Study: State courts frequently reject workers' arbitration awards

Chris Rizo Apr. 21, 2008, 4:54pm

Prof. Michael LeRoy

CHAMPAIGN, Ill. (Legal Newsline)-Although federal courts vacate nearly the same percentage of arbitration awards for employers as they do for workers, state courts are disproportionately vacating employment arbitration awards for workers, but not for employers, a new study indicates.

The new study, conducted by University of Illinois labor law professor Michael LeRoy, examined 443 federal and state court rulings from 1975-2007.

In an interview Monday with Legal Newsline, LeRoy said he found that there is a "big difference" in how state and federal courts behave when considering arbitration awards, whether they be from cases involving mandatory arbitration or not.

When state courts review arbitration awards they enforce 77.6 percent of the awards in favor of employers, compared to enforcing only 56.4 percent of awards for individual employees, he said.

By comparison, federal appeals courts upheld about 92 percent of all arbitration awards whether they were in favor of the worker or the employer, the study found.

"It comes down to the fact that state arbitration statutes are being amended and a growing array of laws now regulate some or all of the arbitration process at the state level," LeRoy told LNL. "This creates tripwires for arbitrators."

He added that state courts erroneously appear to be "activist" simply because of various legislative enactments.

Michael Sullivan, a longtime former Wyoming state labor commissioner, told LNL the reason for the discrepancy is simple: federal courts are less politically driven than state courts.

"I am not saying it's good or bad, but the federal court has more of a tendency to base its decisions on regulations as they were written by Congress," said Sullivan, who was commissioner for more than 20 years and served four governors.

On the other hand, state courts, he said, tend to reflect the sentiment of the "political machine" in power at the time, whether the state is led by Democrats or Republicans.

"Federal judges are far more removed from the political machinery than I see the state judges," Sullivan said in a telephone interview from his office in Cheyenne.

In his report, LeRoy said his findings represent a "snowballing futility for employees" in the United States.

Judicial review of arbitration awards is becoming "an insurance program that protects employers from costly awards," he wrote. "State courts are creating conditions for moral hazard in the arbitration of employment disputes."

The problem begins when employers compel individuals to arbitrate their legal claims, denying them access to juries and other benefits of a trial, the report said.

LeRoy suggested that arbitration losers who incur liability should be required to post judgment bonds if they challenge an award and that judicial review of awards in all courts should be limited to the four standards outlined in the Federal Arbitration Act.

"When courts vacate many awards that rule for employees, the individual must either return to a lengthy and costly 'do over' arbitration -- or worse, be stuck with a useless award, and no other recourse" because federal law prevents them from suing.

His 68-page study, to be reported soon in the Minnesota Law Review, comes as Congress considers legislation that would declare voluntary agreements to resolve differences through binding arbitration unenforceable.

The plans, outlined in proposals by U.S. Sen. Russ Feingold, D-Wis., and U.S. Rep. Hank Johnson, D-Ga., would nullify arbitration provisions in hundreds of millions of existing contracts, including those affecting employment.

From Legal Newsline: Reach reporter Chris Rizo by e-mail at

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