A Case Study for ACSI

Conciliation/Arbitration Agreements:
A Case Study for ACSI
by Burt Carney, ACSI Director, Legal/Legislative Issues

This article originally appeared as an internal document for Association of Christian Schools Internationaland is reprinted by permission.

Dr. John Cooley is an attorney with Wooten & Hart in Roanoke, VA. He also answers the ACSI Legal Hot Line, conducts legal audits for Christian schools, and speaks at ACSI conventions and conferences. Prior to attending law school, Dr. Cooley was in Christian school administration for ten years and understands educational practice from a Christian philosophical viewpoint. In the article that follows, Dr. Cooley advocates that schools use Christian conciliation/arbitration clauses in their employment contracts.

For several years, ACSI has recommended to numerous Christian schools that they include a Christian conciliation/arbitration clause in employee contracts. Multiple factors contributed to that recommendation. Hundreds of schools have placed Christian conciliation/arbitration clauses in their contracts. However, there are a number of schools that have not. This article is written with both in mind.  

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1. What factors influenced ACSI to make its initial recommendation? 

2. Is the recommendation still a viable option, and if so, why?

Directly using the experience of one school, this article will attempt to answer those questions. The article will also provide practical insight in implementing a mandatory conciliation/arbitration clause.

In the summer of 1993, a principal of a Christian school contacted my office. (The church and school have granted permission to use their experience in this article). An employee’s contract had just been revoked for the 1993-94 school year. The employee, through an attorney, claimed that the school had breached the contract. As a result, the employee requested damages well in excess of $35,000. The school had already consulted several sources regarding the claim. They recommended settlement by the school, since litigation would be expensive and prevailing may have been very difficult.

After discussing the circumstances involved (including the school’s philosophy of Christian school education) and reviewing the contract and the employee handbook, we recommended that the school enforce their conciliation/arbitration clause. Both the principal of the school and the pastor of the church had attended a seminar where we had discussed the clause. As a result, the school had incorporated the clause in its employment contract.

In the spring of 1993, the school issued a contract to the employee for the ensuing 1993-94 school year. Following the employee’s signing the contract, the school learned that the employee had decided to enroll the employee’s child in public school. This was contrary to the school’s philosophy and violated a long-standing policy. The school and employee attempted to mediate the issue to no avail. The school then withdrew the contract early in the summer of 1993. The contract provided for a 60-day notice by either party to terminate the contract.

Initially, it appeared that the school had appropriate cause to revoke the contract. However, as the matter was investigated, a question arose as to whether or not the employee knew of the school’s policy. The school felt it had advised the employee when hired. The employee stated that the school had not advised of the policy, either verbally or in writing. Thus, the issue arose as to whether or not the school had cause to terminate the employee. Additionally, there was a contract interpretation question under state law. Since the school notified the employee of the revocation of the contract 60 days prior to the beginning of the school year, at what point did the 60 days beginning from the date of notice, or from the first day of school?

By May, 1994, after the parties had taken necessary discovery, the former employee and the school presented their respective evidence and arguments to the panel of arbitrators. Within a few weeks, the panel issued its opinion. They awarded the teacher a little in excess of $4,000. They concluded that even with cause to revoke the contract, the school had to give notice. Under state law, the 60-day notice began on the first day of the contract (when school started), resulting in the school’s responsibility to pay the employee’s salary and all benefits for two months. Under the conciliation/arbitration agreement, each side was responsible to pay the costs for their own attorney and arbitration, and one-half of the costs for the neutral third arbitrator.

PLEASE NOTE: It is no longer recommended to have a split agreement in advance regarding who pays for the costs of the process. Instead follow the “Rules of Procedure for Christian Conciliation” which explains how expenses are to be paid.* The US Court of Appeals for the Tenth Circuit ruled in a non-school case that mandating the splitting of fees prior to the case being decided invalidated the entire conciliation/arbitration agreement. That court’s decision applies to business conducted in the following states: Arizona, Colorado, Kansas, New Mexico, Oklahoma, Utah, and Wyoming. Contact ICC for more details. ACSI recommends that employers in all 50 states follow this advice—Editor. 3/2000/ Updated 2018

Reasons for the Clause

A number of factors contributed to the recommendation to include a Christian conciliation/arbitration clause in employee contracts. The most important reason is scriptural. Paul, in I Corinthians 6, asks believers why they were taking each other to a court held at a local heathen temple where sacrifices were made as a part of the judgment process. Paul admonished the Corinthian church to seek judgment from believers. The recommended mandatory conciliation/arbitration clause fulfills Paul’s scriptural admonition. Biblical principles not only are followed but can be argued to the arbitrators. The forum allows openness and explanation of scriptural and philosophical issues relevant to the decision. At the same time, the ministry can maintain its testimony.

Following the arbitration in the above case, but before the arbitrators issued their decision, the pastor expressed his support for the process. To him, win, lose, or draw, the ministry had followed Matthew 18 and I Corinthians 6 principles. The biblical philosophy of ministry had been explained. Only in the context of Christian arbitration was this possible.

Cost is another reason for using a Christian conciliation/arbitration clause. Formal litigation with discovery motions and hearings can result in attorney’s fees and costs into the tens of thousands of dollars. When the courts are involved, costs skyrocket. Frequently cases settle not on the merits, but for no other reason than the financial drain they create.

In contrast, Christian arbitration is much less expensive. On occasion, the parties do not need to involve counsel. However, even with attorneys involved and formal discovery utilized, such as depositions (oral questions under oath), costs are much lower. Because the process normally requires less legal time, attorney’s fees are reduced by approximately 50 percent or more. With the Christian school case above, the legal costs (which included attorney’s fees, travel, litigation expenses, and arbitrator’s fees) were less than $10,000. While that is a lot, the normal litigation process would have required a trial of several days, rather than just one. All told, just the legal costs using the traditional court system could easily have been well in excess of $20,000.

Editor’s Note:  Adjusted for inflation, $20,000.00 in 1994 is equal to $33,816.74 in 2018.  Annual inflation over this period was 2.21%.

Even simple legal actions frequently require several years before they are scheduled for trial. One of the frustrations of the legal process is that too often litigants are required to wait so long to receive a decision. Even after a decision is issued, one side may appeal—extending the time by months, if not years.

In the conciliation/arbitration process, this time is shortened considerably. In our Christian school case, ten months elapsed from the notice of claim to the final opinion. Even then, the time was elongated due to a health problem involving a participant. Normally, the process would take approximately four to six months. In addition, the suggested clause is binding. That is, the decision of the arbitrators is final. Neither side can appeal. Win or lose, the arbitrators’ decision closes the case, thereby shortening the time frame.

Another consideration for the recommendation is that the suggested clause is mandatory. This means that the arbitration clause is enforceable. An employee should not be able to successfully maintain his/her suit in court. When suit is filed, counsel for the school may easily file a motion to dismiss. The U.S. Supreme Court thus far has upheld mandatory arbitration clauses. The only permissible forum then is arbitration, not the courts.

The Christian conciliation/arbitration process also allows for “equity.” In legal terms, “equity” means “what is right or just.” Too often for believers in the litigation process this gets lost in procedures and motions. Legal arguments take hold and the case is mired in the process, with both sides digging in. Under the conciliation/arbitration process, both sides can present their positions without the typical adversarial environment. Both sides may be fully involved in the process. For example, a ministry may not want to defend itself in court, believing it would be in violation of I Corinthians 6. An employee may not want to litigate a matter in court, but believing he/she has been wronged, would have the opportunity to present his/her side for a fair hearing. The Christian arbitration process permits equity for both parties.

Thus, in the Christian arbitration process, not only are biblical principles explainable, but the issue is also decided within the context of what is legally appropriate. All defenses may be raised. This is illustrated in the cited case. While there was a breach of the philosophy of the school, there was a question as to what the employee knew and when it was known. If the school had no cause to revoke the contract, the school could have faced significant liability. However, in response, the school was able to raise the state law issue, citing specific cases. While we argued that the 60 days began with the notice to the employee, we asserted that regardless, the most the school could be responsible for was two months’ salary and benefits. The arbitrators decided that the employee was not entitled to the entire contract salary and benefits. The 60 days began from the first day of the contract (when school started). Mandatory arbitration does not limit any legal issues. Instead, it changes the forum where the issues will be decided. All relevant legal issues may still be raised.

Finally, where legal matters are involved, schools frequently miss the learning experience the Lord intends for them because of the adversarial nature of litigation. In mandatory Christian conciliation/arbitration process, each side has the opportunity to experience learning without the additional burden of airing everything before a jury or judge. For example, in the illustrated case, the school realized that it needed to ensure that all employees know of every policy. After discussing this, the school felt it was advisable to have employees sign off in writing on an annual basis that they had reviewed all handbooks, policy statements, etc., and understood them.

Practical Factors

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In addition to the rationale supporting the recommendation to include the clause in employee contracts, schools should consider several practical factors. For example, the clause should be printed in bold type in the actual contract. It is not sufficient to just include the clause in a policy manual or employee handbook. The actual language of the clause should appear in the contract signed by the employee. Before the contract is signed, the board or administration should review the language with each employee. The ministry must ensure that the employee understands the clause.

The school should also have available for review a copy of the “Rules of Procedure for Christian Conciliation” (available here). The school must advise the employee of the rules and make these available for inspection.

As stated in the arbitration clause, each side chooses one arbitrator. These two arbitrators then choose a third neutral arbitrator. This procedure can be varied, depending on the particular school’s desire. However, before making any changes to the wording of the suggested sample clause, the school should give careful consideration to any substituted language. [Editor’s note: If both parties agree, only one arbitrator may be used instead of three.]

It also is imperative to choose the arbitrators carefully. This is particularly true when biblical principles involving Christian school philosophy are part of the case. On occasion, arbitrators may not be attorneys. However, if legal issues are involved, it is recommended that attorneys should be considered to serve as arbitrators. The school and employee can also agree on a list of potential candidates for the neutral arbitrator and make this list available to the respective arbitrators, who can then choose from the list.

After working through the illustrated case, speaking with numerous schools involving potential claims, and dealing with issues raised by the clause, I am personally convinced that every single contract for employment should contain the mandatory Christian conciliation/arbitration clause. I am convinced that it is fair to both parties. If your ministry has questions regarding implementing the suggested clause, the school should consult legal counsel.

Authored by: Attorney John L. Cooley, of Wooten & Hart, Roanoke, Virginia.