Physicians considering employment or contractor agreements often focus on the compensation offered, duties and call frequency, and other provisions that they deem important. An often-overlooked area of a service agreement is the dispute resolution provision, which may include mandatory arbitration. Mandatory arbitration can significantly limit a physician’s rights and involve expenses beyond attorneys’ fees. This article will explore the risks of mandatory arbitration, as well as the advantages, to enable physician anesthesiologists to better assess how such clauses may affect them.

“Arbitration is a form of alternative dispute resolution in which the parties agree to resolve any disputes using one or more arbitrators. Arbitration provisions typically are mandatory – the sole method to resolve disputes, and the parties may not file suit in state or federal court.”

What is an arbitration provision and how does arbitration differ from litigation?

Arbitration is a form of alternative dispute resolution in which the parties agree to resolve any disputes using one or more arbitrators. Arbitration provisions typically are mandatory – the sole method to resolve disputes, and the parties may not file suit in state or federal court.

Arbitration proceedings differ from court proceedings in several important ways:

  • First, the decision-maker is the arbitrator (or several arbitrators), not a jury. That means that a single person, or typically no more than three individuals, decides the dispute. In contrast, a jury, drawn from the public, may be more sympathetic to a physician employee than arbitrators, who often are lawyers or retired judges.
  • Second, arbitration is confidential. Although a physician may want the public to know about a dispute (e.g., discrimination, wrongful termination, or challenge to a noncompete), an arbitration proceeding frustrates that goal by keeping the dispute confidential. Privacy is a key reason an employer may require arbitration.
  • Third, arbitration adds cost to dispute resolution; the parties must pay the sponsoring arbitration service and compensate the arbitrator(s) for their time, including preparation and decision-writing time. An individual physician may be less willing than the employer to pay the costs of arbitration. The expense of arbitration can serve as a disincentive to pursue a claim.
  • Fourth, unlike a court, arbitrators lack authority to enforce orders.

How does an arbitration provision limit an employee’s or independent contractor’s rights?

Each of the differences discussed above is a limitation of rights that court proceedings would offer, including the rights to 1) a public record of the dispute and public proceedings and 2) a jury trial, as well as 3) the ability to pursue the case without the expense of the court itself (except in instances when costs are assessed) and the judge’s time. Other limitations depend largely on how the arbitration provision is worded. Importantly, a mandatory arbitration provision does not necessarily limit an employee physician’s right to file a charge (e.g., for discrimination) with the Equal Employment Opportunity Commission, though the agreement to arbitrate is binding on the parties.

A mandatory arbitration clause may limit an employee’s rights by preventing class action claims. A class action can be an efficient way to proceed for a group of individuals who allege the same grievance. Loss of that right means that an individual physician alone will bear the cost of arbitration rather than being able to share the costs with others. It is important to review an arbitration provision carefully to identify any other restrictions the provision imposes and to review the sponsoring organization’s procedural rules. Discovery (the information gathering process) may be more limited in mandatory arbitration than in a court proceeding. For example, in an arbitration proceeding, a physician may not have a right to take depositions of knowledgeable persons on the other side of the dispute.

What expenses are involved?

The primary expenses of an arbitration proceeding are the costs of the arbitrator(s) as well as the fees of the sponsoring organization. The mandatory arbitration clause usually will identify the sponsoring organization and number of arbitrators. A sponsoring organization’s fees may depend on such factors as 1) number of arbitrators, 2) number of arbitrator candidates the parties request, and 3) whether the request for arbitration (in employment disputes) is filed by an individual or the company. For example, AAA filing fees (asamonitor.pub/4ccNciG) for single arbitrator employment arbitration matters range from $350 (if filed by an individual; the company must pay $2,100, as well as a case management fee of $750) to $2,450 (if filed by the company/employer, along with a $750 case management fee). The fee is higher for three-arbitrator panels. AHLA rules (asamonitor.pub/4eFk84T) provide for costs from $900 (parties select an arbitrator) to $1,700 (list of 15 candidates) for assistance in providing names of possible arbitrators. Those rules also may require the employer to bear most of arbitration cost, at least initially. One arbitration organization charges a case management fee that is a percentage of all arbitrator professional fees, rather than a flat fee (jamsadr.com/arbitration-fees).

The arbitrators often charge an hourly rate (with a daily minimum) plus expenses. Arbitrators charge for time spent on prehearing motions and matters, preparing for hearings, reviewing the parties’ filings, hearing days, and writing an opinion. These fees are in addition to each party’s attorneys’ fees. Arbitration agreements often address who pays for the cost of the arbitration proceeding. Common approaches are:

  1. The parties share the arbitration costs 50-50. This approach may be the most beneficial to an individual physician.
  2. The party initiating the mandatory arbitration pays the costs. If a physician must arbitrate any dispute under an employment or other agreement (e.g., operating or shareholder agreement), the physician will be faced with additional costs to seek relief, which may (and may be intended to) have a chilling effect on the physician’s willingness to seek review of a dispute.
  3. The non-prevailing party pays all costs. Under this approach, the non-prevailing party is responsible for all costs of the arbitration. Often, the non-prevailing party also must pay the prevailing party’s legal fees. This approach similarly may serve as a disincentive to seek review of a claim, as an employee physician risks being responsible for potentially substantial costs if the physician does not prevail.

How will a physician know how to select an arbitrator?

Unlike a court proceeding, where a judge is assigned and the litigants have no say (absent unusual circumstances, e.g., a claimed conflict of interest on the part of the judge), the parties select the decision-makers in arbitration. In arbitration, the parties often have little information, although a physician’s counsel may be familiar with particular arbitrators or have access to evaluations of an arbitrator’s performance.

What rules apply to arbitration proceedings and how can the choice of rules affect the proceeding?

The arbitration agreement usually specifies the sponsoring organization for any arbitration, and it may specify the procedural rules that apply to the proceeding. The sponsoring organization’s rules will affect such matters as the required experience and/or training for arbitrator candidates and the time frame in which the arbitrator(s) must decide a case. Procedural rules will specify, among other things, the type of evidence that may be presented (e.g., whether hearsay evidence is permitted).

An anesthesiologist likely wants an arbitrator with knowledge of the health care industry and common issues in the industry. Note that arbitrator candidates with relevant experience may represent health systems and may not be familiar with a physician’s perspective.

Is arbitration a faster process than litigation?

Generally, arbitration may be faster than litigation, but it depends on the court dockets as well as the complexity of the dispute, applicable rules, and whether the parties push the arbitrator to resolve the dispute.

Can arbitration work in a physician’s interest?

In some circumstances, yes. For example, the physician may prefer the nonpublic nature of an arbitration proceeding if the physician is defending against a claim that the physician does not want to be a matter of public record. The potential for faster resolution of a dispute may also be in a physician’s interest.

May a physician appeal an arbitration decision?

If arbitration is binding, the decision of the arbitrator(s) is final and may not be appealed. Arbitration agreements often require binding arbitration with no appeal rights.

How does mediation differ from arbitration?

Mediation is a dispute resolution process in which a selected third party (mediator) assists the parties to resolve their dispute. Unlike arbitration, the mediator does not decide the dispute. Mediation can be a useful tool to try to resolve a dispute prior to arbitration. Mediation is the preferred route in the context of a continuing relationship (e.g., employment), as arbitration (like litigation) can irreparably harm a relationship.

As with many provisions in a contract, a mandatory arbitration clause merits close attention to understand the risks and costs that the provision entails. Mediation is often a better starting point to resolve a dispute.