ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Friday, June 23, 2023

Fourth Circuit Reverses Arbitral Award Because Award "Failed to Draw Its Essence" from the Arbitration Agreement

Sarah Black, a union-represented employee, worked at a nursing care facility for military veterans operated by plaintiff Advantage Veterans Services of Walterboro (AVSW).  AVSW terminated Black for discrimination, harassment, or bullying, and for falsifying records.  The union protested on Black's behalf, and the dispute was sent to arbitration.  The arbitration was governed by a collective bargaining agreement (CBA), Article 13 of which provided that in “all discipline cases, the arbitrator shall determine whether AVSW had a reasonable basis for concluding that the employee engaged in the conduct for which he/she is being disciplined.”

4th CircuitIn Advantage Veterans Services of Walterboro v. Industrial and Service Workers Int'l, Local 7898, the Fourth Circuit referred to this language as requiting a "reasonable basis determination."  The arbiter interpreted Article 14 of the CBA to require "strong, convincing evidence" of the violation.  The arbiter determined that this standard was not met and that AVSW had failed to provide the required notice to Ms. Black.  The arbiter ordered that Black be reinstated.

AVSW brought suit in District Court pursuant to the federal Labor Management Act seeking to vacate the award on the ground that the arbiter had failed to apply the appropriate "reasonable basis" standard and thus its award was not consistent with the CBA.  The District Court upheld the award, finding that the standard had been properly applied, and even if it had not been, review of arbitral awards was limited.  It was enough that that the arbiter's reading of what the CBA required was plausible.  

While the Fourth Circuit noted the narrow scope of review of an arbitral award in the labor law context, an award is illegitimate if it “fails to draw its essence” from the agreement.  Although the arbiter recited facts relevant to assessment of whether AVSW had a reasonable basis for its action, and although arbiters are not required to provide the reasoning for their decisions, the Fourth Circuit nonetheless found that found that the arbiter never made the required reasonable basis determination, and thus her ruling failed to draw its essence from the CBA.    

This was no mere procedural hiccup.  Rather, the arbiter ignored the substantive rules that were to govern her analysis.  It would be paradoxical, the court noted, to use the highly deferential standard of review, which is rooted in principles of contract, "to look past the arbitrator’s failure to follow contractually agreed-upon procedural rules for the arbitration."  If this goes back to the same arbiter, it is hard to imagine a different conclusion on the merits.

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