The Efficiency of Arbitration in the Workplace
Employers and employees can agree to resolve issues that arise in the workplace by way of arbitration. This process is normally quicker and less expensive than going through the judicial process. The parties agree on an arbitrator who will hear both sides of the story and then make a decision as to whether the employee’s grievance is valid. Arbitration awards are usually binding on the parties and, absent some limiting clause in the arbitration agreement, the merits of the award may not be reviewed by a court, except as specifically provided by law.
The California statutes provide for extremely limited reviews of final arbitration decisions. The losing party could ask that the arbitration’s award be vacated if (1) the decision was procured by corruption, fraud or other undue means; (2) the arbitrator was corrupt; (3) the arbitrator committed misconduct; (4) the arbitrator exceeded his or her authority; or (5) the arbitrator refused to continue the hearing and the party’s rights were substantially prejudiced. However, the fact that the arbitrator incorrectly applied the law was not sufficient to have the arbitration decision overturned.
Recently, the California Supreme Court issued its decision in Cable Connection, Inc. v. DirecTV, Inc., which has wide impact on the benefits of using the arbitration process. The court was asked to decide if the parties to an arbitration agreement are allowed to structure that agreement to allow for court review if the arbitration award contains legal error. Prior to this case, parties had to carefully consider whether or not they wanted to give up their right to sue in court and the right to appeal an obviously incorrect decision by agreeing to arbitrate. The party would have to weigh the benefit of a quicker and, hopefully, cheaper process of arbitration against the risk of exposure to an arbitrator’s decision that was unsupported by the law.
However, the California Supreme Court has now concluded that each party to a dispute could contractually agree that the arbitrator was bound by the law of the case and if the arbitrator failed to follow the law, the losing party could appeal the arbitrator’s decision in Superior Court. The Supreme Court’s rationale was that when parties agree to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in order to reach a decision. The parties could also agree to an appellate review process.
In the Cable Connection case, the Supreme Court emphasized that “parties seeking to allow judicial review of the merits, [of their arbitration case] and to avoid an additional dispute over the scope of review, would be well advised to provide for that review explicitly and unambiguously in their agreement.” In other words, parties who are concerned about the arbitrator’s award containing legal mistakes may clearly state in their arbitration agreement that legal errors exceed the arbitrator’s authority and are reviewable by a court.
Parties need to carefully consider whether they wish to incorporate traditional judicial review by express agreement as such a review could surely increase the costs and the time required to finally resolve disputes. This case points out the need for careful drafting of any arbitration agreement.