Sometimes things don’t always go to plan. No matter how great your new job, practice and owner may seem, it’s smart to include a “dispute resolution” provision in your dental employment contract to establish a process to work through any potential problems down the road.
The best time to do this is right at the beginning of your relationship, long before you ever need it. In fact, you may never need this provision at all! But think of it as insurance against the unknown.
This dispute resolution section may not always be a standalone provision and can sometimes be found under a differently titled section, such as “Governing Law” or “General” or “Miscellaneous”. If the provision references the dental practice’s own policies and procedures as the governing rules for the resolution method and it is separate from the employment agreement, the employment agreement governs the dispute, should there be any conflict between the two documents.
What is dispute resolution?
A dispute resolution provision establishes the process for resolving disputes between the dentist-employee and the employer. When the provision defines a process other than litigation, it is generally referred to as “alternative dispute resolution” (“ADR”). ADR mechanisms that one may encounter in an employment contract are:
Arbitration. Probably the most common dispute resolution provision in employment agreements. A neutral “arbitrator” or panel of arbitrators hears the disputants’ arguments and renders a decision.
This decision is enforceable by the courts and is almost always considered final. Some employment agreements may require all disputes to go to arbitration, while others mandate arbitration for only certain issues.
Mediation. A process by which a neutral third party attempts to help the disputants reach agreement (generally a compromise between their differing positions). The mediator does not render a decision or opinion but merely attempts to help the parties reach their own resolution. Unlike arbitration, mediation is usually not binding but merely serves as a requirement before another means of dispute resolution.
Mediation then Arbitration. The parties begin with mediation in an attempt to reach their own agreement. If the parties cannot agree, they proceed to arbitration.
Who needs a dispute resolution clause?
The employer often prefers the certainty of a fixed process for resolving disputes. If the employer has chosen arbitration, the employer likely believes arbitration to be less costly, more expeditious, less risky, and less disruptive of the workplace process than litigation, each of which may or may not be true in any individual dispute.
However, the employee should be concerned that he or she may be relinquishing certain rights, such as the right to adjudication by a judge or jury and the right to appeal an adverse decision.
On the other hand, arbitration may sometimes be less costly and less time consuming, thereby resulting in a more expeditious resolution.
Another concern should be that a poorly drafted dispute resolution provision could raise as many questions as it would answer (How will the arbitrator(s) be selected? Where will it be held? When? What rules will apply to the arbitration?), thereby adding delay and cost.
What should I consider about dispute resolution and arbitration?
A well-drafted arbitration provision should include more than merely directing that disputes are to be settled by arbitration. It should also address:
- Where arbitration will take place
- Which rules will govern the arbitration process
- Which disputes are governed by arbitration — all or only certain types
- An “entry of judgment” provision (making clear that the arbitrator’s decision may be entered in a court)
- Whether a single arbitrator or panel of arbitrators will decide the matter
When agreeing to mandatory arbitration, the parties should be aware that they are waiving their right to have a court (and also a jury) resolve any dispute that may arise.
What about liquidated damages?
A “Liquidated Damages” provision in a contract has the effect of defining or specifying the amounts that a breaching party will be required to pay if he or she is found to have breached the contract, without the need for the injured party to show actual damages. Such a provision should only be allowable in cases where the damages are not easily calculable or susceptible to quantification.
To the employer, the liquidated damages provision will be an assurance that various provisions of the contract have sufficient teeth to be practically enforceable by eliminating the need to prove damages in situations where monetizing the damages suffered would be difficult to prove in court. To the employee, it may be a significant, and perhaps disproportionate, financial disincentive to breaching the contract.
Setting the amount of damages due to breach of a provision in the contract (such as restrictive covenant, non-solicitation of staff, non-solicitation of patients, confidentiality), where proof of actual damages would be difficult to calculate, relieves the employer of this heavy burden in litigation. If the amount of liquidated damages is high enough, as will usually be the case, it provides a strong disincentive to the employee who may be considering breaching.
The employee should do the math. Generally, the liquidated damages will be a significant sum of money. A court may not regard the amount to be so high as to constitute an unenforceable “penalty” as a matter of law, but it will likely be so significant a sum that it will feel like a penalty to the former employee.
What else should I consider about liquidated damages?
Injunctive relief. An “injunction” is a court order requiring a person to do something, or to refrain from doing something. A person subject to an injunction is said to be “enjoined.” In addition to seeking the liquidated damage amount, a contract may give the employer the right to injunctive relief in some instances of breach. For example, the former employer may have the right to sue to enjoin the former employee from any further breach.
Understand what breaches are subject to liquidated damages. Breaching a contract is not always that difficult, and in some instances might happen inadvertently (for example, unwittingly soliciting a former patient through a mass mailing in violation of a contractual prohibition), and in most instances is unlikely to be covered by professional liability insurance. The employee-dentist should have a good understanding of what actions might cause potential liability and the potential financial consequences. This is yet another reason that the employee should obtain professional legal assistance before signing an employment agreement, and again before taking action that might constitute a breach.
Understand the duration of restrictions. The employee-dentist should make certain to understand for how long the various restrictions (such as non-solicitation of employees or former patients) apply.
Indemnity. An indemnity is a provision requiring a party (generally in this context, the employee) to indemnify (or to “indemnify and hold harmless” or to “indemnify, defend and hold harmless”) another party (generally, in this context, the employer) to compensate the other party for any financial costs and losses suffered as a result of the acts or omissions of the indemnifying party. It is generally recommended that, where the other party (typically the employer) insists on retaining such a provision in an employment agreement, the indemnifying party ascertains whether their insurance will cover such contractual obligations.
See more details and sample dispute resolution and liquidated damages clauses in chapter 4 of Dental Employment Agreements: The Devil’s In the Details.
Learn more about negotiating and understanding dental employment agreements and contracts. Check out the full list of clauses and topics and download the ebook, which is full of sample language, examples and in-depth explanations.