On Sept. 17, 2012, a U.S. District Court denied Merrill Lynch’s petition to vacate an arbitration panel’s award of $10.2 million to two of its former advisors, Tamara Smolchek and Meri Ramazio.  The award – split almost evenly between $5.2 million in compensatory damages for deferred compensation and $5 million in punitive damages – helps to illustrate the growing (and changing) role that arbitration plays in disputes between high-level executives and their employers.

For decades it has been conventional wisdom that employee arbitration clauses favor the employer by taking potentially sensitive cases away from a jury (because “everyone knows” that juries are “more sympathetic to employees”).  (Or, as a more employer-friendly article puts it, arbitration can reduce the likelihood of an “irrational award” because arbitrators “tend to be more conservative than juries.”)

Additionally, arbitration clauses can favor the employer where the employee is required to share in some (or all) of the costs of the arbitration by discouraging plaintiffs who would otherwise have been able to secure plaintiffs’ counsel on a contingent fee basis for a trial by jury.  (Note that courts continue to grapple with this issue, and many courts have determined that if an arbitration clause would unduly burden a plaintiff from exercising his or her legal rights, that arbitration clause is invalid and the plaintiff is free to litigate in court instead.  See, e.g., Ball v. SFX Broadcasting, Inc., 165 F. Supp. 2d 320, 238-40 (N.D.N.Y. 2001) (discussing cases).

Is this still the case?  Read on.

• Arbitration
• Arbitration and ADR
• Breach of Contract