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by Richard D. Weber, J.D.
MDA Legal Counsel
Published in the October 2000 issue of the Journal

Question: Most practicing dentists are employers. I've read that claims by employees against employers for wrongful termination or violation of federal and state discrimination statutes are running rampant in the legal system. Can these employment disputes be the subject of binding arbitration? If so, do you recommend that dentists, as employers, use the arbitration process?

Answer: It is correct that employment litigation has become a fertile field for plaintiff lawyers. Since tort reform, suits for wrongful termination and violation of state and federal discrimination statutes have skyrocketed.

Unlike tort reform, there are no caps on verdicts, and it is not difficult to create a fact question even if the employment relationship is at-will. That is, employees who have at-will employment relationships with their employers may be terminated without cause, unless the termination is based on one of the protected statutory classifications such as race, color, religion, sex, national origin, age, height, weight or marital status under both the federal and state civil rights acts, or based on a disability protected under federal or state law.

Employees have also been successful in recovering for breach of contract even though the employer thought the contract was at-will, based on oral representations allegedly made to the employee. Whether the claim is based on discrimination or an implied contract of employment, fact questions can be raised for a jury’s determination based solely on the testimony of the plaintiff employee.

Michigan law allows for mandatory arbitration of common-law employment claims as well as those arising from a violation of federal or state civil sights statutes. Although Michigan law favors arbitration, it was not until last year that the Michigan Court of Appeals decided that such arbitration contracts are enforceable, even if they relate to statutory violations. The Appellate Court set certain requirements that must be met in order for the arbitration agreement to be binding in Michigan:

  • a valid and binding contract covering such claims must exist;
  • the statute alleged to be violated must not prohibit arbitration; and
  • the arbitration procedures must not waive substantive rights and remedies that would be provided by the statute.

This means essentially that the arbitration procedure must provide clear notice, right to counsel, reasonable discovery, a fair hearing, and a neutral arbitrator. The arbitration agreement should be signed by both the employer and employee. With respect to new employees, arbitration can be made a condition of employment. Existing employees would have to sign the agreement to be bound by it. Although an at-will employee could theoretically be terminated for not signing an arbitration agreement, such a forced approach is not advisable.

Arbitration of employment claims is superior to litigation. Arbitration is much less expensive in terms of legal fees and costs and is final and binding without an appeal, except for alleged fraud in the arbitration process. Arbitration results in a quicker resolution of the dispute and lessens the possibility of an outrageous, runaway verdict which is present when a jury decides between an employee who may have lost his or her job and a perceived deep-pocket defendant employer.

For all of these reasons, arbitration is a preferable way to resolve employment related disputes, particularly now that discrimination claims can be the subject of arbitration under recent Michigan law.

Although arbitration agreements can be of many forms and types, it is appropriate that the arbitration agreement incorporate the American Arbitration Association process and the Rules for the Resolution of Employment Disputes. The American Arbitration Association is a well-respected body and has clearly defined ground rules with respect to selecting arbitrators and the arbitration procedures. There is no reason to attempt to recreate the wheel and establish a customized arbitration process when this system exists. Such an arbitration agreement can either be a separate document or part of an employee manual, but it is necessary that it be a contract signed by both parties and not subject to the unilateral right of the employer.


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