A League Managers Association statement read: "It has not been possible to resolve the dispute concerning the termination of [O'Neill's] employment.
"The matter has now been placed in the hands of the Premier League Managers' Arbitration Tribunal."
O'Neill's departure from the Midlands club came five days before the start of the new Premier League season.
The 59-year-old former Celtic boss had enjoyed a successful spell at Villa since replacing David O'Leary in August 2006, culminating in an appearance in the final of last season's Carling Cup - the club's first Wembley final for 10 years.
After leaving the club, O'Neill, who was later replaced by Frenchman Gerard Houllier, had attempted to resolve his issues with Villa but without success.
The LMA statement continued: "Premier League managers' contracts contain a clause requiring the parties to mediate their differences in the event of a dispute and, if the dispute cannot be resolved at mediation, that the case moves forward to the Premier League Managers' Arbitration Tribunal.
"The tribunal is ideally placed to resolve disputes of this nature, combining the skills and experience of prominent individuals from football and the law."
The tribunal has been used in several high-profile cases in recent years.
In 2009, it upheld a constructive dismissal claim by Alan Curbishley against his former club West Ham.
Earlier that year, former Newcastle manager Kevin Keegan was awarded ?2m damages plus interest after winning his case against the club for constructive dismissal.
Source: BBC Sport
Source: BBC Sport