Changes to Arbitration Coming?

Congress is considering legislation that would dramatically change the ability of an employer to enter into a pre-dispute agreement with employees that calls for employment disputes to be arbitrated. Under the pending bill, known as "The Arbitration Fairness Act of 2007", arbitration agreements that are entered into before a dispute arises, and that are subject to the Federal Arbitration Act (FAA) would be deemed unenforceable. Employers would have to get employees to agree to arbitrate only after a claim arises.

Further, the bill would give additional oversight functions to a court of law. Existing law leans towards giving great deference to arbitration awards. Courts are very reluctant to overturn an arbitrator's decision unless it is manefestly unjust, obviously in contravention of existing law, or was rendered by fraud.

In addition, the US Supreme Court just heard a case that may judicially expand the role of a court in overseeing/enforcing arbitration awards. In Hall Street Associates v. Mattel, Inc., cert was granted in a case where the parties negotiated an arbitration agreement that expanded the role of the judiciary beyond that provided under the FAA. The dispute arose over a lease which did not contain an arbitration clause. The parties went to litigation. During litigation, they agreed to arbitrate the remaining issues, leaving the court to approve the arbitration agreement and allowing the court to review the arbitrator's findings and conclusions (include a finding of any error by the arbitrator). The arbitration agreement conflicts with the FAA in that the FAA does not allow review of an arbitrator's factual or legal findings.

After arbitrating, both sides appealed the award. The court vacated the award based on its finding of legal error by the arbitrator in applying state law. The arbitrator then revised his award per the court's interpretation of state law. Both parties again sought judicial review, but the court upheld the ruling.

The question for the US Supreme Court is whether a court can enforce a contractual provision that expands the standard of review of arbitration awards under the FAA. Stay tuned...