From the desk of John Kreutzer: Insurers should be aware that an arbitrator’s authority is bound by the terms of the contract in question. When crafting an arbitration agreement, drafters should take into account that once an agreement is in place, it is the arbitrator that interprets the agreement and makes determinations regarding the extent of arbitrator authority.
Claims Pointer: Arbitration agreements can be a useful tool to avoid litigation. Broad grants of authority in an arbitration agreement, such as a general remedies provision, may lead to unwanted and unexpected results at arbitration as this case demonstrates. When courts review arbitration awards, they focus on whether the contract granted the arbitrator authority before they will consider the merits of an arbitrator’s decision.
Portland Fire Fighters’ Ass’n v. City of Portland, 267 Or App 491 (2014).
Former Portland firefighter, Tom Hurley (Hurley), entered disability status around 1993 and began receiving disability benefits from the city’s Fire and Police Disability and Retirement Fund (“fund”). Hurley became a chef through the fund’s vocational program. In 2006, the city began a “return-to-work program” that placed some injured fund members in low-risk positions. Hurley received notice that he was part of the program and that he would need to attend a 5-week training program. Hurley refused to attend because it would impact his employment as a chef in Portland and Seattle.
After inquiring into why he didn’t attend his training, the fund again asked Hurley to attend a training in March 2007. Hurley again refused. The fund gave a final notice that he was to report to work on April 5, 2007 as a fire inspector. Hurley did not appear and the fund notified him that his disability benefits had been terminated. Hurley’s attorney sought reconsideration of the fund’s decision, but received no response. In May 2007, the City demanded that Hurley report for work. Hurley failed to report and was subsequently discharged on October 7, 2007.
The Portland Firefighters’ Association (“association”) challenged Hurley’s discharge by filing a grievance pursuant to the collective bargaining agreement (CBA). The association sought rescission of Hurley’s discharge and reinstatement of his disability benefits through the fund. The parties agreed that the only issues before the arbitrator were: (1) whether the city had just cause to discharge Hurley; and (2) whether the arbitrator had the authority to give the remedy the association sought.
The arbitrator, relying on a companion Employment Relations Board (ERB) decision, found that the City did not have just cause to fire Hurley because the demands to report for work were unreasonable in light of the fact that the return-to-work program had not been bargained for with the association. Regarding the remedy, the City argued that the CBA did not give the arbitrator authority over the fund. The arbitrator found that the CBA granted general authority to form an appropriate remedy. The EBR upheld the arbitrator’s decisions on the grounds that both decisions were well within the arbitrator’s authority. The Court of Appeals upheld the EBR decision.
The Court of Appeals first addressed the City’s argument that Hurley’s grievance was not arbitrable. The court found that the CBA’s grievance provision gave the arbitrator authority to “settle any grievance or complaints that might arise out of the application of this Agreement.” The court concluded that the City agreed to arbitrate not only whether it unlawfully discharged Hurley, but also the remedy that should follow. The City’s arguments amounted to a disagreement about the substantive decisions the arbitrator made, not whether the arbitrator had authority to make them. The court held that the city was bound to the arbitrator’s decision to restore disability benefits, whether from the fund or otherwise, because the crafting of a remedy was wholly within the arbitrator’s authority per the arbitration agreement.
The City next contended that the arbitrator was bound by the CBA to not consider grievances filed beyond fourteen days of a breach of the CBA. The court stated that the text of the CBA did not prevent the arbitrator from addressing Hurley’s discharge and request for restoration of disability benefits. The court also rejected the City’s argument that crafting a “make-whole” remedy amended the CBA because crafting a remedy was within the scope of the agreement. Finally, the court deferred to the arbitrator’s decision to create a “make-whole” remedy absent a contract provision allowing such authority because an arbitrator may “fashion a remedy if he interprets the contract to give him that authority.”
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