Dispute Resolution in Employment Contracts

Employment relationships are never formed with the intention that things will go wrong. However, employment contracts are written to account for the unforeseen, including the potential for serious conflicts to arise between employer and employee. While it may not be necessary for all workers, for senior or executive employees, it is vital to have a well-drafted dispute resolution clause. These clauses establish how to resolve conflicts if they do arise, or how to terminate the employment relationship if the conflict cannot be successfully resolved. When disputes and issues occur, the parties must follow the process outlined in the dispute resolution clause in the employment contract. This article looks at dispute resolution in employment contracts in Australia.

Dispute resolution procedure

Grievances and disputes happen in every workplace, because of a range of issues, including personality clashes, bullying, and poor communication and leadership. Often the dispute can be settled with an informal chat or small accommodations. However, when people cannot agree on a resolution, or the dispute involves a serious matter, there needs to be a more formal intervention.

Employers should have a formal workplace dispute resolution procedure in place to address issues as they arise. This procedure should either be consistent with the conflict resolution clauses in the executive employment contracts, or the procedure should clearly state that senior workers are not covered by the policy. Real difficulties can arise if there are conflicting dispute resolution policies, as this may mean that the parties are not bound by either procedure due to the lack of certainty.

What is a dispute resolution clause?

A dispute resolution clause is a critical clause in any contract, and particularly in an executive employment contract. Dispute resolution clauses save employers time, money and effort when there is a conflict with an employee, and ultimately help both parties avoid litigation. This clause sets out how parties should respond if there is a dispute, and the preferred dispute resolution process to avoid premature or unnecessary court proceedings. If a dispute arises, the parties can consult the contract to see what steps should be taken to resolve the issue. While these clauses are often boilerplate, a bespoke clause can account for the specific employment circumstances.

The key elements of a dispute resolution clause are:

• timelines and notice period to address the issue;
• request for preliminary negotiation of the dispute;
• a chosen alternative dispute resolution mechanism; and
• location and timing for any legal proceedings.

Key provisions

Dispute resolution clauses typically have a passage that states whether the dispute should be settled through alternative dispute resolution or the courts. The clause can establish the jurisdiction where the parties should resolve any dispute, and the methods of appeal for any decision. Establishing these details at the start of the employment creates a greater sense of certainty in an employment relationship.

Most dispute resolution clauses require the parties to try and resolve the matter at either mediation or arbitration in the first instance. Each method has its advantages and disadvantages depending on the circumstances. Alternative dispute resolution is intended to bring disputes to an end, through either a negotiated outcome (where the parties resolve the issue between themselves), a mediated outcome (where an independent mediator helps the parties come to an agreement), or an arbitrated or adjudicated outcome (where a court or an independent arbitrator makes a binding decision on the matter). These options are much less expensive, formal and stressful when compared to a court proceeding.  

Jurisdictional clause

In the same way, a jurisdictional clause is important if the employer is a multinational company or employs remote workers in other legal jurisdictions. Inserting a jurisdictional clause in an employment contract sets out the institution (tribunal or court) where parties can seek remedy if there is a legal dispute. For example, the contract can stipulate ‘in the event of a dispute under this agreement, the parties agree to submit to the exclusive jurisdiction of the Supreme Court of Victoria’. Dispute resolution clauses can also place time limits on either party’s ability to sue the other over a dispute. This creates certainty and stability within the employment relationship.

This type of clause can also help protect the privacy of the contracting parties. In litigation, sensitive commercial strategy, intellectual property and financial information can be revealed to the public. There can also be a detrimental effect on the reputation of a business if there is a public dispute. A dispute resolution process such as arbitration can better protect information and ensure confidentiality.

Other industrial instruments

The employee may also be covered by an award or agreement that has a dispute resolution clause. This clause will outline the step-by-step guide to help the parties resolve the dispute. Settling the dispute within the workplace saves time, reduces legal costs and avoids the stress of a formal legal process.

The employment law specialists at Go To Court Lawyers can provide advice on dispute resolution in employment contracts. Please contact or call 1300 636 846 for any legal assistance.