Employee Arbitration Award Stands Despite Arbitrators’ Alleged Misinterpretation of the Contract

The Eleventh Circuit refused to vacate an employee’s arbitration award for nearly $4 million for wrongful termination based on the employer’s claim that the arbitration panel misinterpreted the parties’ employment and arbitration agreements in Gherardi v. Citigroup Global Markets Inc., 2020 WL 5553255 (11th Cir. Sept. 17, 2020). The employee brought several claims in arbitration, including a claim for wrongful termination, when his employer fired him three days after he sent his employer a letter threatening to challenge in arbitration a “final warning” letter, which he received from his employer after he allegedly behaved inappropriately and aggressively towards his colleagues. Despite language in the employment agreement, which indicated that the employee was employed “at will” and could be terminated at any time and for no reason; the employee handbook, which indicated that nothing (except for the arbitration policy) constituted a contract of employment; and the arbitration policy, which provided that it did not constitute a waiver of the employer’s rights under the employment-at-will doctrine, the arbitration panel ruled in the employee’s favor on the wrongful termination claim. The employee moved to confirm the award, and the employer moved to vacate it. The U.S. District Court for the Southern District of Florida granted the employer’s motion to vacate, reasoning that the arbitrators “exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.” 9 U.S.C. § 10(a)(4). The employee appealed.

On appeal, the majority (comprised of Judges Grant and Lagoa) emphasized the “very narrow[]” nature of § 10(a)(4) as “among the narrowest known to the law.” A serious interpretive error does not justify vacatur under § 10(a)(4). After all, the court reasoned, the “‘sole question’ under § 10(a)(4) . . . is ‘whether the arbitrator (even arguably) interpreted the parties’ contract, not whether she got its meaning right or wrong.’”

The court reversed and remanded the district court’s order vacating the arbitration award. After explaining the limited circumstances that may support a finding that the arbitrators exceeded their powers, the court succinctly explained that here, the employer and employee had agreed to mandatory arbitration for “all employment-related disputes.” Further, the governing arbitration policy provided that any disputes regarding arbitrability “shall be resolved in arbitration.” Because the employee’s wrongful termination claim was “employment-related,” it was properly submitted to the arbitrators, and the Eleventh Circuit lacked authority to rule on the merits of the dispute unless the arbitrators completely strayed from the interpretation of the contract.

They had not. Although the employment agreement provided that the employee could be “terminated at any time and for any reason or no reason,” the employee argued that the arbitration policy’s anti-retaliation provision created an exception to the rule of at-will employment. The dispute, therefore, boiled down to a claim that the arbitrators misinterpreted the contract—a dispute the appellate court could not decide. The court acknowledged that the strict limitations governing the review of arbitration awards under § 10(a)(4) can be “a tough pill to swallow for a losing party subjected to what seems like a legally questionable interpretation.” Nevertheless, because the parties’ dispute was contractually assigned to the arbitrators, and they arguably construed the contract, the arbitration award should stand.

Judge Martin dissented, finding that the district court correctly held that the arbitrators acted outside of their authority. She noted that whether the arbitrators exceeded their powers depended on the parties’ contractual agreement to arbitrate. While she agreed that the parties agreed to arbitrate employment-related disputes, she faulted the majority for failing to see whether the arbitration agreement limited the authority of the arbitrators in any other way, distinguishing the question of arbitrability from the scope of arbitral powers. Judge Martin focused on a specific clause within the arbitration policy that stated that the arbitration agreement did not “constitute, nor should it be construed to constitute, a waiver by [the employer] of its rights under the ‘employment-at-will’ doctrine nor does it afford an employee or former employee any rights or remedies not otherwise available under applicable law” and found that this specific clause modified the more general clause in the agreement which required all employment-related disputes to be arbitrated.  In other words, the agreement to arbitrate did not change the fact that the employee was an employee at will. By permitting the employee to prevail on his wrongful termination claim—a claim which is not available to at-will employees—the arbitrators modified the clear and unambiguous terms of the arbitration agreement. In modifying the contract, the arbitrators did not interpret the contract; they exceeded their authority.

Next, Judge Martin expressed her disagreement with the majority’s conclusion that the arbitration panel could have found that the anti-retaliation provision created an exception to the background rule of at-will employment and served as a basis for the arbitration award. First, the facts did not support this argument, since the record showed that the employer decided to fire the employee the day before the employee informed his employer of his intent to dispute the “final warning” letter in arbitration. Second, the employee did not reference the anti-retaliation provision in making his wrongful termination argument to the arbitrators. According to Judge Martin, because the arbitrators flatly contradicted the express language of the contract, they exceeded their powers, and the district court’s vacatur of the arbitration award was proper.

Posted by Kamryn Deegan.

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