Employment Arbitration: A Cautionary Tale

Mandatory arbitration clauses are now standard throughout employment agreements signed by a range of professional employees, but especially in the fields of sales and hi-tech development.   Arbitration panels generally involve faster and more cost-effective rules for resolving employment-related grievances, typically by relaxing and or eliminating procedural rules or curtailing the time and scope of discovery.

However, a serious problem arises when the level of thoughtful analysis is also relaxed by arbitrators and a clearly erroneous or unexplained decision is rendered.   That’s because, unlike a Superior or District Court jury trial, there is no right to automatic appeal of binding arbitration decisions.   Neither employees nor employers may seek to have a Court “vacate” an arbitration award without alleging outright fraud or corruption on the part of the arbitrator.

Recent language from the Massachusetts Court of Appeals shows this to be a harsh reality for parties who feel justifiably aggrieved by an arbitration decision.       In Kelly v. The Advisory Council, Inc., Andrew Kelly sought to have his arbitration award of $3,244.11 in unpaid wages confirmed by a Superior Court judge.   In light of the mandatory treble damages provision found in the Massachusetts Wage Act, Kelly sought to have the above amount tripled, along with costs and attorney’s fees (also provided for under the Wage Act) – action that by all measures should have been ordered in the arbitrator’s original decision.

The Superior Court refused , with puzzling logic, by stating that the arbitrator had not made any explicit finding that the employer had “wrongfully withheld” the wages awarded in arbitration  (apparently, the inferential leap from ‘unpaid without any legitimate defense’ to “wrongfully withheld” was too great).   The Appeals Court affirmed the decision, while noting that even if the arbitrator had committed an error of law, “a grossly erroneous [arbitration] decision is binding in the absence of fraud.”

Not all the blame for this bizarre outcome can lie with the arbitrator, however.     In arbitration proceedings, attorneys often do not file requests for findings of fact and rulings of law — usually required in state court proceedings — before concluding their case and awaiting the arbitrator’s decision, but they should.   Such requests help to properly frame disputed facts and issues requested for resolution, including whether any special or liquidated damages should be awarded.

Furthermore, parties should invest adequate time to review and select the arbitrator(s) who will review and ultimately decide their claims.   Most arbitration associations offer this some sort of pre-selection screening and, as the above case lends support to, the careful selection of an arbitrator may go a long way towards avoiding any unsupported or erronenous decisions.