Employers face several trade-offs when considering the implementation of mandatory arbitration policies. One of the positive attributes of arbitration, from an employer’s perspective, is the avoidance of a runaway jury award. However, a recent arbitration decision provides a reminder that arbitration does not necessarily foreclose a huge award.

In a May 31, 207 decision, an arbitrator (who is also a former judge) in New York awarded over $40 million to a marketing company’s former senior vice president. In a comprehensive 83 page decision, the arbitrator concluded that inappropriate comments were made about the former executive’s gender and sexual orientation, that her complaints were ignored, and that the termination was a “collaborative orchestration carried out in a malicious, insidious, and humiliating manner . . . “

The award included back pay, equity awards, emotional distress, and liquidated damages. The executive’s attorney has recently filed a motion to confirm the arbitrator’s award with the United States District Court for the Southern District of New York. At the same time, the employer is asking the court to entirely vacate the arbitration award or to reduce the amount by almost $37 million. The company argues that the arbitrator was not candid about her background and that they would not have chosen her as an arbitrator if she had disclosed such information. The company also contends that the arbitrator misapplied the law, causing the original $3 million claim to mushroom into $40 million plus.

While the merits of the arbitrator’s opinion and an assessment of the litigation efforts of both sides are beyond the scope of this article, it provides certain lessons for employers. First, arbitration is not a guarantee against very large awards. Therefore, strong problem prevention and risk mitigation steps should be employed, before any claim arises, regardless of the forum. Also, litigation of the matter must be pursued with the same vigor as if the case was in court. Second, without casting aspersions on this particular arbitrator, arbitrator selection may be among the most important, but least emphasized, decisions in litigating the case. Third, under the applicable standards, it is extremely difficult to overturn an arbitration award, so realize that you will very likely have to live with the results.

While arbitration may very well be the right choice for a particular employer, this award should serve as a warning that an employer cannot take false comfort in a mandatory arbitration policy.