The U.S. Supreme Court´s Circuit City Stores v. Adams decision permits mandatory arbitration agreements as a condition of employment. Although arbitration offers a helpful alternative to prolonged and expensive litigation, there´s a downside: Appealing an arbitrator´s decision is nearly impossible. In most states, arbitrators enjoy broad discretion, with their judgments immune to review for errors of fact or law. The law requires basing any challenge to an award on the arbitrator´s integrity.

To avoid getting nailed with an aberrant award that you can´t appeal, you or your attorney should investigate the history, qualifications, and interest of the proposed arbitrator. Beware of any financial incentives based on past experience or current relationships. Note that, although most states require arbitrators to reveal any potential conflicts of interest, this obligation can be hard to define.

Arbitration can be especially tricky in cases involving class action or other complex issues. For example, in discrimination cases, the claimants might seek different types and amounts of relief, including back pay, future pay, reinstatement, non-monetary compensation, or punitive damages. In this type of situation, arbitration can involve a two-step process, with a special master awarding damages based on an agreed formula. To eliminate conflicts, plaintiff´s counsel and defendants can use former judges or attorneys to allocate the settlement funds.