March 2009

Employers use arbitration clauses to encompass a myriad of claims that might be asserted by departing employees.  In a recent opinion from the Southern District of Texas, U.S. District Judge Andrew Hanen granted an employer’s motion to compel arbitration claims asserted by six employees for violations of the Fair Labor Standards Act. 

Surprisingly, the employer failed to sign some of the ex-employees’ arbitration agreements, but the Court ruled that:

As long as the parties give their consent to the terms of the contract, and there is no evidence of an intent to require both signatures as a condition precedent to it becoming effective as a contract, signatures are not required in the making of a valid contract.

The FLSA claims was covered by the broad arbitration provision at issue:

[T]he parties further mutually agree that final and binding arbitration shall be the sole and exclusive means of resolving all disputes . . . related in any way to the employment relationship between the Employer and Employee, conditions of employment, . . . violation of any public policy, or any federal, state, or local law. . .regardless of whether such claims are asserted by the Employer or Employee.

The conventional wisdom has always been that arbitration favors the employer by taking the jury component out of the picture and keeps attorneys’ fees and costs down.  With employment related lawsuits up, we’re sure to see more motions to compel arbitration. 

Once an arbitrator or arbitration panel rules, it is difficult if not impossible to have a Court overturn the ruling.  The Fifth Circuit Court of Appeals recently ruled that "manifest disregard for the law" is "no longer useful in actions to vacate arbitration awards."  There is a split amongst the circuit courts as to whether the theory is viable. 

There are four avenues under §10 of the Federal Arbitration Act to challenge an award.  The party challenging the award must show:

1. The award was procured by corruption, fraud or undue means;
2. There was evident partiality or corruption by the arbitrators;
3. The arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
4. The arbitrators exceeded their powers or so imperfectly executed them that a mutual, final and definite award upon the subject matter was not made.

Good luck overturning an adverse ruling.  Unless you can show your arbitrator was a crook, you’re probably out of luck.