Peer review may keep you out of court.

A fired employee, incensed over his termination, hired a lawyer and charged off to court. Another wrongful-termination suit was about to be added to America's landslide of litigation.

But the decision handed down by a New Jersey court was refreshingly clear-headed. The complainant was told that before employees can sue companies for not following termination procedures spelled out in the employee handbook, the employees must first exhaust the procedures found in the same handbook for protesting the termination. With more courts and regulatory agencies beginning to require workers to rely on internal procedures before filing suits, interest in installing peer review grievance systems for nonunion employees is mushrooming.

Peer review is a formal grievance procedure for an organization's nonunion employees. In the typical procedure, if an employee can't get a problem solved by talking to his or her boss and following the normal chain of command, he or she can elect to use the peer review process for a final and binding resolution. The employee presents his case to a panel made up of both trained employee volunteers--people just like himself--and managers. He explains the problem and tells the panel what he feels should be done to solve it.

Panel members (usually three peers and two managers) ask questions, interview witnesses, research precedents and review policy. When the panel feels sufficiently well informed, each member casts a secret ballot to grant or to deny the employee's grievance. Majority rules.

A letter explaining the panel's decision is sent to the employee. All panel members sign; no minority opinions are permitted. Everyone gets back to work. The issue is settled.

While many managers initially react with skepticism and distrust to the idea of giving peers a majority vote, their concerns usually disappear once they become familiar with the system's mechanics and safeguards. First, the jurisdiction of the panel is limited, typically to those complaints that would be open to the grievance and arbitration procedures spelled out in a union contract. Each company decides for itself what the panel will be able to rule on and what areas are off limits. In most cases, such issues as discipline and discharge, overtime, assignments, upgrades and promotions are all grist for the mill; pay rates, work rules, benefits, company policies and performance appraisal ratings are verboten.

A useful analogy is to think of peer panels as juries, not as legislatures--management still makes the policies; panels simply decide whether management has played by its own rules. And peer panels are never turned loose with merely a charter to right managements wrongs. In virtually every organization using peer review, employees volunteer to serve and complete an intensive training program before becoming eligible.

Peer review began as a union avoidance technique, since an impartial grievance procedure is about the only benefit left that an organizer can promise and actually deliver. But once installed, companies discovered additional benefits. The system produces quick, efficient and inexpensive results: Only a few weeks pass from the time a problem arises until it is resolved; there are no complicated rules, no courtroom trappings and no lawyers; panel meetings are businesslike and take at most a few hours; and salary and travel costs, if any, are the only expenses.

Peer review also ensures greater compliance with personnel policies. A human resources manager faced with a recalcitrant supervisor who's about to make a questionable call can ask: "How do you think your decision will play out if he takes it to a jury of his peers?" Peer review encourages supervisors to make better decisions and to solve problems as soon as they arise.

But peer review's biggest benefit may turn out to be its ability to keep problems out of court. An employee whose complaint has been heard and rejected by his peers is less likely to call a lawyer. And if an employee does seek legal redress after his peers turn thumbs down, his chances of prevailing are slim.

"We just had a huge victory in a wrongful termination suit," said Richard L. Kellogg, director of employee relations for Adolph Coors Co. "A guy filed a multimillion-dollar suit against us after he had appealed his termination to a panel and was turned down. The Jefferson County District Court gave our process equal standing with outside binding arbitration and decided the case in our favor. We've now had seven major wrongful discharge cases," Mr. Kellogg continued. "We've not lost one."

According to Atlanta lawyer James Wimberly, in addition to increasing the odds that verdicts reached by peer panels will be upheld in court, several recent cases suggest that companies may be able to require employees to use their internal grievance procedure before turning to the outside. In the case mentioned at the top of this article (Fregara v. Jet Aviation), Judge Nicholas Politan ruled: "If the plaintiff seeks to rely on provisions in the employee handbook as the course of an implied contract of employment, then he must accept that agreement as a whole...In short, the plaintiff must accept his obligations along with his rights, as in any agreement."

Courts in Michigan, Missouri and Maryland have rendered similar decisions. Companies confirm that peer review keeps disputes out of the courtroom. "Whether it's the EEOC, the California Department of Labor, the City of St. Petersburg...I can find a dozen cases in the past few years at all levels of jurisdiction where the court or agency has sent the employee back to use the company's process," reports David Rawles, vice president, human resources, of GTE Directories.

Several tactics can increase the odds that courts will uphold your mandating internal review before an employee can seek external redress:

* Include the system in the employee handbook.

* Stipulate in the handbook that no one shall resort to court suits until internal remedies are exhausted.

* Have employees agree that the panel's decision will be final and binding.

* Publicize the system widely and ensure fairness and due process.

While implementation of peer review involves resolving many subtle issues, management's initial fears about providing peer panelists with a majority vote have abated. Employees have demonstrated that they are as concerned with making good decisions as managers are. With courts now requiring that internal dispute resolution procedures be exhausted before litigation can begin, interest in installing peer review is likely to flourish.