The United States Supreme Court held in the unanimous decision of New Prime Inc. v. Oliveira earlier this year that the Federal Arbitration Act's exclusion as to contracts of employment necessitated that the parties' arbitration clause be overridden and the plaintiff be allowed to pursue his lawsuit in the Massachusetts federal courts.
In the United States, the Federal Arbitration Act ("FAA") provides the rules that govern most arbitrations, and is binding on both state and federal courts. See 9 U.S.C. § 1 et seq. But the FAA is "something of an anomaly" in federal legislation as it "bestow[s] no federal jurisdiction." Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582 (2008). So motions to compel arbitration or enforcement proceedings must be brought in state courts unless there is some independent basis to assert jurisdiction (such as federal diversity jurisdiction).
The Supreme Court may soon be taking on an issue that has divided several of the federal circuit courts. The circuits disagree on a fundamental question that relates to arbitration and labor law - whether an agreement to arbitrate is valid when an employee waives the right to bring claims against an employer as part of a class or collective. In other words, can an employee be barred from being part of a class action lawsuit where there is an agreement to arbitrate and a waiver of the right to pursue collective claims?
The 7th Circuit Court of Appeals recently created a schism between the Circuits that may lead to the Supreme Court's intervention on an important issue: whether an employer may bar employees from bringing class action claims by requiring claims to be arbitrated. The 7th Circuit, in deciding that employers cannot do so, has diverged from the 5th Circuit, leaving a circuit split that the Supreme Court will now likely be compelled to resolve.
As this blog has chronicled in the past, it is extremely difficult for an arbitral award to be vacated. The Federal Arbitration Act and many state arbitral acts provide very limited grounds for vacatur, as courts are reluctant to second-guess an arbitrator's decision. Indeed, courts have even refused to vacate awards when the arbitrator erred in his application of the law. Even a "grave error" made by the arbitrator is insufficient to vacate an award, as it is not amongst the grounds for vacating a decision.
The Tenth Circuit Court of Appeals recently affirmed a district court's decision to lift the stay in federal proceedings due to the arbitrator's decision to terminate proceedings based on a party's failure to pay the arbitration fees. It reached this decision by concluding it had proper jurisdiction to hear the appeal and that the district court had reached the correct decision on the merits - that the employee was in default of his obligation to pay the arbitrator's fees and that the proceedings were properly terminated.
Party discovery in arbitration is quite limited, particularly in comparison to the scope of discovery permitted by the Federal Rules of Civil Procedure. However, to what extent can an arbitrator order a third party - who, it should be noted, never agreed to arbitrate -- to appear and testify at an arbitration or to produce documents or other tangible items for use as evidence at an arbitration?
Employers and employees everywhere should check their employee handbooks - if it has an arbitration provision, it is likely any disputes between the two will take place in arbitration rather than in court.
In a recent decision, the Ninth Circuit Court of Appeals ruled that parties cannot agree under a contract to limit the scope of judicial review of an arbitration award as delineated by the Federal Arbitration Act (the "FAA"). This ruling complements a 2008 Supreme Court case, Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), where the Court held that a clause in an arbitration agreement providing for expanded judicial review beyond what was provided for in the FAA was unenforceable. In light of the Ninth Circuit's new ruling, parties also cannot go the other way and curtail the scope of review to which the parties are entitled under the Federal Arbitration Act.
In a major decision, the U.S. Court of Appeals for the Eleventh Circuit recently confirmed an arbitral award that permitted class arbitration when the underlying arbitration clause was silent on the permissibility of class arbitration. By issuing this decision in Southern Communications Services, Inc v Thomas, No 11-15587, 2013 WL 3481467 (11th Cir July 12 2013), the court once again underscored the extremely high level of deference granted to arbitrators, while at the same time threw a lifeline to the sputtering class action practice in the United States.
In yet another example of the great deference accorded to arbitral decisions by U.S. Federal Courts, the Fifth Circuit recently declined to vacate or modify an award based on allegations of arbitrator misconduct. Despite intimations that the conduct of the opposing party and the arbitrator may have led to a reversal had it occurred in the district court, the Fifth Circuit cited the bedrock principle that, due to a "strong federal policy favoring arbitration," judicial review of arbitration awards is "extremely narrow," and refused to vacate the award.
Alternative dispute resolution is rightly gaining steam as an efficient, fair mechanism for the resolution of complex business disputes. Many companies are redrafting their standard-form contracts to include mandatory arbitration clauses. This is particularly true for companies doing business across state or national borders, so that they might avoid being hauled into court in a foreign jurisdiction. But what if you agree to arbitrate a dispute and end up losing? Do you have any recourse?
The dispute resolution clause in commercial contracts is very often inserted at the last minute without much attention given to the implications of the particular language contained in the clause. It is increasingly common to see "stepped" dispute resolution clauses, whereby the parties agree to mediate disputes arising under the contract and, if mediation fails to resolve the dispute, to arbitrate. The popularity of stepped clauses is due in part to the fact that they make a quick, inexpensive resolution possible through mediation, but provide arbitration as a fallback mechanism for dispute resolution. While wholly reasonable on their face, stepped dispute resolution clauses can have surprising consequences when a business relationship sours.
In a harshly worded per curiam decision, the U.S. Supreme Court recently reaffirmed the broad reach of the Federal Arbitration Act ("FAA") and restated that the FAA "reflects an emphatic federal policy in favor of arbitral dispute resolution." The FAA is the federal statute that regulates the relationship between the judicial process and arbitration.