By Marjorie Johnson, J.D.
In vacating the award, the district court erred by substituting its own legal judgment since the arbitrators’ decision was an interpretation of the contract, rather than an expansion of the arbitrable issues.
A district court erred in vacating an arbitration panel’s $3.4 million award for wrongful discharge granted to an investment broker who claimed he was fired on trumped up charges after threatening to arbitrate a “final warning” given to him for inappropriate workplace behavior. A divided Eleventh Circuit panel ruled that because the parties agreed to arbitrate all disputes about his employment, the merits of his dispute were committed to the arbitrators under the Federal Arbitration Act (FAA) and an employer “does not get a mulligan in federal court because it identifies a possible legal error in arbitration.” Judge Martin filed a separate dissenting opinion (Gherardi v. Citigroup Global Markets Inc., September 17, 2020, Grant, B.).
The employee worked for Citigroup Global Markets as a broker and investment advisor for about two decades and earned at least $750K annually during his last five years on the job. Despite his financial success, he faced complaints about inappropriate behavior and in June 2015 was given a “final warning” based on his aggression and profane language directed toward a coworker. Five months later, he warned HR that he intended to challenge the warning letter in arbitration. He was fired three days later.
“At-will employee.” The parties were subjected to a dual employment agreement which stated that the broker was an at-will employee who could be “terminated at any time and for any reason or no reason, not otherwise prohibited by law, by any party.” The employee handbook also noted that except for the arbitration policy, nothing in the handbook “is a contract of employment.”
Arbitration agreement. The arbitration policy appended to the employee handbook required “all employment-related disputes” be arbitrated. Moreover, the policy did not “constitute, nor should it be construed to constitute, a waiver by Citi of its rights under the ‘employment-at-will’ doctrine nor” did “it afford an employee or former employee any rights or remedies not otherwise available under applicable law.” The arbitration policy also expressly prohibited retaliation for filing claims under the policy, including claims regarding its validity.
Arbitration proceeding. At arbitration, the employee argued that because the employer feared that he would join a competitor firm and take his 500–600 clients with him, it tried to make him unemployable by firing him “for cause.” Seeking $16.5 million in damages, he brought a myriad of claims, including wrongful termination in violation of the arbitration policy’s anti-retaliation provision and “the common law of securities arbitration, which provides that registered persons are not at-will employees.”
$3.4 of $4 million award vacated. The arbitration panel unanimously awarded the employee nearly $4 million, including over $3.4 million as compensatory damages for wrongful termination. After he moved to confirm the award in federal court, the employer moved to vacate. It argued that because the broker was an at-will employee, the arbitrators exceeded their powers under Sec. 10(a)(4) of the FAA by finding that he had been wrongfully terminated. The district court agreed and vacated the wrongful termination portion of the award.
Exception narrowly interpreted. Under the FAA, courts can only vacate an arbitration award “in very unusual circumstances” described in the statute, including if “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.” The Eleventh Circuit underwent an exhaustive discussion the legal precedent addressing Section 10(a)(4), emphasizing that this language has been interpreted “very narrowly” and that arbitrators do not exceed their powers even if they make “a serious error.” Indeed, an arbitrator’s actual reasoning need not be explained and “the decision itself is enough.”
Describing its review of Section 10(a)(4) cases as “quasi-jurisdictional,” the appeals court found the sole question was “whether the arbitrator (even arguably) interpreted the parties’ contract.” And in Henry Schein, Inc. v. Archer & White Sales, Inc., the Supreme Court recently reconfirmed the principle that “a court may not rule on the potential merits of the underlying claim that is assigned by contract to an arbitrator, even if it appears to the court to be frivolous.”
“Employment-related” claim. Applying this principles, the Eleventh Circuit found that the parties agreed to mandatory arbitration for “all employment-related disputes” including the “the arbitrability of a particular claim.” And because the employee’s wrongful termination claim was “employment-related,” it was validly submitted to the arbitrators. The court had no power to rule on the “merits of the underlying claim” for wrongful termination unless they strayed from interpretation of the contract and dispensed their “own brand of industrial justice”—which they did not do.
Arguably construed the contract. In particular, while the dual employment agreement allowed the employee to be “terminated at any time and for any reason or no reason,” the arbitrators were tasked with deciding whether anything in the arbitration policy called that otherwise clear language into question. The employee pointed to the anti-retaliation provision as creating an exception to the at-will nature of his employment, while the employer relied upon language that the arbitration policy did not constitute “a waiver” of its rights under the at-will doctrine. The resolution of this dispute was contractually assigned to the arbitrators and they arguably construed the contract, which was enough. The employer’s contention that they misinterpreted the parties’ agreement was “a far cry” from a valid claim that they “exceeded their powers.”
Dissent. Judge Martin dissented, writing in an extensive opinion that the arbitrators “flatly contradicted” the express language of the parties’ agreement that the broker was an at-will employee and thus exceeded their powers by awarding him compensatory damages for wrongful termination, which was not a form of relief available to at-will employees. Moreover, the dissent argued that the majority erred in concluding that the parties’ agreement to arbitrate job-related grievances implicitly gave the arbitrators power to invalidate other terms of his employment contract.
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