United States Supreme Court Limits Judicial Review of Arbitration Awards to Grounds Prescribed by Federal Arbitration Act

Employers must be mindful of a recent United States Supreme Court opinion that calls into question the validity of key arbitration provisions.  The Court recently held that when a party seeks to vacate or modify an arbitration award pursuant to the Federal Arbitration Act's (“FAA”) procedure for expedited judicial review, the FAA’s prescribed grounds for vacatur or modification are exclusive, and courts cannot vacate or modify an arbitration award based upon a contractual expansion of those grounds.  Thus, an arbitration award granted pursuant to the FAA must be confirmed by a court unless the FAA expressly permits a court to vacate, modify, or correct it.

In Hall Street Associates, L.L.C. v. Mattel, Inc., No. 06-989, __ U.S. __ (March 25, 2008), the Court examined an arbitration provision in which the parties attempted to contractually expand the FAA’s narrow grounds for vacating an award to include judicial review where the arbitrator’s findings were not supported by substantial evidence or where the arbitrator’s conclusions of law were erroneous.  The Court ruled that the FAA’s statutory grounds are exclusive; contracting parties cannot alter or extend the scope of review prescribed by the FAA.

Employers contractually bound to arbitrate disputes with their employees pursuant to the FAA should evaluate whether those contracts attempt to expand the available grounds for judicial review of arbitration awards.  Employment lawyers at Clouse Dunn Khoshbin LLP are available to review current arbitration agreements and to draft new arbitration agreements.