Case study: arbitration

July 1, 2006
Adentist’s policy manual had an exclusive resolution procedure requiring employees to settle disputes through binding arbitration.

A dentist’s policy manual had an exclusive resolution procedure requiring employees to settle disputes through binding arbitration. One day he received a notice from the federal Equal Employment Opportunity Commission (EEOC) that one of his front-office staff had filed a discrimination complaint. Given the mandatory resolution procedure, the dentist thought he could insist that arbitration was the employee’s only option. He was wrong; the claim was decided in favor of the employee.


Arbitration as a remedy for disputes is an attempt to resolve problems amicably without the legal expenses involved in fighting claims of wrongful discharge, discrimination, harassment, etc. As such, the outcome is determined by a neutral third party - the provisions of the Labor Arbitration Rules of the American Arbitration Association.

If handled correctly, arbitration can be of benefit to both employer and employee:

Arbitration proceedings can often remain private between the involved parties - and out of the press.

Arbitration is quicker than normal litigation, which can take months, if not years, to arrive at a final verdict.

Arbitration is less costly and time-consuming than the formal process of seeking redress through the courts.

Because of these benefits, arbitration policies have commonly been included in standard policy manuals. As a result, many employers required employees to sign mandatory binding arbitration agreements, with the arbitrator’s decision binding and typically not subject to appeal.

One mistake that employers make, however, is thinking that arbitration covers all disputes. Employees can file discrimination charges with the EEOC without availing themselves of the mandatory arbitration agreement, since the agency is not bound by any agreement between an employer and its workers. The Supreme Court has upheld the EEOC’s right to pursue victim-specific judicial relief, even when an employee has agreed to submit discrimination disputes to arbitration.


First understand that mandatory and/or binding arbitration does not apply to all labor-related disputes. Second, an arbitration arrangement begins with a well-drafted policy reviewed by an attorney specifying parameters and procedures to be followed. All existing employees should be requested to acknowledge and agree with the policy.

Many employment attorneys believe it is best to offer employees “consideration” in exchange for the promise to arbitrate. Consideration could be an increase in pay or benefits. If existing employees refuse to sign the agreement, the employer should place a note in their personnel files stating that they have been released from having to sign a mandatory arbitration agreement and have been “grandfathered in” under their present dispute resolution procedures. To avoid discrimination charges, provide all present employees with the same options and keep proper documentation. Inform new employees that signing such an agreement is a condition of receiving a job offer.

Here are some points to consider when writing an arbitration agreement:

Make sure employees read, understand, and sign the agreement. After employees have read the agreement, hold a meeting and answer any questions they may have.

Provide a procedure for discovery. Employees must have access to the same personnel documents and data as the employer.

Ensure that the same remedies available to the employee under his/her existing dispute resolution procedure are not precluded under arbitration.

Use a neutral arbitrator. Follow established arbitration rules, such as those of the American Arbitration Association,

Limit employees’ costs.Since litigation can be costly for both parties, offer to pay the costs of arbitration.

Make the agreement equally binding on both parties. Both employer and employees have to comply with the terms. Don’t require employees to resolve disputes in arbi­tration if you reserve the right to sue.

Provide “consideration” for signing. Give employees something of value in exchange for signing away their right to a trial.

Require the arbitrator to provide a written decision with a general clarification of the findings.

As the dentist in this case learned, arbitration, while having nice benefits, is not the panacea for all disputes.

Bent Ericksen is the founder and Tim Twigg is the president of Bent Ericksen and Associates. For more than 25 years, the company has been a leading authority in human resources and personnel issues, helping dentists successfully deal with the ever-changing and complex labor laws. Both authors are members of the Academy of Dental Management Consultants. To receive a complimentary copy of the company’s quarterly newsletter or to learn more, contact them at (800) 679-2760 or at

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