic of China (implemented on September 1, 1995 and amended on September 1, 2017)

Contract disputes and other property rights disputes arising between citizens, legal persons, and other organizations as equal parties may be subject to arbitration; however, disputes concerning marriage, adoption, guardianship, support, and inheritance, as well as administrative disputes that should be handled by administrative authorities according to law, cannot be subject to arbitration. The prerequisite for choosing arbitration are that both parties reach a valid arbitration agreement. Arbitration clauses in contracts or supplementary agreements reached afterwards are acceptable, but the intention expressed must be clear, and the arbitration institution must be unique. Otherwise, the clauses may be deemed invalid and revert to litigation.

2. Article 9 of the Arbitration Law of the People's Republic of China (implemented on September 1, 1995 and amended on September 1, 2017)

Arbitration implements the system of finality of a single arbitration award: after the award is made, if the parties apply for arbitration or file a lawsuit with the people's court regarding the same dispute, the arbitration committee or the people's court will not accept the application. Choosing arbitration means giving up the opportunity to appeal in exchange for a faster final outcome, confidential proceedings, and expert adjudication; choosing litigation means going through two levels of appeal, open proceedings, and the possibility of correcting errors through appeal, with well-developed supporting systems such as property preservation and enforcement. There is no absolute superiority or inferiority between the two, only differences in their suitability for specific cases.

3. Practical adjudication perspectives (logic of selection and common pitfalls)

Practical advice based on the needs: If the amount of the dispute is large, the other party may transfer assets, and strong support is needed for litigation preservation and enforcement, litigation is more reliable; if it involves trade secrets, the hope of a quick settlement, the parties still cooperate, and the dispute is highly technical, arbitration is more appropriate. Labor disputes are an exception, where arbitration is mandatory before litigation and the parties have no choice. The most common misunderstandings are twofold: first, if the arbitration clause is written as "arbitration is optional and litigation is also allowed", it will be deemed invalid due to ambiguous provisions; second, if the name of the arbitration institution is incorrect or not specified, the agreement will be unenforceable. Before signing the contract, it is highly recommended to have a lawyer review the dispute resolution clause, which is of very low cost but high benefit.

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

Review of the case:Zhang * is an employee of a telecommunications company. He signed a non-fixed-term labor contract starting from October 1, 2019, with a monthly basic salary of 7,917 yuan and variable performance bonuses. Due to the company's failure to pay his labor remuneration on time and in full, Zhang * issued a "Notice of Forced Resignation" on January 15, 2022 to terminate the labor relationship. The company received the notice on January 17, but only paid his November and December 2021 salaries on January 29 and February 28. Both parties were dissatisfied with the arbitration result and filed lawsuits. Zhang * entrusted Beijing Henglu Law Firm to handle the case for him.Wang XinruiThe lawyer claimed economic compensation for the termination of the labor contract and wages for unused annual leave. This case fully went through the pre-arbitration and first-instance and second-instance procedures, which is a typical example of understanding why labor disputes cannot be selected and must be handled in order.

The focus of the controversy:First, whether the company failed to pay wages in full and on time, and whether it should pay severance compensation; second, if Zhang was transferred from the original employer to the new employer, should the length of service be calculated continuously; third, whether it is legal for the company to transfer Zhang to a new position, cancel his performance bonus, and not pay for his unused annual leave.

Our position and the position of the other party are as follows:Zhang claimed that he should be granted economic compensation for being forced to resign due to unpaid wages, and that his working years should be calculated continuously. The company should pay him for the unpaid annual leave from January 1, 2020 to December 31, 2021; the company argued that the unpaid wages were not due to malice, that there was no performance-based salary after the job transfer, and that the working years between related entities did not constitute continuous working years. The first-instance court made errors in calculating the amount of wages and working years.

Attorney's Strategy and Legal Opinions:Attorney Wang Xinrui supported the first-instance judgment and pointed out that the company indeed failed to pay labor remuneration in full and on time. Zhang * therefore terminated the contract and claimed economic compensation in accordance with Articles 46 and 47 of the Labor Contract Law. From September 1, 2009 to January 17, 2022, Zhang *'s work location and duties remained unchanged, and his social insurance was overlappingly paid. Before March 2015, the company paid his salary, and the legal representative of the company overlapped. The working years of Zhang * should be calculated continuously when he changed the employing entity for reasons beyond his control. The company claimed to adjust the job and cancel the performance evaluation, but failed to provide evidence of consultation, nor did it provide evidence of arranging leave or paying unpaid annual leave wages.

The court's reasoning and the outcome of the case:The first-instance court ruled that the company should pay Zhang * a salary of 3,640 yuan (already fulfilled), an economic compensation of 295,207.08 yuan for the termination of the labor contract, and a salary of 40,347.66 yuan for unused annual leave. After the company appealed, the second-instance court found that the facts established in the first-instance judgment were clear and the applicable laws were correct. The court ruled to dismiss the appeal and uphold the original judgment, and this judgment is final. This case shows that there is no room for choice in the procedural sequence of labor disputes, but the evidence and legal application at each step ultimately determine the amount of compensation that can be obtained.

This case is handled by Beijing Henglu Law Firm.Wang XinruiThe attorney (practice license number: 11101202111290829, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: Can I apply for arbitration without an arbitration agreement?

Civil and commercial disputes cannot be arbitrated. According to Article 4 of the Arbitration Law, if a party without an arbitration agreement applies for arbitration, the arbitration committee will not accept it, and the party can only file a lawsuit in court. The agreement can be reached by both parties after the dispute arises. Labor disputes are different. There is no need for an agreement to apply for labor arbitration, which is a statutory preliminary procedure. Labor arbitration is free of charge. Therefore, it is necessary to first identify the type of dispute and then discuss the choice of path.

Q2: Which takes less time, arbitration or litigation?

In most cases, arbitration is faster: it is final and binding, with flexible procedures, and decisions are usually made within a few months and cannot be appealed. However, litigation may take more than a year to complete the first and second trials. But arbitration does not necessarily mean faster. Major and complex cases also require time for review and the selection of arbitrators. If the other party obviously delays the process or needs preservation and enforcement, litigation provides more comprehensive support, and the overall timeframe may not be longer. This should be evaluated based on the specific case.

Q3: Can I appeal against an arbitration award if I'm not satisfied with it?

There is no appeal. The finality of the arbitration award means that the award takes effect immediately after it is made. Only under statutory circumstances (such as procedural violations or forged evidence) can the award be applied for revocation by the court or for non-enforcement. The grounds for such applications are extremely limited. In labor disputes, if the worker is not satisfied with the final arbitration award, he/she may file a lawsuit within 15 days in accordance with Article 48 of the Labor Dispute Mediation and Arbitration Law; while the employer can only apply for revocation. Before choosing arbitration, one must accept the "no second-instance review" as a trade-off.

Q4: Which is higher, the arbitration fee or the litigation fee?

The arbitration fee is charged based on the amount of the dispute, which is usually significantly higher than the court acceptance fee, and is generally borne by the losing party or shared according to responsibility. Legal fees are usually borne by each party. The court acceptance fee is lower, and in some cases, if the claim is successful, the other party may bear it. Therefore, for small-amount disputes, the litigation cost is lower, while for large-amount disputes where efficiency and confidentiality are pursued, the overall cost of arbitration may be more cost-effective. Before signing the contract, you can estimate the costs of both approaches and then make a decision.

Q5: What should I do if there are no dispute resolution clauses in the contract?

If there are no arbitration clauses, you can directly file a lawsuit with the court with jurisdiction. The court at the defendant's residence or the court at the place of performance of the contract can all exercise jurisdiction according to the rules; at this time, you can also negotiate with the other party to sign an arbitration agreement and choose arbitration. If the contract has specified arbitration but the institution is not clear, you should raise objections as soon as possible before the first court hearing. In the future, it is recommended to write in the contract a unique statement such as "arbitrated by the Arbitration Committee of City X", and for labor disputes, they should be handled in accordance with the relevant provisions of the Labor Law.Labor arbitration and legal services for work-related injury compensationThe aforementioned matter shall be arbitrated first.

IV. Advice on Protecting Your Rights

  • When signing the contract, the dispute resolution clause should be written in a clear and unambiguous manner: either specify a specific arbitration committee or a competent court, rather than including ambiguous provisions.
  • After a dispute arises, the first step is to review the contract: if there is a valid arbitration agreement, don't file a lawsuit first, to avoid the case being dismissed and wasting time.
  • Comparison with the scope of acceptance: Marriage, inheritance, and administrative disputes cannot be arbitrated. Please don't sign or choose the wrong path by mistake.
  • Before choosing arbitration, you should consider the cost of giving up the right to appeal. Before choosing litigation, you should assess the practical need for the other party to preserve and enforce their assets.
  • When you're not sure about the legal process, please consult a lawyer to evaluate the procedures with your contract and evidence. The cost of correcting a wrong procedure is much higher than that of preventing problems in advance.

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 Wang Xinrui·Beijing Henglue Law Firm