Good employment agreements have clear dispute resolution provisions. These provisions inform the parties about the process of adjudicating contractual disagreements. They should set specific and realistic expectations about what will happen if the dispute resolution mechanism is set in motion.
Agreeing to Arbitration
These days, a great number of dispute resolution provisions wisely choose the predominant form of private alternative dispute resolution: arbitration. Generally speaking, arbitration benefits both parties to the contract because it tends to be quicker and cheaper than the default court lawsuit process. I say “generally speaking” because parties (and their lawyers) can sometimes come up with ingenious ways to turn what is intended to be a streamlined process into a litigious thicket. There are other considerations as well, which often require analysis of the fairness and balance of power between employer and employee in the particular dispute resolution process. Thus, it is always best to get legal advice from an employment lawyer before agreeing to or negotiating a dispute resolution clause.
Nonetheless, I typically encourage incorporating an arbitration provision in employment agreements because they tend to be efficient and simply work well.
The Basics of the Arbitration Process
Selecting an Arbitrator
The first step in the arbitration process is selecting a neutral decision maker. Employment arbitrators are often retired judges, many of whom have some experience with employment disputes. Frequently, the parties will ask an entity such as the American Arbitration Association to provide a list of arbitrators. Several mechanisms exist for jointly selecting the arbitrator from that list – most often it involves taking turns “striking” names until one remains. The arbitration provision in the employment agreement should specify this process.
The Arbitration Hearing
An arbitration hearing essentially is “trial court lite” in the sense that it is modeled after the judicial process. This typically includes making opening statements, presenting witness testimony, introducing exhibits, and submitting written briefs.
The Arbitration Decision
Ultimately, the arbitrator will issue a decision – often referred to as an “award.” A well-written award describes the relevant facts, summarizes the parties’ positions, provides detailed reasoning for the decision and, if appropriate, specifies a remedy. If necessary, arbitration awards may be enforced by filing a lawsuit in an appropriate court to require compliance with the terms of the award.
Dispute Resolution Fosters Settlement
Against this backdrop of the dispute resolution process, another even less formal process typically unfolds. From the beginning, the parties to the dispute should realistically assess their positions and potential risk/return. Parties should be thinking about compromise resolutions that, if not ideal, they can live with.
- What is your bottom line and “must have” element?
- What sort of leverage do you have to negotiate a better deal?
- Do you have a creative solution to the problem that the other party might not have anticipated, but could be mutually acceptable?
These are the critical, pragmatic factors that go into creating a settlement proposal or counter-proposal.
In my experience, the vast majority of employment disputes are resolved through voluntary settlements between the parties. These settlements manage risk and avoid the uncertainty and expense of retaining an arbitrator to decide the dispute, potentially in a manner that is unexpected by both parties. Settlements can be achieved at any point during the process, right up until the arbitrator issues his/her arbitration award. Thus, a good dispute resolution provision provides an efficient process to resolve disputes, which is utilized only where the parties cannot themselves agree on a mutually-acceptable settlement.