Supreme Court: Arbitrator’s Decision Holds “However Good, Bad or Ugly”

This morning, a unanimous United States Supreme Court affirmed the denial of a motion to vacate an arbitration ruling that physicians could proceed in a class action arbitration challenging allegedly low payments by an insurance company under a fee-for-service contact that contained an arbitration clause.  Oxford Health Plans v. Sutter, No. 12-135 (6-10-13).  While this case is not an employment case, the ruling under the Federal Arbitration Act would apply equally in the employment context.   

The arbitrator ruled that the fee-for-service arbitration clause authorized class action arbitration.  Following that ruling – and while the arbitration was still pending, the Supreme Court ruled in  Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), “that an arbitrator may employ class procedures only if the parties have authorized them” in the arbitration agreement.  Asked to reconsider his ruling, the arbitrator re-affirmed that the contact authorized class action arbitrations.  Unlike the Stolt-Nielsen case where the parties had stipulated that the contract did not contemplate class arbitrations and the arbitrator there had simply imposed his view of sound public policy and exceeded his contractual authority to merely interpret the contract, the arbitrator in Sutter limited his opinion to his legal interpretation of the contract.  Even if the Sutter arbitrator committed serious errors of law or fact, that is not a basis to vacate an arbitration ruling under the FAA.   “Only if ‘the arbitrator act[s] outside the scope of his contractually delegated authority’—issuing an award that ‘simply reflect[s] [his] own notions of [economic] justice’ rather than ‘draw[ing] its essence from the con­tract’—may a court overturn his determination.  . . .  So the sole question for us is whether the arbitra­tor (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”  In other words, "[t]he arbitrator’s construction holds, however good, bad, or ugly.”  Otherwise, if courts could review the legal correctness of every arbitration decision, arbitration would cease to be a more expedient alternative to regular civil litigation.

 The  Court also indicated that it would have faced  

   a different issue if Oxford had argued below that the availability of class arbitration is a so-called “question of arbitrability.” Those questions—which “include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy”—are presumptively for courts to decide.  . . .  A court may therefore review an arbitrator’s determination of such a matter de novo absent “clear[] and unmistakabl[e]” evidence that the parties wanted an arbitrator to resolve the dispute.  . . .  Stolt-Nielsen made clear that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability. . . . . But this case gives us no opportunity to do so because Oxford agreed that the arbitrator should determine whether its con­tract with Sutter authorized class procedures.

The insurance company moved to compel arbitration after the physician filed his complaint in state court.  The court enforced the arbitration clause.  All the contract provides is that an arbitrator will decide the dispute.  Therefore, the parties cannot return to court merely because they disagree with the arbitrator.

Under §10(a)(4), the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court Enforces Arbitration Clause so Arbitrator Can Rule on Validity of Non-Compete

On Monday, the Supreme Court issued a per curiam decision reversing the Oklahoma Supreme Court in a dispute over arbitration and non-competition clauses in an employment agreement. Nitro-Lift Technologies LLC v. Howard, 568 U.S. __,  No. 11-1377 (U.S. 11-26-12).  In Howard, the employer served a demand for arbitration on former employees who had gone to work for a competitor in violation of the non-competition clause.  Rather than comply, the employees brought a declaratory judgment action in state court seeking to void the agreement on the grounds that the non-competition clause was unenforceable under state law.  While the trial court referred the matter to arbitration in compliance with the Federal Arbitration Act, the employees appealed and the state supreme court ruled the non-competition agreement was a matter of a specific state law – not a general federal law – and was unenforceable under state law. The Supreme Court concluded that the validity of the non-competition clause was for the arbitrator to decide, not a state court, because the parties had a valid arbitration clause in the contract.

The Court repeated its years of jurisprudence that the enforceability of arbitration agreement is governed by the FAA.  Unless the party attacks the validity of the arbitration clause (rather than the validity of the contract itself), the dispute must be resolved by the arbitrator instead of a state or federal court:

For these purposes, an “arbitration provision is severable from the remainder of the contract,” Buckeye, supra, at 445, and its validity is subject to initial court determination; but the validity of the remainder of the contract (if the arbitration provision is valid) is for the arbitrator to decide.

This principle requires that the decision below be vacated. The trial court found that the contract contained a valid arbitration clause, and the Oklahoma Supreme Court did not hold otherwise. It nonetheless assumed the arbitrator’s role by declaring the noncompetition agreements null and void.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Butler County Court of Appeals Holds that Continuous Violation Doctrine Does Not Extend CBA Deadline for Filing Grievances.

Earlier this month, the Butler County Court of Appeals overruled an arbitration decision in favor of the union which had ordered the city employer to fill two vacant positions with bargaining unit members. City of Fairfield v. AFSCME, Ohio Council 8, 2008-Ohio-3891 (8/4/08). In that case, the collective bargaining agreement provided that grievances must be filed within 3 days of the event giving rise to the grievance. However, a grievance was not filed until almost a month after the issue came to the attention of the union. Nonetheless, the arbitrator ruled that the grievance was timely because it was a continuing violation for the City to continue to staff the duties of the two jobs at issue with non-union employees. The Court held that it was beyond the arbitrator’s authority to ignore the clear and unambiguous language in the CBA. In fact, the arbitrator lacked jurisdiction to even consider the grievance under the circumstances.

As stated by the court, “[t]he arbitrator was not authorized to ignore or modify plain and unambiguous provisions of the CBA. . . . Rather, the arbitrator was restricted to the interpretation and application of the CBA. . . . The CBA's three-day time limitation upon the filing of grievances was plain and unambiguous. The arbitrator's "continuing violation" determination did not comport with, and in fact defeated, the plain and unambiguous three-day time limitation upon grievances. This amounted to an impermissible extension of the arbitrator's powers. . . . The arbitrator cannot vest jurisdiction in himself. Holding that the arbitrator's assumption of jurisdiction is not subject to judicial review would permit the arbitrator unfettered discretion in assuming jurisdiction over a matter, even where none exists. Where an arbitrator's assumption of jurisdiction is unlawful, it is not an unassailable finding of fact or legal interpretation immune from the purview of a reviewing court. . . . Were it so, the arbitrator's determination of jurisdiction would be infallible even where contrary to the bargain contemplated by the terms of the CBA.” (citations omitted).

The Court “conclude[d] that the arbitrator's assumption of jurisdiction over the grievance was unlawful. Id. The award departed from the essence of the CBA in that it conflicted with an express, unambiguous term of the agreement. . . . The arbitrator thus exceeded his powers as contemplated by R.C. 2711.10(D) when he exercised jurisdiction over the grievance.” (citation omitted).

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/12/2008/2008-ohio-3891.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.