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Caution on mandatory arbitration! Decisions almost impossible to overturn

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in Discrimination and Harassment,Employment Law,Human Resources,Leaders & Managers,People Management,Performance Reviews

Lots of employers insist their employees sign agreements mandating arbitration to resolve employment law disputes. Conventional wisdom suggests that such alternative dispute resolution is less costly, less time-consuming and less risky than allowing a jury to decide the case.

But conventional wisdom may be wrong. More employers are finding out that arbitrators sometimes side with the employee instead of the big, bad company. In a recent California case, the arbitrator awarded over $8.4 million in punitive damages after a canceled health insurance policy left an individual with a $200,000 medical bill. Clearly, arbitrators don’t always favor businesses.

Now the Court of Appeals for Michigan has added another reason to be concerned: It’s next to impossible to get a bad decision overturned.

Recent case:
Toll Brothers employed Julie Fekete as a project manager and fired her for alleged poor performance. The parties had agreed to arbitrate all employment disputes, so Fekete demanded arbitration. She claimed that she had not been mentored as well as male project directors, which she said was sex discrimination.

The arbitrator agreed with Fekete, apparently finding Toll Brothers’ action suspicious in light of a healthy raise Fekete had earlier earned because of her good performance. The arbitrator took a casual approach to the decision, not specifically outlining exactly how Toll Brothers had discriminated.

Toll Brothers filed a court appeal, asking that the arbitrator’s decision be overturned. But the court refused. It said that in Michigan, an arbitrator’s decision can be vacated only for corruption, fraud, lack of impartiality or exceeding the scope of his or her powers. Since none of those conditions applied, the decision stood. (Toll Brothers v. Fekete, No. 274964, Court of Appeals of Michigan, 2008)

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