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The “Windermere Way” is not the Court’s Way

Windermere, a large real estate company, was sued by one of its employees for commissions due. As part of the employment agreement with Windermere, the employee had to agree to arbitrate disputes rather than going to court. After the employee filed suit in court, Windermere asked the judge to enforce the arbitration agreement. The employee objected. It argued that the arbitration agreement was unfair since it was one sided in favor of the employer. The employee noted that the arbitration agreement was drafted by the employer, the employer wrote the arbitration procedures, and the employer selected the arbitrators from a panel of Windermere franchise brokers or agents, who were to resolve the case “the Windermere Way.” The trial judge agreed. Windermere appealed.

The appellate court found the points made by the employee to be persuasive. Although the court held, consistent with Washington law, that arbitration agreements are favored, it also noted that the statute that governs arbitrations prevents those with a “known, direct and material interest in the outcome of an arbitration proceeding or a known, existing or substantial relationship with a party” from serving as an arbitrator who is supposed to be neutral. The court noted that for arbitration to be a satisfactory alternative to litigation, the parties must have confidence in the arbitrator’s ability to make fair and unbiased decisions. This is critical since, in most cases, the decisions of the arbitrator are final and not subject to appeal. Here, it was apparent the court felt uncomfortable allowing agents and brokers of Windermere franchisees to serve as arbitrators since they may have a bias in favor of the company and against a former employee who is suing for unpaid commissions.

The Bottom Line:

Arbitration agreements, if properly crafted, can go a long way to resolving workplace disputes in a less costly fashion. Employers tend to favor arbitration agreements since they keep the company from going in front of a jury that will most likely be composed of employees rather than corporate executives or business owners. Employees, on the other hand, feel that they would like a jury of their peers deciding their workplace dispute.

Although this employer probably felt that by having cases decided the “Windermere Way” reflected the company’s level of commitment to a high standard of business ethics, the court disagreed. It is apparent, from the decision, that it was the degree to which the company and its franchisees exercised control over the process that created the impression of bias regardless of the company’s commitment to a high level of business ethics.

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