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Supreme Court takes FAA case
May 30, 2007 by Ross Runkel at LawMemo
The Federal Arbitration Act allows only very narrow judicial review of arbitrator awards. What if the parties agree to expand the scope of judicial review?
Hall Street Associates v. Mattel (certiorari granted May 29, 2007) brings this issue to the US Supreme Court.
After a lawsuit got going in federal court, the two parties agreed to arbitrate the case rather than litigate. The agreement provided that the federal district court shall vacate, modify, or correct the arbitrator's award "where the arbitrator's conclusions of law are erroneous."
The 9th Circuit refused to enforce this provision because the Federal Arbitration Act specifies that arbitration awards can be vacated only in limited cases involving such things as fraud, corruption, partiality, or when the arbitrators exceed their powers. Therefore, the arbitrator's award was upheld even though it contained possible errors of law.
The issue, then, is whether the parties to an arbitration agreement can agree to expand the grounds for vacating an award beyond the grounds listed in the Federal Arbitration Act.
The basic arguments are simple: (1) The FAA specifies the grounds for vacating an award, and courts cannot go beyond the statute. (2) Parties have freedom to decide, via contract, the procedural aspects of their arbitration.
We expect this case to briefed and argued in the Fall of 2007, with a decision some time in 2008.
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Law firm arbitration agreement is unconscionable
May 27, 2007 by Ross Runkel at LawMemo
An arbitration agreement between the O’Melveny & Myers law firm and former employee Jacquelin Davis was unconscionable according to Davis v. O’Melveny & Myers (9th Cir 05/14/2007).
Davis sued claiming violation of the federal Fair Labor Standards Act (FLSA) and various other state and federal labor statutes.
O’Melveny & Myers wanted the case sent to arbitration because Davis had signed an agreement to arbitrate such disputes.
The 9th Circuit said she could stay in court because the agreement could not be enforced. Reason: unconscionable agreement under California law.
To be unconscionable, an agreement must be both procedurally and substantively unconscionable. According to the court:
- The agreement was procedurally unconscionable because
- The agreement was drafted by a sophisticated employer.
- It was a "take it or leave it" situation. There was no undue pressure, no concealment, no fine print, no surprise. The employee had three months to consider whether to sign. However, the employee had to either agree or go work somewhere else.
- The agreement was substantively unconscionable ("unduly harsh or oppressive") because
- Notice of a claim had to filed within one year of when it became “known to the employee or with reasonable effort ... should have been known to him or her.”
- The confidentiality clause unconscionably favors O’Melveny. The clause precludes even mention to anyone “not directly involved in the mediation or arbitration” of “the content of the pleadings, papers, orders, hearings, trials, or awards in the arbitration” or even “the existence of a controversy and the fact that there is a mediation or an arbitration proceeding.”
- The agreement contained a "non-mutual provision" exempting O’Melveny from arbitration for “claims by the Firm for injunctive and/or other equitable relief for violations of the attorney-client privilege or work product doctrine or the disclosure of other confidential information.”
In addition, the court held that it was a violation of public policy to include the following:
neither you nor the Firm will initiate or pursue any lawsuit or administrative action (other than filing an administrative charge of discrimination with the Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, the New York Human Rights Commission or any similar fair employment practices agency) in any way related to or arising from any Claim covered by this Program. (Emphasis added.)
My view: California is tough on employers when it comes to unconscionability. The 9th Circuit (applying California law) is sometimes tougher. Employers should pay attention; otherwise they spend a lot of time and money finding out that their arbitration agreements are worthless.
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Can a union assign its right to arbitrate to an employee?
May 12, 2007 by Ross Runkel at LawMemo
Collective bargaining agreements provide that the union can arbitrate disputes. They typically do not give the individual employee that right.
Question: Can the union assign its right to arbitrate to an individual employee, so now that right belongs to the employee?
Mitchell H. Rubinstein has an interesting article - Assignment of Labor Arbitration, 81 St. Johns L. R. 41 (2007) - in which he argues that such assignments should be allowed.
The abstract:
An individual employee is not a party to the collective bargaining agreement between a union and an employer. Additionally, under the terms of most collective bargaining agreements, the union owns the arbitration procedure, and therefore, it is entirely up to the union whether it will proceed with the arbitration. As a party to the arbitration, it is also the union’s decision whether to appeal any adverse arbitration award. Stated another way, the grievant simply does not have standing to proceed without the support of his or her union.Under existing law, if the union does not agree that an arbitration case has merit, there is very little an individual employee can do other than to sue the union for breach of the duty of fair representation. This Article argues, however, that there is a way to avoid hostility and unnecessary litigation in a way which will satisfy the grievant, his or her union, and perhaps even the employer. It is submitted that in certain cases the union could assign its right to proceed with the arbitration to the grievant. The grievant would have his day in court, and the union would not have to bear the time and considerable expense of arbitration with respect to a claim it believed either lacked merit or which should be presented by the individual grievant.
To this commentator’s astonishment, there is no academic commentary addressing the important issue of whether or not unions can assign their right to arbitrate or their right to appeal to an individual grievant. Additionally, there are only three judicial decisions on this issue, and all three opinions arose in the public sector. In all three of these decisions, the courts held that the union could not make the assignment. As explained in this Article, a close examination of these decisions demonstrates that all three of these decisions were wrongly decided.
Mitchell H. Rubinstein (mrubinst@nysutmail.org) is Senior Counsel to the New York State United Teachers, affiliated with the American Federation of Teachers, National Education Association AFL-CIO in New York City, and is an Adjunct Professor of Law at St. John’s Law School and New York Law School. He received his B.S. degree from Cornell University School of Industrial and Labor Relations and his J.D. degree from Hofstra University School of Law. The views expressed in this article are entirely the author’s, and may not necessarily represent the views of any organization with which he is affiliated.
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"Good cause" defined without a dictionary
May 12, 2007 by Ross Runkel at LawMemo
Arbitrator Carroll Daugherty's famous seven-part test of "just cause" has been around for many decades. Now the Ohio Supreme Court has bestowed its blessing.
Why would this even get to the supreme court of any state? Because a lower court had the interesting idea that Black's Law Dictionary's definition was the only way to go.
An arbitrator issued an award reinstating an employee who had been discharged.
The employer argued that the arbitrator improperly defined the term "good cause" in the collective bargaining agreement, asserting that only an ordinary definition such as from Black's Law Dictionary could be used.
The lower court agreed and vacated the award. [I can see all the arbitrators rolling their eyes.]
The Ohio Supreme Court cleared things up. "Good cause" was not defined in the agreement, and a law dictionary might be a poor place to find a definition of a phrase like "good cause" that has a special meaning.
Summit County v. Communication Workers (Ohio 05/09/2007)
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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