A salesman goes to work for the competition, after angrily charging his old boss with holding back thousands in commissions. A long-simmering feud between installers erupts in front of a customer. An employee quits for no discernible reason; two months later, charges of sexual harassment — more specifically, creating a hostile workplace environment — are filed against the company and one of its managers.

Dispute Resolution Nightmares like these can be avoided, experts say, by creating an alternative dispute resolution system in your company. The Pacesetter Corp. of America, one of the home improvement industry's largest players, created its PAR — Pacesetter Alternative Resolution — program in 1998. As with most self-managed alternative dispute resolution (ADR) programs, it's a three-stage plan evolving from mediation to arbitration and designed to resolve conflicts in-house. First, an employee with a complaint files a PAR claim form. Management assigns a person in the employee's department or field office to investigate and create a solution. If the employee is dissatisfied with the solution, he or she can file to have the decision reviewed. At that point, Rick Holstein, Pacesetter's vice president of human resources, looks into it and renders his own decision. “If they don't agree with my decision, they can appeal it to arbitration,” he says. Pacesetter, through its attorney, contacts the American Arbitration Association in the state where the complainant resides. The AAA submits a list of six to eight arbitrators. An arbitrator satisfactory to both parties is selected to produce a binding resolution.

Faster, Cheaper, Confidential ADR programs have flourished since about 1990. The reason? “They tend to produce better results at less cost,” says Linda R. Singer, an author and president of the Center for Dispute Settlement in Washington, D.C. Results include swiftly resolving potentially morale-shattering employment conflicts, avoiding costly litigation, and keeping a company's dirty laundry out of public view. Appleby Systems, a window and sunroom company based in York, Pa., created its ADR program in 2002. Director of Human Resources and Public Relations Kyle Swartz says Appleby has used the program just 12 times. On only one of those occasions did the dispute go to binding arbitration. Costs, according to Swartz, include time spent putting the program together, legal fees for having it vetted by an attorney, and annual checks for accordance with current ADR law.

“If I can talk directly to the employee ... then we can be a lot quicker in developing resolutions,” Swartz says.

Appleby, like Pacesetter, insists that new employees enroll in the program as a condition of employment.

“A major lawsuit could drive a smaller company out of business,” says Lancaster, Pa., attorney Eric Athey, who assisted Appleby in developing the program. “They're the companies that should be thinking about it.”

Commonly Claimed Types of Discrimination (1997 – 2003) Plaintiff Recovery Probability for Employment Practice Liability, Overall (1997 – 2003) Employment Practice Liability Award Median (1997 – 2003)