Arbitrator's Remedy Must Not be Contrary to Established Law

posted by Michael Fortney  |  Oct 21, 2014 06:39 AM in Arbitration and Mediation

When an arbitrator awards a remedy that is contrary to established law and contrary to the remedy provided in the agreement, the award should be vacated.  Such was the recent decision of the Supreme Court of Ohio in Cedar Fair, L.P. v. Falfas, , where the Court reiterated established Ohio law - that reinstatement is not available to employees in a breach of contract claim unless reinstatement is explicitly provided for in the employment contract - and vacated an award of reinstatement where that remedy was not explicitly provided for in the contract.

In Cedar Fair, Jacob Falfas was Cedar Fair's Chief Operating Officer and signed an employment contract that provided in part that if Falfas was terminated without just cause, he would be entitled to receive his base salary for one year or the remaining term of the contract, whichever was longer.  After finding that the termination was without just cause, the arbitration panel, along with other damages, ordered reinstatement.  The Supreme Court of Ohio agreed with Cedar Fair that the reinstatement order was improper and subject to vacation, because reinstatement was not an available remedy in the employment contract or as a matter of law.

Ohio's Arbitration Act provides that the court "shall make an order vacating the award upon the application of any party to the arbitration” if, among other reasons, “[t]he arbitrators exceeded their powers.” The Court affirmed Ohio law that "Arbitrators act within their authority to craft an award so long as the award 'draws its essence' from the contract—that is, 'when there is a rational nexus between the agreement and the award, and where the award is not arbitrary, capricious or unlawful'.”

Further, the Court restated established Ohio cases which held that an arbitration award "departs from the essence of a [contract] when: (1) the award conflicts with the express terms of the agreement, and/or (2) the award is without rational support or cannot be rationally derived from the terms of the agreement.”  In Cedar Fair, the Court held that the arbitration panel exceeded their powers by ordering reinstatement.

Cedar Fair is the latest in a line of cases discussing a court's authority to vacate an arbitration award.  In Cedar Fair, the Ohio Supreme Court seemingly distanced itself from the recent restrictive holdings of the U.S. Supreme Court under the Federal Arbitration Act, that "courts may vacate an arbitrator’s decision 'only in very unusual circumstances.'" Oxford Health Plans L.L.C. v. Sutter, 133 S. Ct. 2064, 2068 (U.S. 2013).

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