This is One of the Reasons I Prefer Not to Arbitrate
Jeffrey N. Schatzman | Miami, Florida | October 27, 2020
On September 17, 2020, the Eleventh Circuit Court of Appeals issued its opinion in the case of Gherardi v. Citigroup Glob. Markets Inc., No. 18-13181 (11th Cir. Sep. 17, 2020). The case came before the 11th Circuit after the District Court granted Citigroup’s motion for vacatur, where it sought to vacate the nearly $4 million awarded to Gherardi for wrongful termination. In vacating the award, the District Court found that Gherardi was an employee at will and was not entitled to seek damages under his claim for wrongful termination. The 11th Circuit reversed the District Court by applying the narrow grounds required for a motion for vacatur, notwithstanding the fact that the arbitrators may have misapplied the law.
The 11th Circuit explained that at the time of Gherardi’s termination, he and Citigroup were parties to three relevant agreements (Citigroup’s employee handbook, which included an employment arbitration policy addendum and a Duel Employment Agreement). Among those agreements there were several relevant provisions: (1) The Duel Employment Agreement provided that Gherardi was an employee at will; (2) the Handbook explicitly stated that it was not an employment contract; (3) the Arbitration Policy provided that all employment related disputes would be resolved by arbitration; (4) that the Arbitration Policy should not be construed as a waiver of Citigroup’s rights under the employment at will doctrine; and (5) the Arbitration Policy stated that “[r]etaliation against employees who file a claim under this Policy . . . is expressly prohibited”.
Title 9 of the United States Code is the Federal Arbitration Act (“FAA”), which governs arbitrations. Under Section 10 of the FAA, federal courts have limited authority to vacate or modify an arbitration award. Such authority can only be invoked if (1) the award was procured by corruption, fraud or undue means; (2) partiality or corruption by the arbitrators; (3) the parties were prejudiced by the arbitrator’s misconduct; and (4) 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 District Court relied on the fourth basis to vacate the arbitration award stating that the arbitrators exceeded their powers in wrongly interpreting the employment agreements and determining that Gherardi was entitled to the award since he was not an employee at will.
The 11th Circuit did not find that the arbitrators strayed that far from their ability to interpret the agreements. Although the relevant provisions stated above would seem to clearly provide that Gherardi was an employee at will, Gheraridi argued that the Arbitration Policy’s anti-retaliation provision created an exception to the at will nature of his employment. Finding that the parties’ dispute was employment related, and therefore arbitration was the agreed method of resolving the dispute, the 11th Circuit held that, as harsh as the result may be, the District Court was without authority to insert its interpretation of the agreements over that of the arbitrators because any error on the part of the arbitrators did not reach the level required by 9 U.S.C. § 10(a)(4).
While many argue that arbitration can be a cost saving vehicle for dispute resolution, I rarely find that to be the case. As is illustrated by Gheraridi, parties must be careful in choosing whether to arbitrate or have matters heard by an appropriate judicial court. Although many arbitrators are former judges, many arbitrations are conducted by current and former practitioners. Of course, the parties will attempt to select arbitrators who they are familiar with and who have some experience with the issues of the case, but the difference between arbitration and having your matter heard by a judicial court is you have a clear right to appeal if you believe the judge got it wrong. When parties agree to arbitration, they generally agree that the decision of the arbitrator(s) will be final. Unless the arbitrator’s decision falls under one of the narrow exceptions, it cannot be appealed and if the arbitrator(s) get it wrong, you will likely be stuck with that result.
For those reasons, I prefer to let an experienced judge decide my client’s case and if the judge gets it wrong, my client has the ability to appeal that decision.