In keeping with the rule that arbitrators have full authority to fashion appropriate remedies, the Seventh Circuit Court of Appeals rejected the argument that an arbitrator exceeded his powers by awarding equitable relief, which in this case consisted of a directive to the party's CEO that he modify the employment records of a former employee.

In Prostyakov v. Masco Corp., No. 06-3928, 2008 WL 170043 (7th Cir. Jan. 22, 2008), Masco hired Prostyakov, a Russian citizen, to assist them in distributing their products throughout Russia. As the relationship deteriorated, Masco and Prostyakov entered into a settlement agreement whereby they agreed to arbitrate any future disputes and that the end of the relationship would be described as "amicable."

Following the end of his relationship with Masco, Prostyakov sought employment at a Russian bank. The bank agreed to hire Prostyakov but required him to submit his Labor Book, which is a written record of a Russian citizen's employment history. After some difficulty, Prostyakov obtained his Labor Book from Masco and discovered that it contained a backdated entry stating that Prostyakov had been dismissed from Masco.

Based on the Masco entry in the Labor Book, the bank withdrew its offer of employment. Subsequently, Prostyakov filed an arbitration claim for monetary damages and equitable relief, alleging that Masco's entry in the Labor Book violated the settlement agreement.

The arbitrator entered an award in Prostyakov's favor, both for monetary damages and for equitable relief. As to the equitable relief, the arbitrator directed Masco's CEO to correct the Labor Book entry by issuing a specified executive order.

Prostyakov filed a motion to confirm the award. In opposing the motion, Masco raised various objections, including an argument that the arbitrator exceeded his powers by awarding equitable relief. The district court confirmed the award.

On appeal to the Seventh Circuit, Masco again argued that the arbitrator exceeded his powers by awarding equitable relief. In rejecting this argument, the Court cited case law recognizing an arbitrator's authority to fashion the appropriate remedy. Moreover, as the Court noted, the arbitration agreement placed no limits on an arbitrator's authority to award equitable relief.

In connection with the appeal, Prostyakov filed a motion for sanctions, arguing that Masco's appeal was frivolous and that he should be reimbursed for attorney fees incurred in contesting the appeal. The Court found that Masco "ha[d] made 'a mockery of arbitration's promise to expedite and cut the costs of resolving disputes.'" Nevertheless, the Court declined to award any sanctions because Prostyakov was already entitled to recover his attorney fees under an indemnification clause in the settlement agreement.

As this case illustrates, arbitrators have full authority to award equitable relief in the absence of any agreement to the contrary. This authority has been recognized in two other recent decisions. See INVISTA North America, S.a.r.l. v. Rhodia Polyamide Intermediates S.A.S., 503 F.Supp.2d 195 (D.D.C. 2007) (finding that an inventorship dispute was arbitrable because the arbitrator had authority to correct the patent); Duke v. Graham, 158 P.3d 540 (Utah 2007) (holding that arbitrator had authority to remove a member of limited liability company). Rule 20(D) of the National Arbitration Forum Code of Procedure expressly authorizes an arbitrator to award equitable relief where warranted by law.

Given the authority of arbitrators to award equitable relief, there is rarely any need to carve out a category of disputes from the scope of an arbitration agreement. Instead, parties should maximize efficiency by agreeing to resolve all disputes in arbitration.