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Weigh downsides before requiring arbitration agreements

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in Human Resources

It sounds like a great idea: Instead of risking a large jury award in court, get employees to agree in advance to have an arbitrator mediate all employment disputes. That way, in theory, you’ll have a quick and easy way to reach resolutions without the expense, time and uncertainty that litigation involves.

At least that’s how arbitration is supposed to work. In practice, arbitrators often bend over backward to give employees a break. Plus, an arbitrator’s decision is hard to undo.

Recent case:
Alberta Brennan and other former insurance-claims handlers for CIGNA Corp. are black. They all signed agreements stipulating that any claims they had against their employer would go to arbitration rather than state or federal court. CIGNA gave copies of the agreement to all employees and made it available on the company’s intranet. The company made it clear that accepting arbitration was required as a condition of employment.

The employees requested arbitration to resolve their allegations that they had been singled out for racial harassment and discrimination. The arbitrator assigned to the case sided with them, awarding them $25,000 each for emotional damages.

CIGNA appealed, arguing that none of the former employees had accused it of operating a hostile work environment, as the arbitrator had concluded. The company said the claim had been limited to complaints about pay discrimination.

The 3rd Circuit Court of Appeals refused to reverse the arbitrator’s decision. It said arbitrators have wider discretion than federal judges, and that their decisions should seldom be reversed unless they are clearly wrong. While a federal trial court would most likely not have allowed a hostile environment claim if it wasn’t clearly stated in the complaint, arbitrators don’t have to stick so closely to technicalities. (Brennan, et al., v. Cigna Corporation, No. 06-5027, 3rd Cir., 2008)

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