One way an employer can try to protect himself from the high expense and jury unpredictability of courtroom litigation is to establish an alternate dispute resolution procedure, either in-house or through other organizations. Grievance and arbitration procedures provide a quick and efficient means of resolving disputes without the large attorney fees, court costs, time expenditure and risk potential of the courtroom. Such procedures form a basic and successful part of the collective bargaining relationship. However, this basic tool of the employer was severely limited in Renny v. Port Huron Hospital. [41]

The plaintiff Renny was a registered nurse with the defendant hospital. She was discharged for operating room irregularities. White employed, she signed an Acknowledgement and Agreement stating that she had received a copy of the hospital employee handbook, had read and fully understood the contents, and agreed to abide by the rules and regulations contained therein. Employees were expected to read the handbook carefully and become familiar with its contents. Among the provisions in the handbook was an optional grievance procedure. Renny agreed to used that procedure to appeal her discharge. Her appeal ended with a peer review committee consisting of three supervisory and three non-supervisory employees which she selected from a group of qualified volunteers. Renny lost the peer review appeal, and proceeded to file a wrongful discharge suit in court.

The hospital argued that Renny was bound by the grievance procedure she had voluntarily agreed to abide by, and therefore could not pursue a case in court. The Michigan Supreme Court disagreed. The court decided that the grievance procedure used by the hospital was not fair enough – that it did not sufficiently resemble rights at trial, with full evidentiary presentations, rights to cross-examination, extensive discovery rights, etc. Therefore, Renny was not bound by this procedure. She could disregard the whole grievance process she had voluntarily agreed to use and start all over again in court.

In coming to this conclusion, the court used extraordinary circularity of reasoning. The handbook had provided a number of explicit statements reserving to management "the sole right to manage and operate the hospital". But the handbook did not contain an explicit statement that employees were still terminable at will. This is understandable since the hospital was providing an extensive series of disciplinary steps and grievance procedures. The court found that the existence of the disciplinary and grievance procedures created a good cause employment contract, and that such a contract required more procedural rights and protections than those provided by the hospital. In short, the existence of the procedures created a contract which made use of the procedures improper!

As a result of the Renny decision, a vital litigation-controlling option for both the employer and the employee was significantly limited. Due to this decision, the employer has to chose between providing no procedures at all, which means the employee only has the option of going to trial right away, or complex procedures resembling a trial. The court intimates that an impartial outside decision-maker must be used, limiting even further the efficiency of the procedure. Amazingly, even though the promises made by an employer in a handbook create the contractual right, the handbook cannot determine the terms of the contract. With Renny, even the right of the employer to establish the terms of the contract with her employees is taken away.

The decision also creates a distressingly unfair procedural imbalance between employees and their employer. Since the court has reserved the right to determine which grievance or other dispute resolution procedures are "fair", the employee always gets "two bites at the apple" when challenging the employer. If the employee loses in the grievance process, he can always go to court and claim that the process was "unfair", and thereby get a second chance to win his claim. Merely by establishing a grievance or other procedure, the employer has provided the employee with two opportunities to challenge the employer.

The natural behavioral consequence of such a procedural imbalance is that most employers willnot create an alternate dispute resolution mechanism in the first place. This harms not just the employer. It also harms employees who have disputes with their employers, since such employees will usually be given no option but to litigate in court, with all of the accompanying expenses and emotional turmoil.

The implications of the Renny decision from the standpoint of employer discretion are serious. First, the ability of the employer to resolve disputes in the workplace setting becomes very limited, with the legal system requiring a mandatory process of great complexity, high cost, and significant duration in time. Second, the ability of the employer to at least make a conscious attempt to set the conditions of the employment relationship is limited. The Renny decision in effect says, we the court, using our common law powers, are going to enter your workplace and tell you what the content of your employment relationships will be. If you do not contract with your employees exactly the way we demand, we will permit those employees to come to us to seek damages. In a small but significant way, the court becomes the employer; employer discretion has given way to court discretion at a most fundamental level of the employment relationship.