Expanded Grounds for Judicial Review of Employment Arbitration Awards

By Flanagan, Gary W. | Defense Counsel Journal, October 2000 | Go to article overview

Expanded Grounds for Judicial Review of Employment Arbitration Awards


Flanagan, Gary W., Defense Counsel Journal


If the arbitration process is not reformed, courts may start to vacate awards on both fact and law grounds, thus impairing the advantages of non-litigation

EXPRESSING frustration with outdated and narrow grounds for vacatur, in 1998 the Second Circuit in Halligan v. Piper Jaffray Inc.(1) set itself apart by holding that a reviewing court could vacate an arbitration award if the arbitrator manifestly disregarded the law, the facts, or both. The overwhelming deference given to arbitration decisions under the framework of the Federal Arbitration Act (FAA) for commercial arbitration awards, the court stated, did not adequately address the strong public policy concerns in employment claims.

HISTORY OF ARBITRATION

The FAA, as enacted effective in 1926 and as interpreted over the years, sharply curtails a court's ability to overturn arbitration awards.(2) Prior to FAA, American courts subjected arbitration awards to virtually unlimited review, adopting the English common law, which displayed hostility to arbitration. This did not mean that courts refused to enforce arbitration awards. It did, however, subject awards to almost unlimited judicial review, potentially eliminating some of the main advantages of arbitration.(3)

In the early 1900s, increased commercial transactions led to increased arbitration, yet there was no consensus on courts' ability to enforce arbitration awards. As a result of confusion on how to deal with the growing number of arbitration awards, Congress passed the FAA, which was designed for the most part by commercial attorneys for the enforcement of arbitration agreements in commercial contracts.

Labor agreements and collectively bargained contracts were mainly left to the forces of moral persuasion and economic power. Not until World War II did arbitration gain widespread acceptance in the context of collective bargaining agreements as a substitute for industrial warfare.(4)

STATUTORY GROUNDS FOR VACATUR

The FAA makes written arbitration agreements valid, irrevocable and enforceable (9 U.S.C. [sections] 2), and it provides a mechanism to enforce these agreements, giving arbitrators power to summon witnesses and subpoena documents. It also severely curtails judicial review of arbitration awards. Under 9 U.S.C. [sections] 10, the only grounds for a court to vacate an award are (1) that the award was procured by fraud; (2) that the arbitrators were not impartial; (3) that the arbitrators refused to postpone the hearing on a showing of sufficient cause or to hear material evidence; or (4) that the arbitrators exceeded their power so that the award was not made solely on the subject matter submitted.

Some commentators have claimed that these extremely limited bases are nothing more than narrow procedural grounds for vacating an arbitration award.(5) Perhaps not surprisingly, therefore, over the past 40 years the U.S. Supreme Court generally has given wide deference to arbitration decisions.(6)

Judicial review of arbitration awards is much more narrow than the scope of review of trial court judgments or jury verdicts. Following the limitations set forth in the FAA, many courts have let errors stand unless the awards were particularly egregious and perhaps intentional.(7) It could be argued that courts were adhering to the legislative intent "to ensure judicial enforcement of privately made agreements to arbitrate."(8) That deference helped promote resolution of disputes with less cost and delay than that typically encountered in litigation.

JUDICIALLY DEVELOPED GROUNDS FOR VACATUR

For almost three decades the FAA's statutory grounds were the only recognized avenues for vacatur. In the early 1950s that presumption began to change. As early as 1932, the Supreme Court had declared FAA constitutional in Marine Transit Corp. v. Dreyfus.(9) However, not until Wilko v. Swan,(10) decided almost thirty years after passage of the FAA, did the Court make its first significant comment on application of the FAA. …

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