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In a case where five employees prevailed on their sexual harassment claims at arbitration, a federal district court in Texas vacated the arbitration award pursuant to the arbitration agreement's provision for heightened judicial review.
In National Resort Management Corp. v. Cortez, No. 4:06-CV-641-A, 2007 WL 142589 (N.D. Tex. Jan. 16, 2007), Cortez and four co-workers alleged that National Resort Management Corporation (NRMC), their employer, was liable for sexual harassment.
The dispute was submitted to arbitration pursuant to an arbitration agreement that contained the following provision for judicial review: "In an action seeking to vacate an award, the standard of review applied to the Arbitrator's findings of fact and conclusions of law will be the same as that applied by an appellate court reviewing a decision of a trial court sitting without a jury."
Following a seven-day hearing, the arbitrator awarded damages and attorney fees to each employee. NRMC subsequently filed suit, seeking an order vacating the award.
In ruling on NRMC's motion to vacate, the Court applied the provision for heightened review because Fifth Circuit law allows parties to expand "judicial review of an arbitration award beyond the scope of the [Federal Arbitration Act]." See Hughes Training Inc. v. Cook, 254 F.3d 588 (5th Cir. 2001).
Applying the contractually prescribed standard of review, the Court vacated the award in favor of the employee who was fired because she "fail[ed] to cite to any evidence within the approximately 1,500-page record showing the requisite causal connection" between her termination and her supervisor's sexual harassment.
The Court also vacated the award with respect to the four employees who were not fired "because, as a matter of law, [they] unreasonably failed to take advantage of the preventative or corrective opportunities they were provided." Specifically, the Court concluded that it was unreasonable to complain only to a general manager instead of also complaining to people higher up in the company, such as "the general counsel, or even the president."
Some jurisdictions would not honor the provision for heightened review based on the principle that parties cannot create additional grounds for vacatur or delineate the standard of review. See, e.g., Bowen v. Amoco Pipeline Co., 254 F.3d 925, 936 n. 8 (10th Cir. 2001) (noting that "parties may not interfere with the judicial process by dictating how the federal courts operate").
However, parties can always agree that the arbitrator must follow the law, see, e.g., Rule 20D of the National Arbitration Forum Code of Procedure, in which case a legally erroneous arbitration award is subject to vacatur on the statutory basis that the arbitrator exceeded their powers. See KeyClick Outsourcing, Inc. v. Ochsner Health Plan, Inc., No. 06-CA-359, 2006 WL 3094077 (La. Ct. App. Oct. 31, 2006) (concluding that an arbitrator exceeded his powers by committing legal error where the parties agreed that "[t]he arbitrator shall have no authority to make material errors of law").
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