Arbitrators can't reinstate wrongfully fired COO

"Arbitrators exceeded their powers." It is a common practice in labor-management arbitrations (where there is a collective bargaining agreement) that if an employee is wrongfully discharged the arbitrator will order reinstatement. But in Cedar Fair, L.P. v. Falfas(Ohio 09/18/2014) - a case arising out of an individual employment contract - the court held that reinstatement is not an available remedy unless it is explicitly provided for in the contract or by an applicable statute.

Jacob Falfas claimed that he was fired from his job as chief operations officer, but the employer claimed Falfas resigned.

So they took the dispute to arbitration. The arbitration panel decided that Falfas had not resigned but had been terminated for reasons other than cause.

The big question in the case was the appropriate remedy. The arbitration panel concluded that “equitable relief is needed to restore the parties to the positions that they held prior to the breach of the Employment Agreement.” The arbitrators ordered the employer to reinstate Falfas to his prior position.

The Ohio Supreme Court recited the usual rules about deference to arbitration, and then focused on the Ohio arbitration statute's provision that a court can vacate an arbitration award if "the arbitrators exceed their powers." (The Federal Arbitration Act has similar language.)

The court found the arbitration panel exceeded its powers. Under prior Ohio court decisions, reinstatement is not an available remedy for breach of an employment contract. The contract in this case contained a liquidated damages clause for termination without cause. Although Falfas argued that another portion of the contract supported the arbitration panel's decision, the court said that was "completely undermined" by other portions of the contract.

The ultimate holding: "Specific performance is not an available remedy for breach of an employment contract unless it is explicitly provided for in the contract or by an applicable statute and that the arbitration panel in this case exceeded its authority by holding otherwise."

My view: The court disagreed with the arbitrators' interpretation of the contract. Yet the parties agreed to have the arbitrators do the contract interpretation. Obviously the court would read the contract differently than the arbitrators did, but that should not be grounds for overturning the award. The court should not review the arbitrators' decision as if it were a trail court decision - and that's exactly what happened here.

[Update: Over at ADR Prof BlogProfessor Paul Kirgis gently says, "The case is thus an unusual example of a court interfering with an arbitral award because the panel interpreted the agreement contrary to a rule of state law. Does it open the door, at least in Ohio, to arguments that the “exceeding powers” ground for relief from an award could encompass errors of law?"]