May courts review arbitration award consistent with employment agreement forbidding outside work where employee exercised unwaivable statutory right?

Posted in: Arbitration, Employment Law by Steven Vartabedian on

1411947988kdp8gIn Richey v. AutoNation, Inc. (filed 1/29/15) S207536, the California Supreme Court responds, “No.”   The court concluded that even if the arbitrator in that case committed error in accepting the untested “honest belief” defense, any error did not deprive the employee plaintiff of an unwaivable statutory right because of the overriding rationale that employee was dismissed for violating his employer’s written policy prohibiting outside employment, while he was out on protected medical leave.

Arbitral finality constitutes an important component of parties’ agreement to arbitrate and public policy favoring alternative dispute resolution. (See Moncharsh v. Heily & Blase (1992) 3Cal.4th 1, 10.) Exceptions include awards involving fraud/corruption or undue means, and arbitrator prejudicial misconduct or actions in excess of power. (Code of Civil Procedure section 1286.2, subdivision (a).) Arbitrators may exceed their powers by issuing an award that violates a party’s unwaivable statutory rights. Such a “narrow exception” was found in Pearson Dental Supplies, Inc. v. Superior Court (2010) 48 Cal.4th 665, 670, where the state high court found that an arbitrator’s misapplying a tolling statute caused the arbitrator to find the employee plaintiff’s claim time-barred, thus depriving plaintiff of a hearing on the merits.

Pearson Dental, however, has very limited application. The plaintiff there was deprived of the procedural framework upon which the parties agreed to arbitrate: a decision on the merits of the case. It is very different to challenge an arbitrator’s claimed misinterpretation of the law governing the claim itself. Here, in Richey, the trial court confirmed the arbitrator’s award in favor of defendant; the Court of Appeal then vacated the award because the arbitrator adopted the honest belief equitable defense, which in the appellate court’s view constituted legal error. But this review was not because of any denial of a hearing on the merits; nor was the error, if any, prejudicial to plaintiff, who had the burden to show prejudice.

The arbitrator’s ruling did not act to further plaintiff’s claimed deprivation of an unwaivable statutory right under the medical leave statutes. The arbitrator found that plaintiff was terminated from employment because he violated written employment policy of outside work (in plaintiff’s own restaurant) while on approved statutory medical leave, not because he was on approved leave. The award in favor of defendant thus was final and not subject to judicial vacation.

The Supreme Court’s message would appear to be an admonition to parties to not waste judicial resources on cases that claim “ordinary” arbitral error. Such error would not be of the type that demonstrates the arbitrator acted in excess of the power granted by the parties’ agreement to arbitrate. The narrow type of case that is in excess of such power is one where a party is actually deprived (not just theoretically deprived) of a statutory right that includes procedures insuring a determination on the merits.

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