This achievement is a little misleading. It says avoid killing all dwarves, but you cannot kill any.
There are 5 places these dwarves spawn. The first 4 spawns are kind of random. They can show up in different orders or not at all. #1 happened most runs but I have seen runs where it did not spawn.
Be mindful of companions. They like to run for the dawrves if you are in combat. Tanks using Fray can start combat with the dwarves as well.
Here is what they look like. This image is of spot #2:
1) In one of the puzzle rooms leaving the door. Just ignore them and they will leave.
2) On the big set of stairs in the big room. They will be on the right against the wall of the 2nd set of stairs.
3) In one of the connecting hallways. They will be on the right side of the room at the back. There is just 1 and he is in a collapsed doorway. You need to pull the enemies to the door you came into so that you do not hit him by mistake.
4) At the bottom of the broken bridge. When you drop off the broken bridge, he will be against the wall behind you. Take combat to the other side of the area next to the other half of the bridge to avoid companions attacking them.
5) In the room before the final boss and 2 rooms after the 2nd boss. You will need to jump up a few stone blocks to walk into the next room. There seems to be at least 20 in this room. I would suggest putting your companions away before going into this room. I have seen them attack for no reason at all. Just walk past them and do not attack and you will make it through just fine.
After you defeat the boss (and lag that comes with him), the achievement will pop.