What You Need to Know Before Arbitration and Why Your Report Matters

A policy violation was committed, a pristine due diligence investigation was conducted, the person even confessed! How on earth could an arbitrator ever award in that justifiably fired employee’s favor? Are they an idiot?

Unfortunately, this is an all-too-common outcome in the Alternative Dispute Resolution or ADR world. According to current statistics from the Equal Employment Opportunity Commission (EEOC), a total of 67,448 wrongful termination charges were filed in 2020. Couple that with the American Civil Liberties Union findings that, “Two million at-will employees are fired every year and that, when impartial arbitrators were given the opportunity to review termination decisions, half of them are found to be unjust—in other words they would award in the plaintiffs favor.”

Incorporate statistics such as the estimation by Chief Justice Charles Canady that in the state of Florida only 0.04 percent of cases are ultimately resolved through the completion of a trial and you start to understand just how large a role ADR plays, and why ignoring it is costing you. With most cases settling out of court through mediation or being handled in private arbitrations, the majority of post-termination claims are being handled by an arm of the legal community you may have never heard of.

What Is ADR?

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Alternative Dispute Resolution is, for lack of a better explanation, a private court. Ever see Judge Judy? That’s an arbitration—two parties agree on a neutral third party to award the case instead of battling it out in public court. It offers several advantages including cost control, speed, and confidentiality.

ADR programs of all types including arbitration (sometimes called Umpiring) are found at local, state, federal, or industry levels. Furthermore, many companies now days write into their contracts that signing parties agree to arbitration through nationally recognized private neutral firms such as Judicial Arbitration and Mediation Services or the American Arbitration Association. Don’t believe it? Pull out a contract or two that you have signed and one of them probably has an arbitration clause in it. With community ADR programs and the rise of arbitration clauses in transactional law (employment agreements), understanding what an employer needs in order to prevail in these hearings is becoming increasingly important.

The Side of the Story You Don’t Know

In many cases, the arbitrator can absolutely see the context of what is going on. So why on earth are they awarding for the plaintiff? An arbitrator must remain neutral and award upon the preponderance of the dispute and evidence before them. But what in the world does that mean?

It means that the claim brought against the employer is usually not, “I didn’t do it.” The terminated employee comes with other claims such as, “I was coerced,” or “The investigation or termination was not done per policy or union terms.” Another popular one is, “Everyone does it and they singled me out because…” or one of the most common in my experience, “They fired me to avoid paying me my commission and bonus.”

Well, those are hard accusations to get around if you don’t have a solid termination packet. An arbitrator by law and oath must remain neutral and look at the plaintiff’s claim, the evidence before them, and the terms outlined in the arbitration program or arbitration agreement when rendering their award. An arbitrator is going to consider various points regarding the plaintiffs claim such as, did they do the work? How close was it to the payout date or marker? Was this addressed in the termination procedures? The employee may have been fired for just cause, but that doesn’t necessarily mean that they can’t make a winning case for being singled out or entitlement to their variable compensation.

So, if you want to be the prevailing party you must be ready to defend your actions before, during, and after the investigation and termination with supporting documentation. I can’t tell you how many times I have seen cases where follow-ups and fact-checking on interviewee testimony were not documented and so I was constrained by the evidence (or lack there of) in my award.

Real-World Example

Say you are about to investigate or terminate an employee who you have on camera clearly stealing merchandise. Easy case, right? Maybe, maybe not. What if the company has a history of other employees only being reprimanded, not fired, for similar activity. If this was the employee’s first time and they were fired on the first instance they could argue they were singled out.

This next part is what you aren’t going to want to hear. Yes, they violated policy or stole, no that does not mean they don’t have a justifiable claim under those circumstances for being singled out. In this case, the argument of, “But they were fired for stealing,” has nothing to do with their claim. The employer may have had other reasons as to why that employee was terminated after just one instance when others have been reprimanded three times for similar behavior without being let go. Maybe they were bad with customers, had poor evaluations, etc., and this was just the last straw, but is it in your report? Can you justify why this instance was different?

The other important aspect of these arbitrations is that many of them are done through public programs, yes even the big Fortune 500 companies. This is because the terminated employee can go file a dispute, usually for free, in one or more of a multitude of programs and thus feel they have nothing to lose. In turn, most large companies have either already signed contractual agreements with these programs (such as the Better Business Bureau) or opt to voluntary participate for fear of appearing uncooperative if further litigation is encountered.

Furthermore, in these programs many times neither party comes with council. It is just the terminated employee on one side and a company representative on the other. Some representatives are well versed on the dispute and come with well-ordered and evidence-backed arguments. But all too often they simply say the employee was fired and here is the packet, which is then excessively lacking, or worse, confusing. I have even had hearings where the forms were completely blank and just signed at the bottom. This is where documentation and follow-ups are crucial because the arbitrator needs grounds when issuing their award.

Ok so that is all well and good, but how do you make sure your termination packet has what it needs to protect yourself or your employer from such issues? Unfortunately, the answer to that question is—it’s on a case-by-case basis. Let’s take the common claim of, they fired me to avoid paying me my commission or bonus. I have seen termination packets wherein the employee agreed to forgo their variable compensation in exchange for the company acknowledging it as repayment and considering the matter settled. I have also seen it addressed under terms of hire or company policy documents wherein the company spelled out under what circumstances variable pay was forfeited. These documents then became the employers’ evidence that they had discussed the variable pay outstanding with the terminated employee, and that the employee did in fact agree to those terms. It would now be on the former employee to establish what about those agreements were unjust. This is a significantly harder claim to substantiate.

Pay close attention to the wording in that last sentence—substantiate, not prove. This is arbitration, not public court, the rules and burdens are different. They do not need to prove it happened, only that their claim is more substantiated than your rebuttal. It can get more complicated than this (statutory law trumps contractual clauses), but for most post-termination claims in community arbitration programs this is what the employer is going to encounter.

So, if it wasn’t addressed in your packet, say by adding an appendix containing a copy of the hiring terms, and the representative doesn’t bring it up during the hearing, the arbitrator may very well award in the former employee’s favor. But don’t despair, this is to your favor if you construct the investigation and termination with a shielding frame of mind.

Think Like a Lawyer

Explore all topics that you could foresee the person using to make a claim against the company. In law they call this exposure, meaning where are we vulnerable? When prepping for your investigation and eventual write up you should be asking yourself, “What is our exposure?”

Want a simple way to impress your company’s legal team and show your boss you know what you are doing? Just ask them what kind of civil tort issues you should be shielding for. When working as a consultant for loss prevention departments this is the first thing I do. Why? Because there may be things you don’t know, and they haven’t thought to mention. By posing this question it makes the team stop and think about the entirety of the situation and not the tunnel vision of loss prevention alone. I often get responses such as, “Oh wait, yes they just told us they will be taking parental leave,” or “Yes, we are supposed to pay out their unused vacation according to company policy.” Well, wasn’t that important information they didn’t think to tell you?

By being aware of these surrounding topics you can do what I like to call an accusation audit (a term I borrowed from Chris Voss’s book Never Split the Difference) and make sure that the termination would hold up against potential claims. You do owe them that paid vacation and if there is a history of this behavior and no one investigated until they happened to ask for parental leave you are going to have some explaining to do. Better to address those issues during the termination instead of trying to explain to an arbitrator why the company failed to pay it out during termination.

Another important aspect to keep in mind is that in arbitration there are relaxed rules of evidence. This standard is significantly lower than that of public courts and allows the arbitrator to consider things such as hearsay and circumstantial evidence. So, make sure that if you feel something is relevant that you put it in your report, even if it may not meet the standards for criminal and circuit civil court evidence. It will be irrelevant to a prosecutor but can very well end up being the shield that protects your employer in an arbitration.

The Takeaway

Make sure you follow through in your documentation so that the company representative has everything they need to hold up and defend against any potential post-termination claims. Please note the term, “any potential post-termination claims.” The terminated employees are not simply filing wrongful termination, the claims are around the termination, not the actual termination. So, make sure when constructing your investigation that you consider the surrounding issues—such as variable compensation—that could be grounds for a dispute. Therefore, it is important to build a report that fully captures and documents all events leading up to, during, and after the investigation and termination.

It is also important to structure your documentation and reports in an understandable sequence. I always suggest constructing your packet so that it reads like a narrative. You want to organize your packet so that an arbitrator can pick it up five years from now and understand what you did, why you did it, and clearly see the evidence and follow-up of your investigation and subsequent decisions. This is the key to prevailing in any hearing, be it a private arbitration or a public court.

Ashley Nobili

Ashley Nobili, CFI is an internationally recognized Sr. Mediator-Arbitrator and Sr. Negotiator with over eighteen years of experience, over 350 hours of Alternative Dispute Resolution training, thousands of completed cases, and over $648M in executed contracts or awards. She holds a Master of Liberal Arts in Strategic Management from Harvard University with a Professional Certificate from Harvard Law School’s Program on Negotiation in Negotiations and Conflict Management. She is a Florida Supreme Court certified mediator for circuit civil, family, and appellate mediations and is a current Florida Supreme Court Qualified Arbitrator. Ms. Nobili is currently taking private cases through the firm Legal Measures ADR and can be reached or booked through their website LegalMeasuresADR.com or by sending an email to Admin@LegalMeasuresADR.com.

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