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11 Harv. Negot. L. Rev. 199
Harvard Negotiation Law Review
Spring 2006
Article
REINVENTING THE ENTERPRISE WHEEL: COURT REVIEW OF PUNITIVE AWARDS IN LABOR AND
EMPLOYMENT ARBITRATIONS
Michael H. LeRoy, Peter Feuilled1
Copyright (c) 2006 Harvard Negotiation Law Review; Michael H. LeRoy; Peter Feuille
I.
Research Questions and Their Significance
200
A. Statement of the Research Issues
200
B. Organization of this Article
204
II.
The Evolution of Judicial Review of Workplace Arbitration
208
A. Courts Apply the Make-Whole Model for Labor Awards
208
B. Courts Apply the Forum Substitution Model to Employment Awards
212
C. Judicial Principles for Reviewing the Arbitrator’s Decision-Making and Award
217
III.
Flexible Remedies for Arbitrators, Due Process Limits for Jurors
222
A. Punitive Damages in Employment Litigation
222
B. Recent Due Process Limits on Punitive Awards by Juries
225
C. Rejection of Limits on Punitive Arbitrator Awards
228
IV.
Research Methods and Quantitative Findings
230
A. Empirical Research Methods
230
B. Research Results
234
V.
Qualitative Findings
239
A. Labor Arbitration Awards
239
B. Employment Awards
244
VI.
Conclusions
247
*200 When an arbitrator is commissioned to interpret and apply . . . [an] agreement, he is to bring his informed judgment to
bear in order to reach a fair solution of a problem. This is especially true when it comes to formulating remedies. There the
need is for flexibility in meeting a wide variety of situations. The draftsmen may never have thought of what specific remedy
should be awarded to meet a particular contingency.
--United Steelworkers v. Enterprise Wheel & Car Corp. 1
I. Research Questions and Their Significance
A. Statement of the Research Issues
Litigate or arbitrate? Companies and their workers weigh several factors when they choose between arbitration and litigation
to resolve their disputes-- cost, time, precedent, and privacy.2 They also consider remedies. This study examines the
arbitrator’s most rare and severe sanction--punitive awards.3 We compare punitive arbitration awards for labor grievances
(involving union-management disputes) and individual employment complaints (involving non-union employees who claim
discrimination or other unlawful conduct by their employer). Our study provides original data for the resolution of the
following questions: (1) Do courts enforce punitive awards more often now that the Supreme Court has ruled that states
cannot bar these private sanctions? (2) Are punitive arbitration awards becoming more common? (3) What is the ratio of
punitive to compensatory damages in these arbitrations? (4) Do courts enforce punitive awards equally for labor and
employment arbitrations? (5) Do amounts of punitive damages differ significantly between awards in labor and employment
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arbitrations?
Why are these questions important? First, there is a practical consideration. Many employers have adopted mandatory
arbitration *201 in the past fifteen years. Some of these firms,4 as well as arbitration services,5 now permit individuals to opt
out of arbitration in favor of court. Similarly, while unions typically arbitrate allegations of employer contract violations, they
also have occasion to sue on these claims.6 Therefore, a growing number of people and organizations can choose between
court and arbitration for resolution of a workplace dispute. This study provides employees, unions, and corporations useful
information about litigating or arbitrating their workplace disputes.
Our results also shed new light on the evolution of workplace arbitration. Despite the existence of published studies on
punitive arbitration awards,7 these empirical studies are limited to securities disputes between customers and brokers. 8 Other
research examines *202 arbitrator remedies in employment arbitration but without data on punitive awards or court review of
these orders.9 Our published studies on 1787 court decisions from 1960-2001 that enforced or vacated arbitration awards in
labor and employment disputes did not examine punitive awards. 10 Since then, the Supreme Court has issued major rulings
on these remedies,11 requiring judges to consider whether multi-million dollar punitive awards from juries12 and arbitrators13
violate the due process rights of employers.
Using data from federal and state decisions, we analyze forty-nine punitive awards that were reviewed by eighty-eight courts
from 1974-2004. We preview our main findings: (1) Expressly punitive awards are rare but since 1995 they appear to be
ordered and enforced more frequently. (2) Arbitral punishment is growing more severe. (3) Punitive awards are much higher
in employment arbitrations compared to labor arbitrations. (4) Judges enforce less than half of the labor awards but nearly all
of the individual employment awards. (5) In a very small number of employment cases, the ratio of punitive to compensatory
damages exceeds due process limits that apply to similar jury awards.
Considered together, these findings offer more than practical information. They show that workplace arbitration is not a
uniform process, nor is it blind to context. Unions and employers negotiate *203 their arbitration procedures. Judges
frequently overturn punitive labor awards because they believe that the parties did not bargain for this penalty. 14 Employment
arbitration, on the other hand, is more regulated by law and arbitration services. 15 These tribunals are premised on the idea of
forum substitution, rather than the internalized justice system in labor-management relations. Multi-million dollar
employment awards show that private judges are performing a public function by deterring reprehensible employer
misconduct. These private rulings also imply that workplace arbitration is evolving to provide injured parties with justice
comparable to that provided by courts. Our data also show that courts confirm nearly all of these awards.
We conclude that the divergent paths that courts take in reviewing punitive labor and employment awards is a positive
development in the evolution of arbitration because these dispute resolution systems operate on different remedial premises.
Labor arbitrators are only authorized to adjudicate contract disputes, where make-whole remedies are available. Employment
arbitrators, however, are expressly authorized to apply employment statutes and common law doctrines that permit punitive
damages for severe violations. Furthermore, these awards are substitutes for court-imposed remedies. Therefore, judges
should apply more deference to them than to punitive labor awards.
In addition, our research suggests new implications for bargaining and settlement behaviors in work-dispute arbitrations.
Although punitive damages are rarely ordered in either arbitration or civil litigation, their potential can influence the parties’
dispute processing behaviors.16 In our conclusions, we explore the possible impact of punitive employment awards on
settlement of claims that seek punitive damages.
*204 B. Organization of this Article
Federal courts review labor and employment awards under two separate laws-- the Labor-Management Relations Act
(LMRA) and the Federal Arbitration Act (FAA), respectively. Part II.A examines the negotiation context for labor awards. 17
Employers and unions voluntarily arbitrate their contractual disputes. 18 The LMRA was passed in 1947 to curb strikes and
promote industrial peace.19 Section 301 of the LMRA authorizes courts to enforce labor agreements, including promises to
arbitrate disputes and awards from arbitrators. 20 Some judges who review punitive labor awards conclude that such awards
should not be enforced because there is no evidence that the union and employer bargained for punishment to remedy
violations of the labor agreement.21 This background suggests that courts should deny enforcement to punitive awards that
the parties never contemplated in their bargaining.22 Rather, courts should enforce only make-whole awards.23
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The employment arbitration model, presented in Part II.B, differs from the labor model. 24 Derived from commercial
arbitration, this dispute resolution method is regulated by the FAA, a 1925 law allowing businesses to avoid court by taking
their contract disputes to arbitration.25 More recently, in Gilmer v. Interstate/Johnson Lane *205 Corp., the Supreme Court
treated a pre-dispute employment arbitration agreement like a commercial contract, enforcing an arbitration clause that
precluded a securities broker from litigating his age discrimination claim. 26 The Court’s broad approval of mandatory
arbitration agreements, combined with its equation of employment contracts to commercial transactions, encouraged many
employers to adopt this dispute resolution process. 27
Part II.C explores the relationship between courts and labor and employment arbitrations. 28 In Steelworkers Trilogy
(hereinafter “Trilogy”), which is comprised of United Steelworkers of America v. American Manufacturing Co., United
Steelworkers of America v. Warrior & Gulf Navigation Co., and United Steelworkers of America v. Enterprise Wheel & Car
Corp., the Supreme Court provided guidelines to protect voluntary labor arbitration from common forms of appellate
review.29 More than thirty years after the Trilogy ruling, Gilmer set out a different theory for employment arbitrations that
are imposed on individual workers. This theory, known as forum substitution, approves mandatory arbitration as long as there
is only a change in the dispute resolution tribunal that does not alter the substantive rights of the disputants. 30 Putting aside
numerous concerns about this mandatory process, Gilmer tells courts to enforce these pre-dispute contracts as long as the
private forum does not diminish any substantive rights. 31
Part III.A examines labor and employment arbitration systems in light of new developments in mandatory employment
arbitration of workplace disputes.32 A surge in discrimination lawsuits in the 1990s prompted companies to implement
mandatory arbitration systems.33 Part III.B explores a new paradox whereby all trial courts now limit punitive damages in
proportion to actual damages, while some arbitrators issue huge punitive awards without trying to connect this part of the
award to real damages.34 The Supreme Court issued a presumptive rule in State Farm Mutual Auto Insurance Co. v.
Campbell that any punitive jury award that is ten times greater *206 than actual damages violates due process.35 Courts have
applied this numerical guideline to reduce huge punitive awards in employment lawsuits. 36 Paradoxically, the mandatory
employment arbitration system has recently awarded punitive damage awards that would violate due process according to the
State Farm test.37
Part III.C examines differences in the rules that apply to remedies imposed by trial courts and arbitrators. 38 In State Farm, the
Supreme Court instructed courts to enforce due process limits on punitive awards. However, this decision did not consider
whether arbitrations, which function as substitute trials under Gilmer, are also subject to due process constraints. It is possible
that State Farm applies only to jury awards because the Court was only concerned about biased juries. In recent rulings the
Supreme Court has given arbitrators nearly unfettered remedial discretion, strengthening the inference that State Farm should
not limit punitive arbitration awards.39
The conclusion that State Farm does not impose limits on punitive arbitration awards raises a serious problem by ignoring the
principle of forum substitution presented in Gilmer. If arbitration is merely a change in venue and, therefore, does not
diminish the substantive rights of disputants, State Farm should protect arbitrating parties from excessive punitive awards. 40
According to this logic, judges should vacate excessive punitive arbitration awards. This conclusion is further supported by
the Trilogy, which requires courts to vacate arbitrator rulings that conflict with well-defined and dominant public policies.41
It appears that State Farm sets forth a well-defined and dominant rule of constitutional law. As such, courts should refuse to
enforce arbitrator awards that violate the State Farm standard.
However, Part III.C demonstrates that this reasoning is not necessarily persuasive. In Mastrobuono v. Shearson Lehman
Hutton, Inc., a 1995 decision,42 the Supreme Court ruled that New York courts could not deny arbitrators authority to impose
punitive remedies, finding that the FAA preempted this state law policy.43 According to Mastrobuono, courts should not limit
an arbitrator’s remedy, *207 including a punitive award, unless the parties bargain for this constraint. 44
With remedial systems moving in opposite and unexpected directions, Part III.C analyzes a growing tension between the
pro-arbitration policies articulated in the Trilogy and Gilmer and the remedy-restrictive policy in State Farm.45 On the one
hand, State Farm implies that judges should vacate unreasonable punitive awards under the Trilogy’s public policy exception
to enforcing arbitrator rulings. 46 The matter is complicated, however, by the Court’s 1995 decision in Mastrobuono, 47 which
held that the FAA preempted a New York public policy that denied punitive remedies to arbitrators. 48 This ruling implies that
courts should never limit an arbitrator’s remedy unless the parties bargain for this constraint. 49
Part IV.A describes the research methods that produced the sample. 50 Part IV.B reports statistics for eight-eight court
rulings.51 Table 1 shows a significant difference in enforcement of punitive labor and employment awards. 52 Data in Table 2
show that Mastrobuono is associated with greater enforcement of punitive awards, but the difference is not significant. 53
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Table 3 ranks these awards by dollar amount and their ratios to actual damages.54 The number of punitive awards that
potentially violate State Farm is very small. These cases are at the top of this list.
Part V.A discusses theories that courts use in reviewing labor cases. 55 These include punitive awards that are (a) authorized
in the collective bargaining agreement (CBA);56 (b) issued for willful, repetitious, or egregious violations;57 (c) impossible to
implement;58 *208 (d) ordered as compensation to unions for loss of work, pay, and benefits, 59 or bargaining power;60 and
(e) ordered as compensation to individuals.61 Part V.B analyzes court review of employment awards. 62 We examine how
courts respond when employment arbitrators award punitive damages to remedy torts 63 and explore constitutional limits to
excessive awards.64 Part VI presents our conclusions.65
II. The Evolution of Judicial Review of Workplace Arbitration
A. Courts Apply the Make-Whole Model for Labor Awards
Labor arbitration is voluntary and results from arm’s length bargaining by a union and an employer. For the duration of the
contract, employers agree to submit disputes to binding arbitration. In exchange, they receive the union’s promise not to
strike.66 Employers and unions have an equal voice in selecting an arbitrator67 and split the costs of arbitration.68
Judicial deference to labor arbitration stems from a controversial history of judicial interference in union-management
disputes. Believing that courts were biased in resolving union-management disputes, Congress prohibited “labor injunctions”
in 1932.69 In 1935, *209 Democratic lawmakers passed the National Labor Relations Act (NLRA) to promote negotiation
between unions and employers.70 However, when Republicans took control of Congress in 1947, they pursued legislation to
curb strikes and make unions “responsible partners in collective bargaining.”71 The resulting law, the LMRA, restored a
limited role for federal courts in labor disputes. 72 Section 301 provided federal jurisdiction to enforce CBAs.73 As a result,
arbitration became “the means of solving the unforeseeable by molding a system of private law for all the problems which
may arise. . . . The grievance procedure is, in other words, a part of the continuous collective bargaining process.”74
This background explains the current relationship between courts and labor arbitration. Judges review disputed awards under
standards that the Supreme Court set forth in the Steelworkers Trilogy. 75 The Trilogy instructs judges to defer to the parties’
negotiated dispute resolution procedures and outcomes.76 Courts should not be appellate tribunals77 because the Trilogy
valued arbitration as a self- *210 governing institution for unionized workplaces.78 According to the Court, this ADR method
should be “the terminal point of disagreement” for unions and employers.79
The need for a stable bargaining relationship constrains an arbitrator’s ability to impose a punitive award. 80 Contracts rarely
authorize this remedy.81 CBAs are no different. Because an arbitrator’s authority usually derives from a contract between
private parties, there is little or no justification for an award to make an example of a wrongdoer. 82 Most labor arbitrators
believe that punishment is inapt for the union-management relationship.83 The *211 bargaining context for labor contracts
also diminishes the rationale for arbitral punishment because the NLRA allows unions and employers to use powerful
economic weapons to support their bargaining demands. 84 The law effectively provides punitive sanctions within the context
of bargaining a future labor agreement by permitting unions to strike and employers to impose a lockout. These unique
conventions, which deter injurious misconduct, further justify the non-enforcement of punitive labor awards.85
Is the Trilogy’s effect limited to labor arbitration? Because the Trilogy responded to the special demands of
union-management relations, “one might have doubted whether appellate decisions concerning labor arbitration would apply
to commercial arbitration.”86 However, courts have not confined the Trilogy to labor arbitration, stating instead that “it is
appropriate to follow the Supreme Court’s lead in applying . . . particular labor arbitration cases . . . to the particular issue in
[a] commercial arbitration case.”87 Therefore, the Trilogy’s principles of judicial deference have been widely transplanted to
employment arbitration, despite the fact that those tribunals originate in different public policies and dispute resolution
contexts.
*212 B. Courts Apply the Forum Substitution Model to Employment Awards
Individual employment arbitration is rooted not in industrial relations but in commercial dispute resolution. 88 Thus,
employment arbitration is regulated by the FAA, which Congress enacted in order to curb judicial hostility to arbitration. 89
While this law mainly responded to businesses’ interest in avoiding costly and time-consuming litigation, it also dealt with
workplace disputes in certain unionized settings by exempting the arbitration clauses in certain CBAs. 90
For decades, the law was mostly applied to single-event business disputes.91 The predominant application of the FAA to
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commercial *213 arbitrations changed in Gilmer v. Interstate/Johnson Lane Corp. 92 As a condition for being a licensed
securities broker, Robert Gilmer signed a standard industry agreement to submit any dispute to arbitration. 93 After Gilmer
filed a federal age discrimination lawsuit, his employer sought a court order to transfer the matter to arbitration, a venue that
Gilmer perceived as fundamentally unsuited for this kind of dispute. 94 Gilmer argued that he had no ability to bargain over
the contract and, in any event, the Age Discrimination in Employment Act precluded his waiver of access to federal court. 95
However, to the Gilmer majority, these arguments did not gainsay the fact that the plaintiff signed an industry-wide
arbitration agreement--that is, a commercial contract that embraced this employment dispute. 96 For more than a century, the
New York Stock Exchange required brokers and customers to arbitrate their disputes.97 Gilmer attracted employer interest
even beyond the securities industry by denying a discrimination plaintiff access to court, *214 despite his contention that he
had been compelled to waive this access.98 In the wake of the ruling, attorneys advised many types of employers to consider
the advantages of mandatory arbitration.99 As a result, millions of additional employees were soon required to arbitrate
employment disputes.100
Mandatory employment arbitration results when employers require workers to waive their right to sue 101 and replace a court
with arbitration.102 Often, workers cannot bargain over this forum.103 Some firms create their own justice rules to shield
themselves from *215 stricter enforcement.104 Arbitration agreements drafted and imposed by employers limit discovery, 105
cap remedies below maximum amounts in federal employment laws, 106 prohibit awards of punitive damages,107 compel
workers to pay high arbitration costs,108 bar class actions,109 select arbitrators unilaterally,110 and shorten filing periods.111
However, counterbalances are emerging to make employment arbitration more equitable, including the enhancement of the
arbitrator’s remedial powers. In disputes between workers and employers as to whether arbitration agreements can be
enforced, judges have promoted this change by voiding agreements 112 and severing contract clauses113 that limit the
arbitrator’s power to determine remedies. State legislatures114 and state judges who have adjudicated post- *216 award
disputes over punitive damages assessed by arbitrators115 have adopted similar policies, as have private arbitration
services.116 In sum, labor and employment arbitration originate under separate *217 legislative regimes and operate as very
different institutions. Numerous lower courts, state legislatures, and arbitration services have responded to Gilmer forum
substitution by empowering arbitrators to award punitive damages.
C. Judicial Principles for Reviewing the Arbitrator’s Decision-Making and Award
One might suppose that courts are equally disposed to enforce punitive awards in labor and employment arbitrations.
However, this assumption fails to account for differences in how arbitrators approach labor and employment disputes. In
addition, labor and employment awards are subject to different standards of judicial review. Employment arbitrations are
reviewed under comparatively clear and specific provisions of the FAA that encompass matters of arbitrator corruption,
evident partiality, misconduct in managing a hearing, and completeness in rendering an award. 117 Labor awards are subject
to a more nebulous standard of review under the LMRA. Section 301 is so devoid of reviewing instructions 118 that Justice
Felix Frankfurter worried that activist judges would make this judicial provision *218 into “a mountain instead of a
molehill.”119 He predicted that “the federal courts [would] fashion, out of bits and pieces elsewhere to be gathered, a federal
common law of labor contracts.”120 In sum, judicial review of labor awards depends solely on judge-made standards, while
employment awards are subject to express standards that are set forth by Congress.
The ways in which courts actually review awards has been shaped by judicial interpretation of the relevant statutes. The
Trilogy directs courts to defer to arbitration. According to United Steelworkers v. Enterprise Wheel & Car Corp., a labor
arbitration award “should not be disturbed” unless the arbitrator “has abused the trust the parties confided in him and has not
stayed within the areas marked out for his consideration.”121 A “mere ambiguity in the opinion accompanying an award,
which permits the inference that the arbitrator may have exceeded his authority, is not a reason for refusing to enforce the
award.”122
With respect to remedies, Enterprise Wheel says an arbitrator “is to bring his informed judgment to bear in order to reach a
fair solution of a problem. This is especially true when it comes to formulating remedies. There the need is for flexibility in
meeting a wide variety of situations.”123 United Steelworkers v. Warrior & Gulf Navigation Co. also praised the arbitrators’
skill in determining the proper remedy, stating that “[t]he ablest judge cannot be expected to bring the same experience and
competence to bear upon the determination of a grievance, because he cannot be similarly informed.”124 United Steelworkers
v. American Manufacturing Co. concluded that the “function of the court is very limited when the parties have agreed to
submit all questions of contract interpretation to the arbitrator” because it is “the arbitrator’s judgment . . . that was bargained
for.”125
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*219 Recent decisions reinforce judicial deference to labor arbitrators. Eastern Associated Coal Corp. v. United Mine
Workers126 recognized that “reasonable people can differ as to whether reinstatement or discharge is the more appropriate
remedy”127 for a repeat drug-policy offender who drove his employer’s trucks. However, the court in Eastern confirmed the
disputed award, reasoning that “both employer and union have agreed to entrust this remedial decision to an arbitrator.”128
Major League Baseball Players Ass’n v. Garvey repeated that judges must adhere to the policy of enforcing awards,
declaring: “When an arbitrator resolves disputes regarding the application of a contract, and no dishonesty is alleged, the
arbitrator’s improvident, even silly factfinding does not provide a basis for a reviewing court to refuse to enforce the
award.”129
Gilmer leads employment arbitration down a different path. 130 Under the FAA, Gilmer envisions employment arbitration as a
private tribunal for adjudicating public law claims. This interpretation would be less controversial if arbitration were not
compulsory. Gilmer dismisses this concern, however.131 The case also rejects the idea that a private proceeding deprives
individuals of a judicial forum,132 thwarts the Age Discrimination in Employment Act’s (ADEA) policy of eradicating age
discrimination,133 and undermines the role of the Equal Employment Opportunity Commission. 134
*220 More to the point of arbitrator remedies, Gilmer defuses the concern that industry arbitrators are partisan,
inexperienced, or unknowledgeable. The Court assumes that private neutrals are as able as judges when it notes that “by
agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to
their resolution in an arbitral, rather than a judicial, forum.”135 Answering critics of mandatory arbitration, Gilmer remarks
that “generalized attacks on arbitration rest on suspicion of arbitration as a method of weakening the protections afforded in
the substantive law to would-be complainants, and as such are far out of step with our current strong endorsement of the
federal statutes favoring this method of resolving disputes.”136
Speaking to the concern that arbitrators will favor employers, Gilmer declines “to indulge the presumption that the parties
and arbitral body conducting a proceeding will be unable or unwilling to retain competent, conscientious and impartial
arbitrators.”137 Safeguards are in place under NYSE rules to protect against bias.138 For example, arbitrators must disclose
circumstances that could impair their objectivity.139 Gilmer also notes that the FAA adds a layer of protection “against bias
by providing that courts may overturn arbitration decisions where there was evident partiality or corruption in the
arbitrators.” Finally, Gilmer dismisses concern that sparely written awards hide details about an employer’s misconduct, thus
blinding courts to vital information for effective reviews. 140
*221 The forum substitution vision set out in Gilmer worries vocal critics who trust judges more than industry arbitrators to
apply discrimination laws fairly141 and criticize companies who hand-pick arbitrators.142 Employers who force workers to
sign agreements waiving their rights on pain of termination stir memories of “yellow dog” contracts.143 For critics,
employment arbitration is a sham to help employers defeat discrimination claims. 144
To summarize, Gilmer draws an ambitious blueprint for individual employment arbitration. Arbitrators are to perform like
judges in adjudicating the public law claims of their fellow citizens. Furthermore, when rulings of these tribunals are
appealed, Gilmer implies that courts should defer to the arbitrators’ judgment. This policy of deferring to the arbitration
process seems to mirror the Trilogy’s policy for enforcing labor awards.
However, before we compare award-enforcement rates for these systems, we must contemplate the foundation on which each
dispute system rests. We have already theorized that courts should vacate more punitive labor awards because these
arbitrators are authorized only to make parties whole for contract violations and have no authority to apply public laws that
allow punitive damages.145 In contrast, Gilmer authorizes an employment arbitrator to wield public power. Consider that
claims under Title VII of the 1964 Civil Rights Act are the most common discrimination complaint. 146 Because these
complaints are increasingly subject to mandatory arbitration, Title VII’s remedies are now in the hands of private arbitrators.
This *222 law was amended in 1991147 to expressly provide discrimination victims up to $300,000 in punitive damages. 148
This change supplements the already strong remedial provisions available under Title VII. 149 Because Title VII, as amended,
authorizes punitive damages, there is less likelihood that an employment arbitrator who orders this form of remedy will be
found by a court to have exceeded her authority. Whereas labor arbitrators adjudicate contract grievances, employment
arbitrators apply statutory remedies. The comparison of these two arbitration systems suggests that Gilmer is reinventing
Enterprise Wheel by extending judicial deference to private judges who adjudicate public rights.
III. Flexible Remedies for Arbitrators, Due Process Limits for Jurors
A. Punitive Damages in Employment Litigation
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As Gilmer changed the landscape for employment disputes, the civil trial system was also transformed. Ironically, while
firms sought to block worker access to courts by making arbitration mandatory, 150 judges made the courts more attractive to
employers by imposing limits on punitive damages. In contrast, arbitration has *223 become less employer-friendly with the
Supreme Court striking down a state law denying arbitrators the power to award punitive damages. Runaway juries are now
checked by the Due Process Clause; however, in arbitration, limits on punitive awards have been overruled. Our research
shows the significance of this change. Arbitrators recently added a $25 million punitive award to a broker’s damages of $1.8
million.151 After another award ordered damages of $31 million, an arbitrator added $1 million in punitive damages. 152
Following the enactment of the 1991 Civil Rights Act and the 1992 Americans with Disabilities Act, the number of
employment discrimination lawsuits in federal courts tripled, with filings increasing from 8273 in 1990 to 23,152 in 1996. 153
Gilmer’s endorsement of arbitration offered employers protection from these lawsuits. By the late 1990s, a majority of
Fortune 1000 companies who answered a survey said they used employment arbitration.154 Gilmer arbitrations, however, are
not putty in the hands of employers. Arbitrators rule in favor of employees about half the time.155 In contrast, very few
federal lawsuits--now, about three percent--go to trial.156
Putting this comparison in perspective, a complainant in arbitration rarely has her claim dismissed on a summary judgment
motion.157 Invariably, a hearing is held on the individual’s claim, even if the complaint is not arbitrable. However, this very
low percentage of *224 claims that are tried in court seems to reflect not only pre-trial settlements but also summary
judgment rulings that restrict a plaintiff’s ability to have a hearing on the merits of the complaint.
New rulings on punitive damages are causing employers to drift back to courts to settle disputes. As more companies face
large punitive damages in arbitration,158 trials offer employers safer ground. This trend was set into motion by the Supreme
Court’s recent landmark decision in State Farm Mutual Auto Insurance Co. v. Campbell.159 The Court ruled that the Utah
Supreme Court had violated a defendant’s due process rights by reinstating a punitive award that was 145 times greater than
compensatory damages.160 Following that decision, judges have reduced high damage awards in employment decisions. For
example, in Williams v. ConAgra Poultry Co.161 the Eighth Circuit reduced a $6 million punitive damages judgment for race
discrimination to $600,000. The court in Gilbert v. DaimlerChrysler Corp. 162 voided a $21 million jury award for sexual
harassment. In Bell v. Helmsley,163 the court cited due process requirements when it lowered a punitive jury award for
employment discrimination from $10 million to $500,000.164 When judges affirm large punitive jury awards in employment
lawsuits, they now cite *225 State Farm’s single-digit multiplier of actual damages.165 Corporations had no reason to expect
this kind of moderation from courts in the 1990s, when Gilmer arbitrations became attractive, because at that time a majority
of Supreme Court justices were unwilling to impose due process on jury awards. 166
B. Recent Due Process Limits on Punitive Awards by Juries
In State Farm, the Utah court167 not only improperly instructed jurors by allowing them to consider prejudicial evidence of
the insurer’s nationwide practices in cases with no direct relationship to the matter, but also ignored the Supreme Court’s
guidance on punitive jury awards.168 To correct the loose regulation of juries by *226 judges,169 State Farm set numerical
guidelines170 and required de novo review of jury-awarded punitive damages.171
State Farm only regulates juries; its strictures do not expressly apply to arbitration awards. 172 However, State Farm could
affect punitive damages awarded by arbitrators. If courts interpret State Farm as articulating a significant public policy
concerning punitive awards and consider it to be an exception to the Trilogy, then they must apply State Farm to vacate
arbitration awards. To explain, as the Trilogy evolved, so did the public policy exception to the enforcement of awards.
Reflecting a common law rule that courts do not enforce illegal contracts,173 judges vacate awards that conflict with a
dominant public policy.
*227 Beginning in the 1980s, tension surfaced between the demands of CBAs and public laws. 174 Federal appeals courts
cited public policies to vacate awards that reinstated an airline pilot who flew while intoxicated, 175 a nuclear operator who
failed to check gauges because of his drug use, 176 and a delivery driver who groped a customer’s breast. 177 However, the
Supreme Court discouraged judicial incursions into arbitration in W.R. Grace Co. v. Local Union 759, International Union of
the United Rubber Workers of America178 and United Paperworkers International Union v. Misco. 179 Lower courts were
cautioned to vacate awards under the public policy exception only if “the contract as interpreted by [the arbitrator] violates
some explicit public policy.”180 A “public policy . . . must be well-defined and dominant, and is to be ascertained by
reference to the laws and legal precedents and not from general considerations of supposed public interests.”181
State Farm creates a well-defined and dominant public policy and explicitly refers to the Due Process Clause. 182 Its provision
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for *228 de novo review of punitive jury awards shows that protecting defendants from unreasonable punishment is
important. State Farm’s pronouncement that “few awards exceeding a single-digit ratio between punitive and compensatory
damages . . . will satisfy due process,”183 is quite specific. Thus, State Farm may meet the standard under W.R. Grace for
vacating an award.184 The fact that arbitration is a private dispute resolution process that lacks state action might not prevent
the application of the Due Process Clause.
C. Rejection of Limits on Punitive Arbitrator Awards
Our forgoing discussion may seem to imply that courts may not enforce arbitrary punitive awards that are reviewed under the
FAA.185 Such a conclusion is premature. Even if the law in State Farm is well-defined and dominant, another prominent
public policy appears in Mastrobuono v. Shearson Lehman Hutton, Inc., 186 in which the court found that the FAA preempts a
state’s prohibition on arbitral remedies.187 In this case, the parties’ arbitration agreement *229 provided that their dispute
would be resolved using New York law,188 which reserved to courts the exclusive power to award punitive damages, 189 and
thus the lower court vacated the punitive element in the award. The Supreme Court, resolving a split among the federal
circuits,190 reversed and ordered enforcement of the full award.191 Interpreting the contract,192 the opinion said that the
contract’s incorporation of NASD rules permitted arbitrators to award punitive damages, 193 despite conflicting state law.
Thus, Mastrobuono expresses a policy that courts are not to limit arbitral remedies unless the parties agree to this constraint.
Apart from this decision, the Court has taken the unusual step of reinforcing its W.R. Grace holding in three subsequent
decisions.194 *230 Just as in W.R. Grace, each case confirmed a controversial arbitration award. And while the court seems
to recognize a public policy exception in theory, it has yet to upset an award dealing with workplace disputes. In short, the
Court has adopted a clear public policy of enforcing awards.
To conclude, there is now a remedy paradox in the public and private justice systems. Judges have clear authority to reign in
juries but lack similar power over arbitrators. This is most likely because the Supreme Court is less concerned that arbitrators
harbor anti-corporate bias.195 To extend State Farm’s unease about jurors to arbitrators, the Court would have to abandon its
long-held faith in these private judges.196 This could not be easily accomplished without openly doubting the competence of
arbitrators-- something that the Court has avoided since it embraced the FAA’s elimination of judicial hostility to
arbitration.197 On the other hand, if the concept of forum substitution in Gilmer is taken literally, how can the Court extend a
basic constitutional protection to defendants at trial and not to similarly situated respondents in arbitration?
IV. Research Methods and Quantitative Findings
A. Empirical Research Methods
We designed our research method to generate appropriate data on punitive awards in labor and employment arbitrations and
court review of these rulings. In creating a sample, we aimed for representative cases that are as free as possible of selection
bias. The sample we created was derived from Westlaw’s internet service.198 The *231 search for labor arbitration awards
began in the appropriate federal *232 law database (FLB-ALL). Keywords included “TRILOGY” or “WARRIOR & GULF”
or “ENTERPRISE WHEEL” or “AMERICAN MANUFACTURING,” and “PUNI!” or “EXEMPLARY.” In order to be
included in the sample, each case needed to involve a post-award dispute between a union and employer in which the
arbitrator’s ruling was challenged as punitive.
When an appropriate decision was found, investigation expanded to decisions that the court cited. When these cases met the
criteria, they were added, extending the search to cases that pre-dated the decision under investigation. Then, decisions were
Keycited for subsequent cases that linked to the sample decision in order to ensure that the sample was current.
The search was supplemented by Westlaw annotations relating to cases produced from a keyword match, which contained
links to potentially relevant cases. All were investigated. Many of the cases were already in the database, and others did not
match the inclusion criteria. This process produced a few new additions to the sample. Then, the process was repeated for
tracing back to related precedents and linking forward to Keycited cases. This entire process was repeated in the
ALLSTATES database. This added public sector cases, as well as private sector award appeals that were decided by state
courts.
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Next, the sample was expanded to include employment arbitration cases, again by using the FLB-ALL database. New
keyword searches included “GILMER,” “PUNI! or EXEMPLARY,” “EMPLOY!,” and “‘FEDERAL ARBITRATION
ACT.”’ Other keyword combinations were tried, including one that substituted “MASTROBUONO” in place of GILMER.
The iterative and extension procedures that were used for the labor database were also used here, which expanded the sample
to cases that pre-dated and post-dated each decision under investigation. This entire process was repeated in the
ALLSTATES database. In addition to finding public sector decisions, the search found securities industry cases in state
courts. A new keyword search was added, substituting “GARRITY”199 for “GILMER” and “MASTROBUONO.”
Data were tallied for the grievance issue or legal claim, whether the award was expressly or impliedly punitive, the award
amount, the Trilogy and FAA arguments contesting the award, the party who *233 won the award, the ruling by a first court
of review or state labor board with adjudicatory powers, and the ruling by an appeals court.
Two main points are emphasized about the sample. First, the inclusion criteria were strictly applied. If a case involved a
pre-arbitration challenge, it was not included even if the plaintiff contested the fact that an arbitration agreement expressly
limited an arbitrator’s authority to provide a punitive remedy. 200 Second, the sample focuses only on actual awards.
Close cases were excluded when the court opinions made no express mention of “punitive,” “punishment,” “punished,” or
“exemplary.” Flexsys America, L.P. v. Local Union No. 12610201 provides an example of an award that seemed punitive but
failed the objective criteria for inclusion. The arbitrator told attorneys after the hearing that he suspected that a manager was
“queer” and strongly urged the employer to settle the case by disciplining this supervisor while also granting the
grievance.202 When the company refused, the arbitrator ruled for the union and ordered the company to reinstate the grievant
with back pay.203 In challenging the award, the company argued that the arbitrator dispensed his own brand of industrial
justice and that the award failed to draw its essence from the CBA. 204 A federal court vacated the award.205 This case could
have been included as an example of arbitrator punishment for a party who ignores the arbitrator’s settlement advice--or
arbitrator punishment rooted in *234 prejudice. However, the case was not included because nothing in the court’s opinion
specifically said that the award was punitive.206
The sample is thus scientific in the sense that the data collection process can be independently replicated by other researchers.
The sample is not, however, the universe of punitive award review cases. Though the sample reflects thorough and multiple
searches of two large electronic databases (FLB-ALL and ALLSTATES), we caution that the findings drawn from it are only
preliminary.
B. Research Results
In the sample, thirty-six labor and thirteen employment arbitration awards were appealed on grounds that the award was
punitive. Most of the labor cases (thirty, or 83.3%) were decided by courts before March 6, 1995, when the Supreme Court
decided Mastrobuono. Conversely, nine of the thirteen (69.2%) court rulings in the individual employment cases occurred
after the Court struck down state prohibitions on punitive arbitration awards. Altogether, forty-nine awards were reviewed by
a federal district court or the state equivalent. After thirty-nine of these rulings, the losing party appealed. Thus, the sample
has eighty-eight court rulings.
The most frequent grievance issues were discharge (43.1%), work jurisdiction and subcontracting (20.0%), and pay (15.4%).
Two-fifths of awards were expressly punitive (43.1%), citing bad faith, unfairness, caprice, improper motive, or
deterrence.207 The other 56.9% lacked these elements. Awards were impliedly punitive when they imposed compensatory
remedies that were challenged as excessive or unauthorized, specifically when the appealing employer characterized a
make-whole remedy as punitive, and a court reviewed the ruling on this basis.
*235 Employers argued the Trilogy, FAA, and constitutional issues before judges, including (a) that the arbitrator exceeded
his authority (67.7%), and (b) that the award failed to draw its essence from the CBA (63.1%). Employers also contended that
the award violated a state law (12.3%), an express provision of the FAA (9.7%), and (c) due process (8.1%).
Table 1: At the first level of review, there was a significant difference in court enforcement of labor and employment punitive
awards. Judges in district courts enforced only 33.3% of labor awards, compared to 92.3% of employment awards. The
crosstabs program in SPSS (statistics software) was used to analyze whether different enforcement rates were due to chance.
The remaining awards were vacated, denied enforcement, or remanded.
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Table 1 Comparing Judicial Enforcement of Punitive Awards in Labor and Employment Arbitrations
District Court Decisions (N=49)
Enforce
Vacate
Labor Arbitration Awards
12 (33.3%)
24 (66.6%)
Employment Arbitration Awards
12 (92.3%)
1 (7.7%)
Chi-square (χ2 13.293, df = 1, p < .000)
Appellate Court Decisions (N=39)
Enforce
Vacate
Labor Arbitration Awards
12 (41.4%)
17 (58.6%)
Employment Arbitration Awards
8 (80.0%)
2 (20.0%)
Chi-square (χ2 4.439, df = 1, p < .035)
The chi-squared (χ2) statistics in Table 1 mean that a disparity of this size would not likely occur by chance. This supports our
inference that courts differ in enforcing punitive labor and employment awards. This difference occurred on appeal as well.
Courts enforced 41.4% of labor awards, while enforcing 80.0% of employment awards.
Table 2: Table 2 examines a timing effect for the enforcement rate of punitive awards. Is Mastrobuono associated with a
significant increase in court enforcement of these rulings? We did not overlook the fact that most of the labor cases occurred
before this decision, while most employment cases were decided after 1995. Analysis of cases lumped together might
produce a spurious timing relationship. We also realized that Mastrobuono construed the remedies provision *236 in the
NASD’s arbitration contract, but most CBAs are silent about remedies. 208
Thus, we formed labor and employment sub-samples before conducting a time-analysis. When enforcement rates were
compared for labor awards, pre-Mastrobuono courts upheld nine of twenty-one rulings (30.0%). Later, the rate rose to 50%
(three of six awards) but this increase was not statistically significant. Three of the four pre-Mastrobuono awards were
enforced (75.0%). In nine post-Mastrobuono cases, courts enforced all disputed awards. Again, the increase was not
statistically significant. Thus, we cannot conclude that Mastrobuono is associated with more enforcement of punitive awards,
though we note that the very small size of the sub-samples factors into this finding.
Table 2 Comparing Judicial Enforcement of Punitive Labor and Employment Arbitration Awards Before and After
Mastrobuono (March 6, 1995)
District Court Decisions (N=49)
Enforce
Vacate
LABOR AWARDS ONLY
Pre-Mastrobuono Labor Awards
9 (30.0%)
21 (70.0%)
Post-Mastrobuono Labor Awards
3 (50.0%)
3 (50.0%)
EMPLOYMENT AWARDS ONLY
Pre-Mastrobuono Employment Awards
3 (75.0%)
1 (25.0%)
Post-Mastrobuono Employment Awards
9 (100.0%)
0 (0%)
LABOR AWARDS Chi-square (χ2 .900, df = 1, p < .343)
EMPLOYMENT AWARDS Chi-square (χ2 2.438, df = 1, p < .118)
Table 3: The results in Table 3 are organized around State Farm’s proportionality concept. In the first list, awards are ranked
by the ratio of punitive to compensatory damages. Two employment arbitrations produced outcomes that might be reversible
under State Farm. The Acciardo v. Millenium Sec. Corp.209 arbitrators awarded punitive damages twenty times greater than
the actual damages of $5000.
*237 In Sawtelle v. Waddell & Reed, Inc.,210 compensatory damages were much higher (about $1.8 million), but the punitive
award was still fourteen times more than this amount. Typical awards ordered punitive damages that multiplied
compensatory damages by factors of one to three. A few punitive awards were fractional amounts of actual damages. The
second list shows that some punitive damages were ordered without a finding of compensatory damages. With only one
exception, these were labor awards. This list shows that some awards are reviewed as punitive even though they are arbitrator
attempts to provide a make-whole remedy. The third list contains ten punitive awards that equaled or topped $1 million.
Table 3 Summary of Punitive Labor and Employment Arbitration Awards
Decision*
Damages (Punitive/Actual)
Awards of Compensatory and Punitive Damages (Ranked By Size of Ratio)
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Acciardo v. Millenium Sec. Corp., 83 F.
$100,000/$5000
Supp. 2d 413 (S.D.N.Y. 2000)**
Sawtelle v. Waddell & Reed, Inc., 789
$25,000,000/$1,827,499
N.Y.S.2d 857 (N.Y. 2004)**
Siegel v. Prudential Ins. Co. of America,
$1,000,000/$338,016
67 Cal. App. 4th 1270 (Cal. App. 2 Dist.
1998)
Belko v. AVX Corp., 251 Cal. Rptr. 557
$500,000/$185,421
(Cal. App. 4 Dist. 1988)
Eaton Vance Distrib., Inc. v. Ulrich, 692
$1,250,000/$625,000
So. 2d 915 (Fla. App. 2 Dist. 1997)
Baravati v. Josephthal, Lyon & Ross, Inc., $120,000/$60,000
28 F.3d 704 (7th Cir. 1994)
Harty v. Cantor Fitzgerald & Co., 2003
$2,298,408/$1,157,393
WL 22853715 (Conn. Super. Ct. Nov. 18,
2003)
Park v. First Union Brokerage Services,
$500,000/$275,045
Inc., 926 F. Supp. 1085 (M.D. Fla. 1996)
Glennon v. Dean Witter Reynolds, Inc., 83 $750,000/$728,000
F.3d 132 (6th Cir. 1996)
Dorado Beach Hotel Corp. v. Union de
“Double Damages”
Trabajadores de La Industria
Gastronomica de P.R., Local 610, 959
F.2d 2 (1st Cir. 1992)*
Int’l B’hd Teamsters, Local Union 117 v. “Double Damages”
Wash. Employers, Inc., 557 F.2d 1345
(9th Cir. 1977)*
Int’l Ass’n of Heat Insulators, Local 66 v. $25,000/$20,000
Leona Lee Corp., 489 F.2d 1032 (5th Cir.
1974)*
Fahnstock & Co. v. Waltman, 935 F.2d
$100,000/$156,000
512 (2d Cir. 1991)
Padilla v. D.E. Frey & Co., 939 P.2d 475
$218,000/$612,00
(Colo. App. 1997)
Kanuth v. Prescott, Ball & Turben, Inc.,
$1,000,000/$37,300,079
949 F.2d 1175 (D.C. Cir. 1991)
Awards of Punitive Damages Without Compensatory Damages
Georgia Power Co. v. Int’l Broth. of Elec. $2,657,164/$0
Workers, Local 84, 995 F.2d 1030 (11th
Cir. 1993)*
Desert Palace, Inc. v. Local Joint
$1,477,498/$0
Executive Bd. of Las Vegas, 679 F.2d 789
(9th Cir. 1982)*
City of Hartford v. Int’l Ass’n of
$1,300,000/$0
Firefighters, Local 760, 49 Conn. App.
805 (Conn. App. Ct. 1998)*
Bethlehem Steel Corp. v. United
$1,191,000/$0
Steelworkers of Am., 1991 WL 338553
(D. Md. Sept. 18, 1991)*
City of Chicago v. American Fed’n of
$1,000,000/$0
State, County and Mun. Employees,
Council 31, 283 Ill. App. 3d 446 (Ill. App.
1 Dist. 1996)*
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14:1
3:1
3:1
2:1
2:1
2:1
2:1
1:1
1:1
1:1
1:1
1:1.5
1:3
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Polin v. Kellwood Co., 2002 WL 737048
$153,238/$0
(2d Cir. Apr. 22, 2002)
Baltimore Reg’l Joint Bd. v. Webster
$80,000/$0
Clothes, Inc., 596 F.2d 95 (4th Cir. 1979)*
Int’l Ass’n of Heat & Frost Insulators,
$75,000/$0
Local Union 34 v. Gen. Pipe Covering,
Inc., 792 F.2d 96 (8th Cir. 1986)*
Goss Golden West Sheet Metal, Inc. v.
$70,000/$0
Sheet Metal Workers Int’l Union, Local
Union No. 104, 933 F.2d 759 (9th Cir.
1991)*
Norfolk & W. Ry Co. v. Bhd of Ry.,
$16,000/$0
Airline & S. S. Clerks, 657 F.2d 596 (4th
Cir. 1981)*
Local 369 v. Cotton Baking, Co., 514 F.2d $6,040/$0
1235 (5th Cir. 1975)*
Westmoreland Coal Co. v. United Mine
$3,000/$0
Workers of Am., 550 F. Supp. 1044 (D.C.
Va. 1982)*
Cannelton Indus. v. District 17, 951 F.2d
$3,000/$0
591 (4th Cir. 1991)*
Bd. of Ed. of Cent. School Dist. No. 1 of
$1,500/$0
Towns of Niagra v. Niagara-Wheatfield
Teachers Ass’n, 46 N.Y.2d 553 (N.Y.
1979)*
Island Creek Coal Co. v. Dist. 28, 29 F.3d $1,000/$0
126 (4th Cir. 1994)*
Million Dollar Punitive Awards Ranked by Size
Sawtelle v. Waddell & Reed, Inc., 789
$25,000,000
N.Y.S.2d 857 (N.Y. 2004)
Georgia Power Co. v. Int’l Broth. of Elec. $2,657,164
Workers, Local 84, 995 F.2d 1030 (11th
Cir. 1993)*
Harty v. Cantor Fitzgerald & Co., 2003
$2,298,408
WL 22853715 (Conn. Super. Ct. Nov. 18,
2003)
Desert Palace, Inc. v. Local Joint
$1,477,498
Executive Bd. of Las Vegas, 679 F.2d 789
(9th Cir. 1982)*
City of Hartford v. Int’l Ass’n of
$1,300,000
Firefighters, Local 760, 49 Conn. App.
805 (Conn. App. Ct. 1998)*
Eaton Vance Distrib., Inc. v. Ulrich, 692
$1,250,000
So. 2d 915 (Fla. App. 2 Dist. 1997)
Bethlehem Steel Corp. v. United
$1,191,000
Steelworkers of Am., 1991 WL 338553
(D. Md. Sept. 18, 1991)*
City of Chicago v. American Fed’n of
$1,000,000
State, County and Mun. Employees,
Council 31, 283 Ill. App. 3d 446 (Ill. App.
1 Dist. 1996)*
Siegel v. Prudential Ins. Co. of America,
$1,000,000
67 Cal. App. 4th 1270 (Cal. App. 2 Dist.
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1998)
Kanuth v. Prescott, Ball & Turben, Inc.,
$1,000,000
949 F.2d 1175 (D.C. Cir. 1991)
* denotes a labor arbitration decision
**denotes a ratio that exceeds State Farm’s guidelines
*239 The data presentation ends by noting that employees or unions won all but one award. 211 We also report that some, but
not all, decisions provided data on the amount of the disputed award. Monetary values for punitive awards were observed in
twenty-nine cases. Amounts ranged from $1000 to $25 million. Ten awards were $1 million or more. From 1974-1995
(including eighteen pre-Mastrobuono decisions) the median for punitive damages was $52,446, while in the eleven
post-Mastrobuono decisions the median was $750,000. Although punitive sanctions continue to be rare in employment labor
arbitration, the data suggest that these penalties are growing more common and costly.
This data presentation ends by comparing the dollar amount of awards over time. From 1974-1979, the mean for punitive
damages was $28,135. The average increased to $543,750 in the 1980s, $712,083 in the 1990s, and $6,887,911 in four cases
from 2000-2004. We conclude that punitive sanctions are rare in employment and labor arbitration but are growing more
common and costly.
V. Qualitative Findings
Statistics tell only part of the story about punitive awards in workplace arbitrations: often, judges explained their theories for
reviewing these special rulings. These ideas shed more light on the evolution of workplace arbitration. This data presentation
ends by comparing the dollar amount of awards over time. From 1974-1979, the mean for punitive damages was $28,135.
The average increased to $543,750 in the 1980s, $712,083 in the 1990s, and $6,887,911 in four cases from 2000-2004. We
conclude that punitive sanctions are rare in employment and labor arbitration but are growing more common and costly.
A. Labor Arbitration Awards
Punitive Awards as Expressly Authorized in the CBA. The judge in International Union of Operating Engineers stated a
leading theory for reviewing punitive labor awards: “Contracting parties do not *240 normally agree to assess exemplary
damages for breach of a contract. . . . Therefore, an arbitrator’s assessment of punitive damages must be grounded in express
language.”212 Some industry-wide contracts that bind a union and several employers do, however, provide this power to the
arbitrator. These agreements take wages out of competition. When a firm defects from the contract, it is a flagrant disregard
for the CBA, which poses a threat to the union and to competing employers. Thus, some contracts authorize arbitrators to fine
a violator.213
Nevertheless, sometimes courts overrule arbitrators who order mild punishment for repeated or flagrant contract violations.
In Island Creek Coal Co. v. District 28, United Mine Workers of America, the company repeatedly violated an industry CBA
and used the same subcontracting practice for each violation.214 Identical grievances were taken before different
arbitrators.215 When one arbitrator ruled for the union, he warned that future violations could be enforced by a punitive
sanction.216 After the same kind of dispute arose, another arbitrator sustained the grievance and ordered payment of $1000 to
the union.217 This pattern was repeated in two more arbitrations, which resulted in punitive awards of $1000 and $2000. 218
The employer challenged one award in court and prevailed. The Island Creek court reasoned: “Absent any express provision
in the collective bargaining agreement, the law of this circuit does not permit an arbitrator to impose a punitive award or
punitive damages.”219
Expressly Punitive Awards: Awards for Willful, Repetitious, or Egregious Violations. The rule that labor arbitrators must
have clear authority to award punitive damages is not absolute as there are exceptions to Island Creek. One judge ruled: “In
the absence of willful or wanton conduct, punitive damages should not be awarded.”220 *241 Board of Education221 provides
a clear example of a willful employer misconduct that resulted in a violation of the CBA. A school district deliberately failed
to evaluate a counselor, making him ineligible for tenure. The union grieved this job loss, 222 arguing that the district
intentionally breached its duty to evaluate.223 The district said the grievance was not arbitrable.224 The arbitrator ruled on the
merits for the union but found a limit on his remedial powers. 225 He lacked authority to reinstate a non-tenured employee,226
but to remedy the flagrant contract violation he ordered the district to pay the grievant a year of salary. 227
The arbitrator failed, however, to order that damages be mitigated by the counselor’s interim earnings or unemployment pay.
This prompted the district to challenge the award as punitive. 228 This contention was rejected in two post-award
adjudications.229 The appeals court formed a negative impression of the employer, noting that the state’s labor law is “not
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served when a party refuses to arbitrate, asks the board to examine the question, appeals the board’s decision, arbitrates on
the merits, refuses to comply with the award, asks the board to declare the award not binding, and appeals that decision as
well.”230
The Award is Impossible to Implement. At times, the arbitrator believes that reinstatement is a make-whole remedy, but the
employer sees it as punitive. Consider the impossibility defenses in Foley231 and Pullman.232 The employers were
contractors who performed services for a nuclear power company. 233 As a result of a police investigation for drugs, workers
at this site came under suspicion and were denied access to the site by the utility. 234 Arbitrators *242 ruled that there was no
just cause to fire them.235 The employers, however, contended that the awards were impossible to implement because the
nuclear operator denied site access to the grievants. 236 Citing Misco’s approval of arbitrator discretion to reinstate a
suspected drug offender, Pullman said that a “court should not disagree with an arbitrator’s implicit rejection of an
impossibility defense.”237 Foley rejected this idea. Vacating the award, the district judge said: “In order for damages to be
compensatory and not punitive, they must be based upon cognizable loss directly traceable to the breach.”238 This reasoning
suggests that if an employer has no control over returning a grievant to work, a court may rule that an arbitrator’s
reinstatement award is impossible to implement and is therefore punitive.
Compensatory Damages Awarded to Unions for Loss of Work, Pay, or Benefits. In some cases, arbitrators remedied
jurisdictional violations by awarding damages to a union rather than employees. This logic appears in the case of Local 369.
The company violated the CBA in assigning work, but no individual lost earnings. The arbitrator valued the breach at $6,040
but awarded payment to the union instead of limiting the remedy to a cease and desist order. The company challenged the
remedy as punitive. Confirming the award, the appeals court broadly approved arbitrator discretion in ordering relief, stating
that “the arbitrator must often rely on his own experience and expertise in formulating an appropriate remedy.”239 The judge
added: “In view of the variety and novelty of many labor-management disputes, reviewing courts must not unduly restrain an
arbitrator’s flexibility.”240
Compensatory Damages Awarded to Unions for Loss of Bargaining Power. An arbitrator openly redistributed bargaining
power in AFSCME Council 31 after the employer sub-contracted bargaining unit work.241 No employee was laid off,242 but
the city’s action deprived the union an opportunity to represent more workers.243 Thus, *243 when the arbitrator decided on
an award that would cost more than $1 million, he envisioned that the union and city would bargain a better alternative:
“With the remedy I imposed, the Union would then be better able to discuss its request with the City from a position of
having something to trade in its efforts to get through the discussion process.”244 An appeals court vacated the award because
the arbitrator did more than order make-whole relief: “Despite the arbitrator’s protestations to the contrary in his
supplemental opinion, the award in this case was initially justified as a penalty or deterrent.”245
However, some courts have approved an arbitrator’s remedial theory of lost bargaining power. Leona Corp. (1973) confirmed
an award to a union of $10,812 in damages and an additional $25,000 for the loss of bargaining power. 246 The grievance was
triggered by the firm’s promise to perform bargaining unit work with its union-represented entity.247 Instead, the company
moved bargaining unit work to a nonunion alter ego.248 Agreeing with the arbitrator that the employer undermined the CBA
by competing with cheaper labor, the Fifth Circuit Court of Appeals reasoned: “With respect to the weakening of the Union’s
bargaining power, the impairment of its prestige and reputation, the Arbitrator found this was a major element of damage.”249
Thus, when an arbitrator explicitly remedies a union’s loss in bargaining power, some courts review this award with the
deference that the Trilogy counsels and avoid labeling the award as punitive.
Compensatory Damages Awarded to Individuals for Loss of Work, Pay, or Benefits. In Bethlehem Steel Corp., an arbitrator
ordered the company to pay for 30,000 hours of work. 250 Bargaining unit employees were recipients of this $1,190,000
award.251 The employer reassigned work from one bargaining unit to another in the *244 same plant.252 Though other steel
industry arbitrators assessed comparable monetary damages for similar violations, 253 the court nevertheless found this award
punitive.254 To support the decision to vacate, the judge said that the “‘quantum of work’ is an impermissible measure of
damages in labor cases.”255 This reasoning followed a widely cited precedent in Baltimore Regional Joint Board: “It is clear
that in order to be entitled to compensatory damages for contract breach, a party must have suffered some legally cognizable
loss, be it manifestly monetary or measurable in monetary terms.”256 Thus, some courts distinguish between an opportunity
cost imposed on unions in the form of forgone expansion of the bargaining unit and costs suffered by current employees that
result from diminished work schedules. If all individuals work a regular schedule, without loss of income, the arbitrator’s
attempt to remedy the union’s lost-expansion cost is treated as a punitive damage.
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B. Employment Awards
Employment Arbitrators Award Punitive Damages as Tort Remedies. While labor arbitration is anchored in a contractual
relationship, employment arbitration provides for private adjudication of wide-ranging legal claims, including tort and
discrimination complaints that allow for punitive remedies. This is relatively new territory for arbitrators. Tort claims in the
sample included wrongful discharge,257 emotional distress258 plus the related claim of extreme and outrageous conduct,259
and defamation.260
Two issues highlighted court review of these tort arbitrations. The first issue was whether state law could exclusively reserve
authority to courts to order punitive damages. For some time, the answer was yes. Even before Mastrobuono, however, a
California appeals court rejected the Garrity rule that allowed only judges, not *245 arbitrators, to award punitive
damages.261 The second issue was whether the Supreme Court’s guidance for punitive jury awards applied to arbitrators. One
decision explicitly considered the Supreme Court’s guidance on limiting punitive jury damages but nevertheless found that
the arbitrator’s punitive order did not have to be vacated or even reduced. 262
Courts Are Beginning to Apply Limits on Punitive Awards. In addition to reviewing awards under FAA standards, some
courts have also applied the common law rule that an irrational award may be vacated.263 This rule is now being applied to
excessive awards in employment arbitrations. This is noteworthy because as many courts turn aside employer arguments to
apply the Supreme Court’s constitutional limits on extreme damage awards in lawsuits, they use a *246 parallel doctrine to
vacate irrational awards.264 The point is that State Farm’s requirements for due process, which allow courts to vacate
arbitrary or capricious damage awards, appear to overlap with the common law tests for reviewing awards that are irrational.
One extraordinary case illustrating a large punitive award is Sawtelle v. Waddell & Reed, Inc. 265 After a securities broker
was terminated, he alleged that his former employer maliciously attempted to sever his relationship with clients by defaming
him.266 The arbitration was time-consuming and costly,267 the arbitrators awarding Sawtelle $1.87 million in compensatory
damages and $25 million in punitive damages.268 In its suit to vacate or modify the award, the firm failed to reduce its
punishment.269 This ruling was appealed, which resulted in an order by a higher court to vacate the punitive portion of the
award and remand that issue to the original panel of arbitrators for reconsideration. 270 The appellate justices concluded that
“in awarding $25 million in punitive damages, the [arbitration] panel completely ignored applicable law, an error that
provides a separate basis for vacating the award.”271 The appeals court also concluded that punitive damages violated State
Farm.272
*247 The reconstituted panel accepted voluminous written submissions, held a one-day hearing, and issued a second
award.273 The arbitrators made only a cosmetic change to their award 274 and again awarded punitive damages of $25
million.275 When the matter was reviewed again, the lower court vacated the punitive portion a second time because it was
disproportionate to the compensatory damages.276 Concerned that another remand to the same panel would not change
anything, the lower court ordered a third arbitration before a new panel. 277 This prompted Sawtelle to ask the court to order
remittitur for the excessive portion of the punitive award and spare him the additional time and expense in re-arbitrating his
case.278 Conceding that Sawtelle’s “suggestion seems to make sense”279 and that the “history of this arbitration undermines
the very purpose of arbitration . . . to provide a manner of dispute resolution more swift and economical than litigation in
court,”280 the lower court refused the motion. Because no statute authorized the court to set a conditional remittitur of an
arbitration award, the judge affirmed its earlier order for a new round of arbitration before different neutrals.281 Thus, while
there is an emerging trend for courts to remand arbitration appeals because of excessive punitive awards, the general policy to
defer to arbitration makes courts hesitant to take this action.
VI. Conclusions
Earlier, we analyzed 1787 court rulings that reviewed labor and employment arbitration awards from 1960-2001.282
Respectively, judges enforced seventy percent and eighty percent of these orders, 283 though it is important to note that these
cases did not involve punitive awards. The eighty-eight court rulings on punitive awards in this study seem to be different,
though we caution that this sample is *248 much smaller. Enforcement of labor awards is very low, but for employment
arbitrations the rate is higher than usual.
Why is this finding potentially significant? The low enforcement rate of punitive labor awards appears to signify retreat from
the long-standing policy of judicial deference. To accept such an interpretation, however, would be to disregard the rationale
behind the courts’ decisions. The courts vacated so many awards not because they preferred to re-arbitrate the grievances, but
to protect the bargain that binds unions and employers because they recognized that few CBAs contemplate punishment. This
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was Judge Posner’s reasoning in Miller Brewing, when he worried that the “bitter note” from a punitive award would disrupt
the union-management relationship.284 This study shows that courts review punitive employment awards differently from
punitive awards in labor arbitrations. Acciardo explains this difference: unlike labor arbitrators who have authority only to
judge whether a contract violation occurred, the Acciardo arbitrators were authorized to rule on a tort claim for defamation
and “clearly had authority to grant punitive damages.”285
Together, these divergent trends suggest that arbitration is not a uniform process, nor is it blind to context. Unions and
managements negotiate arbitration procedures that meet their needs, but employment arbitration is more regulated by law and
arbitration services. Our findings reflect the institutional differences between labor and employment arbitration. Arbitrator
powers in the domain of employment discrimination were greatly expanded in the 1990s. Congress authorized punitive
damages for employment discrimination and in the same landmark legislation also approved arbitration for these legal
claims.286 Gilmer created a new and ambitious theory--forum substitution--to justify mandatory employment arbitration.
Whether or not employers are sincere in their aim to create a private tribunal with full powers of a court, Gilmer’s theory of
forum substitution suggests that judicial deference to arbitration depends on whether private tribunals are manipulated so as
to diminish the substantive rights of individuals. To mirror this development, arbitration services revised their rules by
authorizing arbitrators to use a *249 full range of judicial powers, including punitive remedies,287 and the Mastrobuono
court affirmed this expansion of arbitrator authority. 288
The divergent paths that courts take in reviewing punitive labor and employment awards represent a healthy step in the
evolution of arbitration. Like critics of mandatory arbitration, we have been concerned that compulsory arbitrations are not
genuine court substitutes.289 However, the main criticism of employment arbitration--that this employer-influenced process is
biased against individual claimants--is blunted by our current findings. Arbitrators have shown they are able to punish
“horrible”290 employer misconduct by awarding millions of dollars in punitive damages. Most courts do not interfere to
relieve the employers of their punishment.
This is not to say that employment arbitration has finally fulfilled Gilmer’s vision for true forum substitution. It is striking
that in all but one case, the winners of punitive damages were successful men in the securities industry--a CEO, a senior
manager, an attorney, or other highly-compensated employees.291 In the single case *250 where arbitrators awarded punitive
damages to a woman, she did not complain of discrimination; her allegations were similar to those made by highly-paid men
in the sample.292 Even among the men, some of whom were long-term employees when they were terminated, we did not see
a single claim of age or disability discrimination. The point here is that arbitrators appear to react to employer destruction of
the careers and reputations of successful professionals in the securities industry. This is just a sliver of employment
arbitrations. We failed to uncover a single punitive award for sexual harassment, age discrimination, or other cause of action
that fuels the Gilmer controversy, which suggests that employment arbitration may not be truly effective as a forum
substitute.
So what is the future of punitive awards for workplace complaints? Punitive labor rulings have poor prospects for
confirmation. For individual employment arbitration, the future of this remedy is much brighter--and more complicated. It is
too soon to say if courts will apply to arbitrators the same due process limits that now regulate juries. If judges resist this
comparison, they may yet impose a similar constraint under the common law standard for irrationality.293
This leads to our final empirical observation. Even if courts intensify their review of punitive employment awards following
State Farm, the effect may be minimal. According to our research, punitive awards very rarely exceed two to three times the
amount of actual *251 damages for successful claimants. While our data are only preliminary, we see little evidence in
arbitration of the caprice and whimsy that motivated recent punitive jury awards. 294
This final observation has implications for future investigation. The advantages of arbitration may grow to include the
availability of punitive damages that are more reasonable compared to those from juries. This implies that the bargaining and
settlement behavior for credible punitive damage claims will differ from parallel experiences in trials. We believe that more
cases will settle before a ruling and for greater value, compared to identical claims in the court system, because of arbitrator
reasonableness combined with judicial deference to these contractual rulings.
More generally, our study shows that courts are laying the groundwork for arbitrators to mirror the role of judges and juries
in punishing reprehensible misconduct in the employment relationship. The Enterprise Wheel is being reinvented so that
“[w]hen an arbitrator is commissioned to interpret and apply” a statute or common law rule, “he is to bring his informed
judgment to bear in order to reach a fair solution of a problem.”295 Our cases demonstrate that “when it comes to formulating
remedies,” arbitrators “need . . . flexibility in meeting a wide variety of situations.”296 By confirming such a high percentage
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of punitive employment awards, courts are steering the Enterprise Wheel down the road towards effective forum substitution.
Footnotes
d1
Michael H. LeRoy is a Professor at the Institute of Labor and Industrial Relations, College of Law, University of Illinois at
Urbana-Champaign. Peter Feuille is the Director and Professor at the Institute of Labor and Industrial Relations, College of Law,
University of Illinois at Urbana-Champaign.
1
363 U.S. 593, 597 (1960).
2
See Frank E.A. Sander & Stephen B. Goldberg, Fitting the Forum to the Fuss: A User-Friendly Guide to Selecting an ADR
Procedure, 10 Negot. J. 49, 55 tbl.1 (1994).
3
See Thomas J. Stipanowich, Punitive Damages in Arbitration: Garrity v. Lyle Stuart, Inc. Reconsidered, 66 B.U. L. Rev. 953,
1011 (1986) ( “[T]he practice of recruiting as arbitrators businessmen, lawyers, and others with practical training or experience
related to the subject area of the dispute increases the possibility that punitive sanctions will be sparingly employed.”). Labor
arbitrators try to avoid punitive awards. E.g., Seaboard World Airlines, 53 Lab. Arb. Rep. (BNA) 1056, 1060 (1969) (Turkus,
Arb.) (“Power to award punitive damages is a heady wine, however, which carries with it an equally potent obligation and abiding
responsibility to invoke the remedy with great care and extreme caution.”).
4
See Garrett v. Circuit City Stores, Inc., 338 F. Supp. 2d 717 (N.D. Tex. 2004).
5
The Securities and Exchange Commission amended NYSE Rules 347 and 600 “to exclude claims of employment discrimination,
including sexual harassment, in violation of a statute from arbitration unless the parties have agreed to arbitrate the claim after it
has arisen.” Order Approving Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Arbitration Rules
Release No. 34-40858, 64 Fed. Reg. 1051 (Jan. 7, 1999). This followed an SEC decision on June 29, 1998, approving a proposed
rule change offered by the NASD that abolishes mandatory NASD arbitration of statutory employment discrimination claims.
Order Granting Approval to Proposed Rule Change Relating to the Arbitration of Employment Discrimination Claims Release
No. 34-40109, 63 Fed. Reg. 35, 299 (June 29, 1998).
6
The Supreme Court distinguishes between a claim that requires interpretation of a CBA and one that merely refers to terms in the
agreement. Only in the first case does Section 301 completely preempt a separate cause of action. The Court has explained that
“the bare fact that a [CBA] will be consulted in the course of state-law litigation plainly does not require the claim to be
extinguished.” Livadas v. Bradshaw, 512 U.S. 107, 124 (1994). “[T]he mere need to ‘look to’ the [CBA] for damages
computation is no reason to hold the state-law claim defeated by § 301.” Id. at 125. See also Foy v. Pratt & Whitney Group, 127
F.3d 229, 233 (2d Cir. 1997) (noting a difference between interpretation of CBA and consultation of the agreement).
7
See, e.g., Christopher R. Drahozal, “Unfair” Arbitration Clauses, 2001 U. Ill. L. Rev. 695 (2001); John Y. Gotanda, Awarding
Damages in International Commercial Arbitrations in the Wake of Mastrobuono v. Shearson Lehman Hutton, Inc., 38 Harv. Int’l
L.J. 59 (1997); Margo E. K. Reder, Punitive Damages Are a Necessary Remedy in Broker-Customer Securities Arbitration Cases,
29 Ind. L. Rev. 105 (1995); Stephen J. Ware, Punitive Damages in Arbitration: Contracting Out of Government’s Role in
Punishment and Federal Preemption of State Law, 63 Fordham L. Rev. 529, 563 (1994); Aaron J. Polak, Punitive Damages in
Commercial Contract Arbitration--Still an Issue After All These Years, 10 Ohio St. J. on Disp. Resol. 41 (1994); Constantine N.
Katsoris, Punitive Damages in Securities Arbitration: The Tower of Babel Revisited, 18 Fordham Urb. L.J. 573 (1991); Ira P.
Rothken, Punitive Damages in Commercial Arbitration: A Due Process Analysis, 21 Golden Gate U. L. Rev. 387, 404 (1991);
Richard P. Hackett, Note, Punitive Damages in Arbitration: The Search for a Workable Rule, 63 Cornell L. Rev. 272 (1978).
8
One study reports that arbitrators added punitive damages to compensatory remedies in 2.1% of awards. See Richard Ryder,
Punitive Award Survey, 5 Sec. Arb. Commentator, May 1993, at 7. This finding was repeated in another survey of securities
arbitrations from May 1989 through December 1993. Richard Ryder, Punitive Damages in Arbitration: Update Survey of
Securities Arbitration Awards, 6 Sec. Arb. Commentator, Jan. 1995, at 13, 17 (finding punitive awards in 2.0% of cases). See also
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Richard Ryder, Punitive Award Survey, 8 Sec. Arb. Commentator, Nov. 1996, at 4 (finding that punitive awards were ordered in
2.2% of cases).
9
See Jean R. Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court’s Preference for Binding Arbitration, 74
Wash. U. L.Q. 637, 683 (1996); and Jeffrey L. Fisher, State Action and the Enforcement of Compulsory Arbitration Agreements
Against Employment Discrimination Claims, 18 Hofstra Lab. & Emp. L.J. 289, 295-97 (2000).
10
Michael H. LeRoy & Peter Feuille, Private Justice in the Shadow of Public Courts: The Autonomy of Workplace Arbitration
Systems, 17 Ohio St. J. Disp. Resol. 19, 50 tbl.1 (2001) (reporting data for court review of awards from 1991-2001). These results
are compared to findings in Michael H. LeRoy & Peter Feuille, The Steelworkers Trilogy and Grievance Arbitration Appeals:
How the Federal Courts Respond, 13 Indus. Rel. L.J. 78 (1991).
11
See Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424 (2001); see also State Farm Mut. Auto Ins. Co. v.
Campbell, 538 U.S. 408 (2003).
12
See Sawtelle v. Waddell & Reed, Inc., 789 N.Y.S.2d 857 (N.Y. Sup. Ct. 2004).
13
See Williams v. ConAgra Poultry Co., 378 F.3d 790 (8th Cir. 2004); Gilbert v. DaimlerChrysler Corp., 470 Mich. 479 (Mich.
2004); and Bell v. Helmsley, No. 111085/01, 2003 WL 1453108 (N.Y. Sup. Ct. 2003).
14
See Int’l Union of Operating Eng’rs, Local No. 450 v. Mid-Valley, Inc., 347 F. Supp. 1104 (S.D. Tex. 1972).
15
See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 60-62 (1995) (referring to the arbitration agreement and NASD
rules); and the American Arbitration Association’s rules for employment disputes, infra note 116.
16
A theory to explain this effect is explored in Richard W. Murphy, Superbifurcation: Making Room for State Prosecution in the
Punitive Damages Process, 76 N.C. L. Rev. 463, 513-14 (1998):
The power of the present system to serve its ostensible purposes depends on its ability to make defendants part with money they
could otherwise keep under a purely compensatory tort system. Payment of extra-compensatory amounts causes retribution by
making the defendant endure the pain of paying money to the plaintiff. It deters future wrongdoing on the theory that the
defendant and other potential tortfeasors will fear for their wallets and refrain from committing malicious torts. The present
system causes defendants to pay this money in two ways: (1) it authorizes judgments for punitive awards; and (2) by doing so, it
gives plaintiffs the power to bargain for higher settlements in cases that do not go to trial.
A lawmaker’s perspective appears in Punitive Damages in Financial Injury Cases--The RAND Report: Hearing Before the
Comm. on the Judiciary, 105th Cong. 1 (1997) (statement of Sen. Orrin G. Hatch) (“Many critics of the current system argue that
punitive damages are often awarded haphazardly and excessively ... In fact, the very risk of bloated awards can scare defendants
into settling for excessive sums rather than risking the determination of an unsympathetic jury.”).
17
See infra text accompanying notes 66-87.
18
See infra text accompanying notes 66-68.
19
See infra text accompanying notes 71-72.
20
See infra text accompanying notes 72-73.
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21
See, e.g., In re Tower Auto., Inc., 115 Lab. Arb. Rep. (BNA) 51 (2000) (Kenis, Arb.) (“Since the Union’s additional requested
remedy is not authorized by contract or by stipulation of the parties and is not included in the remedy demanded in the grievance,
it must be denied.”); In re Mataniska Elec. Ass’n, 109 Lab. Arb. 508 (Henner, 1997) (upholding employer’s position that
“damages and attorney’s fees are virtually unheard of in labor grievance arbitrations, absent specific language in a collective
bargaining agreement authorizing such a remedy”).
22
See infra text accompanying notes 76-84.
23
See infra text accompanying notes 76-84.
24
See infra text accompanying notes 88-116.
25
See infra text accompanying note 89.
26
See infra text accompanying notes 92-96.
27
See infra text accompanying notes 99-100.
28
See infra text accompanying notes 117-49.
29
See infra text accompanying notes 121-25.
30
See infra text accompanying note 135.
31
See infra text accompanying notes 131-40.
32
See infra text accompanying notes 150-66.
33
See infra text accompanying notes 153-54.
34
See infra text accompanying notes 167-84.
35
See infra text accompanying note 170.
36
See infra text accompanying notes 161-63.
37
See infra text accompanying notes 151-52.
38
See infra text accompanying notes 184-96.
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39
See infra text accompanying notes 126-29, and 184.
40
See infra text accompanying notes 182-84.
41
See infra text accompanying notes 180-81, 194.
42
See infra text accompanying note 186.
43
See infra text accompanying notes 191-92.
44
See infra text accompanying note 193.
45
See infra text accompanying notes 184-96.
46
See infra text accompanying notes 172-84.
47
See infra text accompanying note 194.
48
See infra text accompanying notes 191-92.
49
See infra text accompanying note 187.
50
See infra text accompanying notes 197-206.
51
See infra text accompanying notes 206-08.
52
See Table 1.
53
See Table 2.
54
See Table 3.
55
See infra text accompanying notes 212-56.
56
See infra text accompanying notes 212-19. A CBA is an agreement between a union and employer that covers wages, hours, and
other terms and conditions of employment.
57
See infra text accompanying notes 220-80.
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58
See infra text accompanying notes 231-38.
59
See infra text accompanying notes 239-40.
60
See infra text accompanying notes 241-49.
61
See infra text accompanying notes 251-56.
62
See infra text accompanying notes 257-81.
63
See infra text accompanying notes 257-62.
64
See infra text accompanying notes 263-81.
65
See infra text accompanying notes 282-96.
66
See Archibald Cox et al., Labor Law: Cases and Materials 717 (13th ed. 2001) (reporting that arbitration provisions reflecting this
bargained exchange appear in about ninety-six percent of all labor agreements). Reflecting on industrial relations at the time that
Congress enacted section 301 of the LMRA, Justice Douglas remarked in Textile Workers Union of America v. Lincoln Mills of
Alabama, 353 U.S. 448, 455 (1957): “Plainly the agreement to arbitrate grievance disputes is the quid pro quo for an agreement
not to strike.” Empirical evidence in that period confirmed this observation. See Bureau of Labor Statistics, U.S. Dep’t of Labor,
Labor-Management Contract Provisions 10 (1953) (reporting that eighty-nine percent of 1442 firms covered by a labor agreement
had an arbitration provision in their contract).
67
Alan Miles Ruben, How Arbitration Works 171 (6th ed. 2003).
68
Id. at 40.
69
See Felix Frankfurter & Nathan Greene, The Labor Injunction 13-15 (1930) (noting: “The eagerness of employers to be heard by
a federal court is clearly revealed by the devices to which they resort in order to present an alignment of parties that meets the
requisite diversity of citizenship ... The courts are indifferent to this collusion for obtaining the benefit of the law as applied by the
federal courts.”). In 1932, Congress protected unions who engaged in strikes by enacting the Norris-LaGuardia Act, a law that
divested federal courts of jurisdiction to issue injunctions in most labor disputes. Norris LaGuardia Act, ch. 90, 47 Stat. 70 (1932)
(codified as amended at 29 U.S.C. §§ 101-115 (2004)).
70
National Labor Relations Act of 1935, ch. 372, 49 Stat. 449 (codified as amended at 29 U.S.C. § 163 (2004)).
71
James E. Pfander, Judicial Purpose and the Scholarly Process: The Lincoln Mills Case, 69 Wash U. L.Q. 243, 256 (1991).
72
Labor Management Relations (Taft-Hartley) Act § 301(a), 29 U.S.C. § 185(a) (2005).
73
Id. The law provides:
Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting
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commerce as defined in this [Act] ... may be brought in any district court of the United States having jurisdiction of the parties,
without respect to the amount in controversy or without regard to the citizenship of the parties.
74
United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 581 (1960).
75
See id. at 574; United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564 (1960); and United Steelworkers of Am. v. Enter.
Wheel & Car Corp., 363 U.S. 593 (1960).
76
See Am. Mfg. Co., 363 U.S. at 567, stating: “In our role of developing a meaningful body of law to govern the interpretation and
enforcement of collective bargaining agreements, we think special heed should be given to the context in which collective
bargaining agreements are negotiated and the purpose which they are intended to serve.”
77
See Enter. Wheel, 363 U.S. at 596, concluding: “The refusal of courts to review the merits of an arbitration award is the proper
approach to arbitration under collective bargaining agreements. The federal policy of settling labor disputes by arbitration would
be undermined if courts had the final say on the merits of the awards.”
78
See Warrior & Gulf, 363 U.S. at 581, finding that the arbitrator “is not a public tribunal imposed upon the parties by superior
authority which the parties are obliged to accept.... He is rather part of a system of self-government created by and confined to the
parties.” (quoting Harry Shulman, Reason, Contract, and Law in Labor Relations, 68 Harv. L. Rev. 999, 1016 (1955)).
79
Warrior & Gulf, 363 U.S. at 581.
80
See Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159, 1164 (7th Cir. 1984), noting:
Now arbitrators are rarely thought authorized to award punitive damages. It is not the kind of remedy that the parties probably
would have agreed to authorize if they had thought about the matter, because of the great power it would give the arbitrator
(subject to virtually no judicial review), and the bitter note a claim for punitive damages could inject into the parties’ relationship,
which is a continuing one.
81
Some courts state that arbitrators must have explicit contractual authority to award punitive damages. See, e.g., Bacardi Corp. v.
Congreso de Uniones Industriales de P.R., 692 F.2d 210, 214 (1st Cir. 1982) (“The arbitrator’s opinion cites no provision of the
contract authorizing punitive damages.”).
82
One notable exception appears in multi-employer labor agreements, typical in the construction industry. See infra note 213 and
the accompanying paragraph in the text.
83
See, e.g., Aetna Portland Cement Co. v. United Cement, Lime & Gypsum Workers, Local No. 335, 41 Lab. Arb. Rep. (BNA)
219, 222-23 (1963) (Dworkin, Arb.). Arbitrator Seitz noted in Publishers’ Association of New York City, 37 Lab. Arb. Rep.
(BNA) 509, 520 (1961) (Seitz, Arb.) that the law of retaliation is not part of arbitration, and “blood letting and sword-wielding
might better be done in other tribunals and authorities than by arbitrators,” as well as that “a grievance is not a traffic ticket. I have
no authority to impose a punitive sanction.” In Morton Salt v. United Steelworkers of America Local 12081, 113 Lab. Arb. Rep.
(BNA) 969, 972 (1999) (Allen, Arb.), Arbitrator Allen said that “[t]he concept of punishment, that is awarding punitive damages,
is disruptive to the promotion of an amicable, and a continuing relationship that must exist between the employer and the union
for years into the future.” Arbitrator Kanner, in Michigan Plastics Production Co. v. Allied Industrial Workers of America, Local
142, 100 Lab. Arb. Rep. (BNA) 75, 78 (1992) (Kanner, Arb.), said that “an arbitrator does not have the authority to penalize a
party for violation of the contract by an award of punitive damages.” See also Owen Fairweather, Practice and Procedure in Labor
Arbitration 525 (2d ed. 1983) (“[O]ne thing that is clear in the developing body of arbitration and labor relations law is that
arbitrators almost universally will refuse to award any damages which appear to be punitive.”) (quoting arbitrator J. Earl
Williams).
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84
See NLRB v. Ins. Agents Int’l Union, 361 U.S. 477, 489 (1960) ( “The presence of economic weapons in reserve, and their actual
exercise on occasion by the parties, is part and parcel of the system that the Wagner and Taft-Hartley Acts have recognized.”).
The Supreme Court has said that the “right to strike is predicated upon the conclusion that a strike when legitimately employed is
an economic weapon which in great measure implements and supports the principles of the collective bargaining system.” NLRB
v. Erie Resistor Corp., 373 U.S. 221, 234 (1963).
85
This reasoning is reflected in Chief Justice Warren’s dissent in Int’l Union, United Auto Workers v. Russell, 356 U.S. 634, 653
(1958), reviewing a civil court ruling that assessed punitive damages against a striking union. Using an idiom that means to sting
or burn, he wrote that unions and employers “have enough devices for making one another ‘smart’ without this Court putting its
stamp of approval upon another ... [N]othing [is] more disruptive of congenial labor relations than arming employee, union and
management with the potential for ‘smarting’ one another with exemplary damages.” Id.
86
PaineWebber, Inc. v. Elahi, 87 F.3d 589, 594 n.6 (1st Cir. 1996). The court also noted that “[t]he Supreme Court relied heavily
upon a labor arbitration case in its recent decision in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995).” Id.
87
Id.
88
See remarks of the sponsor of the U.S. Arbitration Act, Rep. Mills, at 65 Cong. Rec. 1931 (1924) (remarking that the law “creates
no new legislation, grants no new rights, except a remedy to enforce an agreement in commercial contracts and in admiralty
contracts”) (emphasis added). When the bill was introduced in the House, its sponsor, Rep. Mills, explained that it “provides that
where there are commercial contracts and there is disagreement under the contract, the court can [en]force an arbitration
agreement in the same way as other portions of the contract.” 65 Cong. Rec. 11080 (1924) (statement of Rep. Mills) (emphasis
added). See also H.R. Rep. No. 68-96, at 1-2 (1924). See also S. Rep. No. 68-536, at 3 (1924) (noting that by avoiding “the delay
and expense of litigation,” “arbitration appeals to big business and little business ... corporate interests [and] ... individuals”).
89
The FAA, enacted in 1925 as the United States Arbitration Act, 43 Stat. 883, was re-enacted, codified, and renamed the Federal
Arbitration Act in 1947. Act of Feb. 12, 1925, ch. 213, § 1, 43 Stat. 883, amended by Act of July 30, 1947, ch. 392, 61 Stat. 669.
See generally Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (1956).
90
See the objections of labor unions, expressed by the President of the Seamen’s Union of America when he addressed the matter at
the 1926 annual convention of his union:
[T]his bill provides for reintroduction of forced or involuntary labor, if the freeman through his necessities shall be induced to
sign. Will such contracts be signed? Esau agreed, because he was hungry. It was the desire to live that caused slavery to begin and
continue. With the growing hunger in modern society, there will be but few that will be able to resist. The personal hunger of the
seaman, and the hunger of the wife and children of the railroad man will surely tempt them to sign, and so with sundry other
workers in “Interstate and Foreign Commerce.”
Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 126 n.5 (Stevens, J., dissenting) (citation omitted, emphasis in original).
Secretary of Commerce Herbert Hoover responded to the President of the Seamen’s Union of America’s concern by suggesting
that “‘[i]f objection appears to the inclusion of workers’ contracts in the law’s scheme, it might be well amended by stating ‘but
nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers
engaged in interstate or foreign commerce.’” Id. at 127 (citation omitted).
91
A rare example of an early employment dispute that was arbitrated under the FAA appears in Bernhardt, 350 U.S. at 198.
Whether the FAA prohibited judicial enforcement of punitive awards in labor and commercial disputes alike was explored in
Raytheon Co. v. Automated Bus. Sys., Inc., 882 F.2d 6 (1st Cir. 1989), holding that “the concerns which may warrant such a rule
in the labor arbitration field are not present in the commercial arbitration context. Labor arbitration is an integral aspect of the
entire collective bargaining process; it is intended to be a part of a continuing and ameliorating enterprise between parties who
maintain an ongoing working relationship.” Id. at 10. After noting that “[p]unitive actions are disfavored; the award ofpunitive
damages in the midst of a steady stream of arbitrations between a company and its unions might well undercut both sides’
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confidence in the arbitration process and decrease their commitment to this essential aspect of ‘industrial self-government,”’ the
Raytheon court continued: “Commercial arbitration, by contrast and as this case itself exemplifies, is normally considered a
one-shot endeavor, in which the parties have chosen arbitration not as a means of ongoing dispute resolution, but as a ‘simpl[e],
informal[ ], and expeditio[us]’ method of resolving a particular dispute.” Id. at 10-11 (citation omitted). Cf. Finegold, Alexander
& Assocs., Inc. v. Setty & Assocs., Ltd., 81 F.3d 206, 207-08 (D.C. Cir. 1996) (concluding, after contemplating the possible
application of labor arbitration precedents in commercial arbitration cases, that “[t]here may no longer be much of a distinction
between the two lines of cases ... but precision constrains us to avoid treating them interchangeably”). The court also noted:
“When the Supreme Court’s views toward commercial arbitration later shifted from ‘hostility’ to endorsement ... the Warrior &
Gulf distinction between labor arbitration and commercial arbitration began to fade from memory.” Id. at 208.
92
500 U.S. 20 (1991).
93
Id. at 23.
94
Id. at 23-26.
95
Id. at 26-28.
96
Gilmer, 500 U.S. at 23.
97
A useful history on arbitration in the securities industry appears in Richard A. Lord, 1 Williston on Contracts § 57:162 (4th ed.
1990) (“Securities”). In 1817, the NYSE Constitution provided that “all questions of dispute in the purchase and sale of stocks
shall be decided by a majority of the Board.” Id. This led to the creation of the Arbitration Committee of Three, making NYSE
one of the earliest American business organizations to require arbitration by its members. Id. The business of trading securities
facilitated both the mandatory and private ADR components of this innovation. Because so many business transactions were
conducted orally or even with a nod of the head, trials over disputed transactions would have forced traders to conduct business
much more formally. NYSE’s adoption of mandatory arbitration simply recognized the need for a speedy, equitable, and efficient
method of settling differences.
98
As a condition for being a licensed securities broker, Robert Gilmer signed a standard industry agreement to submit any dispute to
arbitration. Gilmer, 500 U.S. at 23. After Gilmer filed a federal age discrimination lawsuit, his employer sought a court order to
transfer the matter to arbitration, a venue that Gilmer perceived as fundamentally unsuited for this kind of dispute. Gilmer argued
that he had no ability to bargain over the contract and, in any event, the Age Discrimination in Employment Act precluded his
waiver of access to federal court.
The holding in Gilmer pertained only to arbitration agreements in the securities industry and, therefore, did not rule directly on
arbitration as provided in employment contracts. Id. at 25 n.2. Later, in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001),
the Court broadened Gilmer’s narrow holding to apply the FAA to most employment agreements.
99
See Ken May, Arbitration: Attorney Urges Employers to Adopt Mandatory Programs as Risk-Management, Daily Lab. Rep., May
14, 2001, No. 93, at A5 (reporting the view of an employment lawyer, David Copus, that mandatory arbitration helps companies
limit damages and eliminate class action lawsuits). David Copus also notes that the biggest financial risk for employers in
termination lawsuits--tort claims in which a single plaintiff can be awarded millions of dollars--is controlled by arbitration
agreements that cap damages.
100 See Elizabeth Hill, AAA Employment Arbitration: A Fair Forum at Low Cost, Disp. Resol. J., May-July 2003, at 10 (finding that
19% of private sector employers were using arbitration by 1997, up from 3.6% in 1991, and that by 2001 the number of
employees covered by AAA employment arbitration contracts had grown to 6 million, up from 3 million in 1997).
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101 E.g., Baldeo v. Darden Rest., Inc., No. 04-CV-2185(JG), 2005 WL 44703 (E.D.N.Y. 2005).
102 E.g., Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144 (2d Cir. 2004).
103 E.g., Brennan v. Bally Total Fitness, 198 F. Supp. 2d 377, 381 (S.D.N.Y. 2002). See also Katherine Van Wezel Stone, Mandatory
Arbitration of Individual Employment Rights: The Yellow Dog Contract of the 1990s, 73 Denv. U. L. Rev. 1017 (1996), in which
the author contends that “[m]any pre-hire arbitral agreements are blatant contracts of adhesion.” Id. at 1036. She notes that at “the
moment of hire, employees lack bargaining power and are needful of employment, so they frequently agree to such terms without
giving them much thought.” Id.
104 See David B. Lipsky et al., Emerging Systems For Managing Workplace Conflict (2003).
105 See Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1478 (D.C. Cir. 1997).
106 E.g., Morrison v. Circuit City Stores, Inc., 70 F. Supp. 2d 815 (S.D. Ohio 1999).
107 E.g., Great W. Mortgage Corp. v. Peacock, 110 F.3d 222 (3d Cir. 1997).
108 E.g., Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1235 (10th Cir. 1999).
109 E.g., Adkins v. Labor Ready, Inc., 185 F. Supp. 2d 628 (S.D. W.Va. 2001).
110 E.g., Penn v. Ryan’s Family Steakhouses, Inc., 95 F. Supp. 2d 940 (N.D. Ind. 2000).
111 E.g., Marie v. Allied Home Mortgage Corp., 402 F.3d 1 (1st Cir. 2005) (ruling that the validity of a sixty-day filing requirement
was a matter for the arbitrator to decide); Chappel v. Lab. Corp. of Am., 232 F.3d 719 (9th Cir. 2000) (invalidating an employer’s
imposition of a sixty-day filing period for ERISA claims that, under the law, are subject to a filing limit of four years).
112 E.g., Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003) (voiding an arbitration agreement that limited an arbitrator’s
authority to award punitive damages to $5000).
113 E.g., Morrison v. Circuit City Stores, Inc., 317 F.3d 646 (6th Cir. 2003) (severing provision in an arbitration agreement that gave
an arbitrator less remedial power than a court of law). The court reasoned that the arbitration agreement “undermines the deterrent
purposes of Title VII by placing stringent limits on punitive damages available to Morrison and other claimants under the
arbitration agreement.” Id. at 672.
114 At least twenty-one states have adopted a provision in the Uniform Arbitration Act that allows for confirmation of an award
where the arbitrator exercises a power that is greater than what a court is provided. 7 U.A.A. § 5 (“[T]he fact that the relief was
such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the
award.”). The list includes Alaska (Alaska Stat. § 09.43.120 (Michie 2005)); Arizona (Ariz. Rev. Stat. § 12-1512 (2005));
Colorado (Colo. Rev. Stat. Ann. § 13-22-223 (West 2005)); Delaware (Del. Code Ann. tit. 10, § 5714 (2005)); Florida (Fla. Stat.
Ann. § 682.13 (West 2005)); Georgia (Ga. Code Ann., § 9-9-13 (2005)); Idaho (Idaho Code § 7-912 (Michie 2005)); Iowa (Iowa
Code Ann. § 679A.12 (West 2005)); Kansas (Kan. Stat. Ann. § 5-412 (2004)); Maine (14 Me. Rev. Stat. Ann. tit. 14, § 5938
(2005)); Massachusetts (Mass. Gen. Laws Ann. ch. 251 at § 12 (West 2005)); Michigan (Mich. Comp. Laws. Ann. §600.5081
(West 2005)); Minnesota (Minn. Stat. Ann. § 572.19 (West 2005)); Missouri (Mo. Ann. Stat. §435.405 (West 2005)); Montana
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(Mont. Code Ann. § 27-5-312 (2005)); Nebraska (Neb. Rev. Stat. § 25-2613 (2005)); Oklahoma (Okl. Stat. Ann. tit.15, § 812
(West 2005)); South Carolina (S.C. Code Ann. 1976 § 15-48-130 (Law. Co-op. 2005)); South Dakota (S.D. Codified Laws §
21-25A-24 (Michie 2005)); Tennessee (Tenn. Code Ann. § 29-5-213 (2005)); and Virginia (Va. Code Ann. § 8.01-581.010
(Michie 2005)).
115 Numerous state courts have ruled that arbitrators have authority to render a punitive award. Generalizing from these decisions is
difficult because the types of legal claims and scopes of the arbitration agreements are so varied. See Drywall Sys., Inc. v. ZVI
Const. Co., 435 Mass. 664 (Mass. 2002); Faiyaz v. Dicus, 245 Ga. App. 55 (Ga. Ct. App. 2000); Russell v. Kerley, 159 Or. App.
647 (Or. Ct. App. 1999); Kintzele v. J.B. & Sons, Inc., 658 So. 2d 130 (Fla. Dist. Ct. App. 1995); Kennedy, Matthews, Landis,
Healy & Pecora, Inc. v. Young, 524 N.W.2d 752 (Minn. Ct. App. 1994); Kline v. O’Quinn, 874 S.W.2d 776 (Tex. App. 1994);
Edward Elec. Co. v. Automation, Inc., 229 Ill. App. 3d 89 (Ill. App. Ct. 1992); Richardson Greenshields Sec., Inc. v. McFadden,
509 So. 2d 1212 (Fla. Dist. Ct. App. 1987); Eychner v. Van Vleet, 870 P.2d 486 (Colo. Ct. App. 1993); Anderson v. Nichols, 178
W. Va. 284 (W. Va. 1987); Rodgers Builders, Inc. v. McQueen, 76 N.C. App. 16 (N.C. Ct. App. 1985); Baker v. Sadik, 162 Cal.
App. 3d 618 (Cal. Ct. App. 1984); Grissom v. Greener & Sumner Const. Inc., 676 S.W.2d 709 (Tex. App. 1984); and Bishop v.
Holy Cross Hosp., 44 Md. App. 688 (Md. Ct. Spec. App. 1980). Florida offers an example of a state statute that expressly
authorizes punitive arbitrator awards. See Fla. Stat. Ann. §768.737 (West (2005)): “When an award of punitive damages is made
in an arbitration proceeding, the arbitrator who renders the award must issue a written opinion setting forth the conduct which
gave rise to the award and how the arbitrator applied the standards in §768.72 to such conduct.” Contra Mcleroy v. Waller, 21
Ark. App. 292 (Ark. Ct. App. 1987) (vacating a punitive award of $2000 because state law prohibits arbitration of torts). While
this decision pre-dates Mastrobuono, it appears to survive because Arkansas does not specifically bar punitive awards, as New
York did by imposing the Garrity rule. The state simply made its courts an exclusive forum for certain causes of action.
116 The American Arbitration Association (AAA) is a case in point. In 1996, the AAA issued National Rules for the Resolution of
Employment Disputes. These were piloted in the AAA’s California Employment Dispute Resolution Rules. These grew out of the
Due Process Protocol, a set of guidelines that were developed by a committee of employment attorneys, retired judges, and
arbitrators. The new rules provided a series of due process enhancements in employment arbitration. See AAA, National Rules for
the Resolution of Employment Disputes, http://www.adr.org/sp.asp?id=22075fairness (last visited Jan. 8, 2006) (on file with the
Harvard Negotiation Law Review). Rule 34(d) of AAA’s Employment ADR Rules provides an arbitrator with expansive remedial
powers. Punitive damages are not specifically mentioned, nor is any other remedy. The clear implication, however, is that a
punitive award is permitted, if warranted. See id. stating: “The arbitrator may grant any remedy or relief that the arbitrator deems
just and equitable, including any remedy or relief that would have been available to the parties had the matter been heard in
court.” A pertinent account of the AAA’s rules revision appears in Susan McGolrick, Arbitration: Revised AAA Procedures
Reflect Due Process Task Force, Daily Lab. Rep. No. 102, May 28, 1996, at D-6.
117 See supra note 89. After providing federal courts jurisdiction to hear controversies over arbitration agreements, Section 3 of the
FAA states that a court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such
arbitration.” Following the arbitration, Section 9 prescribes:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the
arbitration ... then at any time within one year after the award is made any party to the arbitration may apply to the court so
specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated,
modified, or corrected as prescribed in sections 10 and 11 of this title.
Section 10(a) provides very narrow grounds for a court to deny enforcement to an award:
(1)where the award was procured by corruption, fraud, or undue means;
(2)where there was evident partiality or corruption in the arbitrators, or either of them;
(3)where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing
to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been
prejudiced; or
(4)where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.
118 See supra note 73. Section 301(a) states:
Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting
commerce as defined in this chapter, or between any such labor organizations, may be brought in any district court of the United
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States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the
parties.
119 Textile Workers of Am. v. Lincoln Mills of Ala., 353 U.S. 448, 465 (1957) (Frankfurter, J., dissenting). Beginning his dissent
with a remarkably stinging rebuke, Justice Frankfurter said: “The Court has avoided the difficult problems raised by § 301 of the
Taft-Hartley Act ... by attributing to the section an occult content.”
120 Id. at 465-66.
121 363 U.S. 593, 597 (1960).
122 Id.
123 Id. at 597. Justice Douglas added: “The draftsmen may never have thought of what specific remedy should be awarded to meet a
particular contingency.” Id.
124 363 U.S. 574, 582 (1960).
125 363 U.S. 564, 567-68 (1960).
126 531 U.S. 57 (2000).
127 Id. at 67.
128 Id.
129 532 U.S. 504, 509 (2001) (citing Paperworkers v. Misco, Inc., 484 U.S. 29, 39 (1987)).
130 Unlike labor arbitration, there is no seminal Supreme Court decision that articulates standards of judicial review for individual
employment arbitration awards. Gilmer ruled that a pre-dispute arbitration agreement was enforceable under the FAA. Nominally,
therefore, the decision does not control in cases where courts review a contested award. In practice, however, it is common in
post-award challenges for a court to utilize Gilmer. Lawsuits to vacate awards question, for example, whether an employer’s
unilateral declaration of an arbitration policy creates an arbitration agreement that can lead to a binding award. Employees also
raise a concern as to whether an award in their favor can deny them attorney’s fees, in contrast to the common practice in courts
of making this remedy available to successful plaintiffs. Again, judges rely on Gilmer to support their reasoning in these
award-review cases. Thus, when we assert that Gilmer leads employment arbitration down a path that differs from the Trilogy, we
mean that Gilmer provides courts guidance on many issues that arise in post-award litigation-- including matters such as the
validity of the underlying arbitration contract, the arbitrator’s authority to apply public law to a dispute in a private forum, the
arbitrator’s remedial authority, and the like.
131 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 23 (1991).
132 Id. at 29.
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133 Id. at 27.
134 Id. at 28.
135 Gilmer, 500 U.S. at 26 (citing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985)).
136 Id. at 30.
137 Id.
138 Id. at 31, observing that NYSE rules require disclosure to the parties of the employment histories of the arbitrators and provide
parties a right to make further inquiries into the arbitrators’ backgrounds. A party is also allowed one peremptory challenge and
unlimited challenges for cause.
139 Gilmer, 500 U.S. at 31.
140 Id. The Court pointed to NYSE rules that require that all arbitration awards be in writing. A decision must name the parties,
summarize the issues in controversy, and describe the award. In addition, the award decisions must be made available to the
public.
141 Geraldine Szott Moohr, Arbitration and the Goals of Employment Discrimination Law, 56 Wash. & Lee L. Rev. 395 (1999)
(stating that employers adopt mandatory arbitration to elude enforcement of Title VII).
142 See, e.g., Sarah Rudolph Cole, Managerial Litigants? The Overlooked Problem of Party Autonomy in Dispute Resolution, 51
Hastings L.J. 1199 (2000); and Margaret M. Harding, The Redefinition of Arbitration by Those with Superior Bargaining Power,
1999 Utah L. Rev. 857 (1999).
143 See Van Wezel Stone, supra note 103.
144 See Reginald Alleyne, Statutory Discrimination Claims: Rights “Waived” and Lost in the Arbitration Forum, 13 Hofstra Lab. &
Emp. L.J. 381, 428 (1996) (“[S]tatutory discrimination grievances relegated to ... arbitration forums are virtually assured
employer-favored outcomes [given] the manner of selecting, controlling, and compensating arbitrators, the privacy of the process
and how it catalytically arouses an arbitrator’s desire to be acceptable to one side.”).
145 See Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159 (7th Cir. 1984).
146 Administrative Office of the U.S. Courts, U.S. District Court Cases, Judicial Facts and Figures, Civil Cases Filed By Nature of
Suit, tbl.2.2, available at http:// www.uscourts.gov/judicialfactsfigures/table2.02.pdf (under heading Civil Rights--Employment)
(last visited Jan. 8, 2006).
147 Civil Rights Act of 1991, Pub. L. No. 102-166, 105 Stat. 1071 (1991).
148 See 42 U.S.C. § 1981(a)(a)(1), (b)(3) (2005) (specifying the compensatory and punitive damages available under Title VII). In
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Section 118 of the codified version of this law, Congress also provided: “Where appropriate and to the extent authorized by law,
the use of alternative means of dispute resolution, including settlement negotiations, conciliation, facilitation, mediation,
factfinding, minitrials, and arbitration.” Civil Rights Act of 1991, Pub. L. No. 102-166, tit.I, § 118, 105 Stat. 1081 (1991). The
Americans with Disabilities Act also equalizes its remedies to Title VII. See 42 U.S.C. § 12117 (2005).
149 Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 848 (2001). When Congress originally conceived Section 706(g) of the
1964 Civil Rights Act, it authorized courts to enjoin intentional acts of discrimination and order make-whole type remedies (e.g.,
back pay) similar to those under the National Labor Relations Act. Id. at 848-49. Congress broadened judicial power to remedy
intentional acts of discrimination in 1972 because courts could not always provide effective relief. The problem is that some acts
of discrimination make reinstatement an unworkable solution. Thus, front pay-- ongoing financial relief provided until a
discrimination victim finds suitable and equivalent employment at another workplace--is also authorized in Section 706(g). Id. at
850. When Congress revisited the remedy issue in 1991, it “determined that victims of employment discrimination were entitled
to additional remedies.” Id. at 852 (emphasis in original). Thus, Congress authorized “the recovery of compensatory and punitive
damages in addition to previously available remedies, such as front pay.” Pollard, 532 U.S. at 854. The result is that an employer
who commits intentional acts of discrimination may be ordered to pay tort-like damages and, in addition, be subject to the
equitable remedies of back pay and front pay.
150 Hill, supra note 100.
151 Sawtelle v. Waddell & Reed, Inc., 789 N.Y.S.2d 857, 858 (N.Y. Sup. Ct. 2004).
152 Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d 1175 (D.C. Cir. 1991).
153 Administrative Office of the U.S. Courts, supra note 146.
154 See Bureau of National Affairs, Alternative Dispute Resolution: Most Large Employers Prefer ADR as Alterative to Litigation,
Survey Says, Daily Lab. Rep., May 14, 1997, at A-4 (finding that seventy-nine percent of the 530 responding firms said that they
use employment arbitration). But see Michael H. LeRoy, Jury Revival or Jury Reviled? When Employees Are Compelled to
Waive Jury Trials, 7 U. Pa. J. Lab. & Emp. L. 767 (2005).
155 A leading study finds that employees win forty-three percent of American Arbitration Association cases. See Hill, supra note 100,
at 12-16. This is similar to the forty-six percent win rate for employees who arbitrate in the securities industry in Michael Delikat
& Morris M. Kleiner, An Empirical Study of Dispute Resolution Mechanisms: Where Do Plaintiffs Better Vindicate Their
Rights?, 58 Disp. Resol. J. 56 (2003). Another study finds that employees win sixty-three percent of arbitrations. Lewis L.
Maltby, Private Justice: Employment Arbitration and Civil Rights, 30 Colum. Hum. Rts. L. Rev. 29 (1998).
156 Marika Litras, Bureau of Justice Statistics Report for Civil Rights, Complaints Filed in U.S. District Courts, Daily Labor Report,
Daily Lab. Rep., Jan. 20, 2000, at E-10.
157 Ruben, supra note 67, at 282 (“Where the arbitrator is to rule on both arbitrability and the merits, evidence and argument on the
question of arbitrability will be heard before the presentation on the merits.”) (emphasis in original).
158 See Table 1.
159 538 U.S. 408 (2003) (ruling that excessive punitive damages violate the 14th Amendment Due Process clause). The Court stated:
“We decline again to impose a bright-line ratio which a punitive damages award cannot exceed. Our jurisprudence and the
principles it has now established demonstrate, however, that, in practice, few awards exceeding a single-digit ratio between
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punitive and compensatory damages, to a significant degree, will satisfy due process.” Id. at 439. This followed the Court’s
refusal in BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) to uphold a $2 million punitive damages award which accompanied
a $4000 compensatory damages award.
160 Insured car drivers who caused an accident sued State Farm for bad faith handling of their claim, fraud, and emotional distress.
State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 414 (2003). At trial in Utah, the Campbells were allowed to present
evidence of a broad, nationwide pattern of the company’s misconduct. Id. at 415. Eventually, a jury awarded the Campbells $2.6
million in compensatory damages and $145 million in punitive damages. Id. The trial court reduced damages, respectively, to $1
million and $25 million, but the state Supreme Court reinstated the $145 million punitive award after it found that the company’s
conduct was reprehensible. Id.
161 378 F.3d 790 (8th Cir. 2004).
162 470 Mich. 749 (Mich. 2004).
163 No. 111085/01, 2003 WL 1453108 (N.Y. Sup. Ct., Mar. 4, 2003).
164 Id. at *3. The judge explained: “Punitive damages are not a game of Lotto and ... Mrs. Helmsley is not a $4 billion piñata for
every John, Patrick or Charlie to poke a stick at in the hopes of hitting the jackpot.” Id.
165 E.g., Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020 (9th Cir. 2003) (upholding a jury award of $2.6 million in punitive
damages and $360,000 in actual damages (only a 7:1 ratio)); Bogle v. McClure, 332 F.3d 1347 (11th Cir. 2003) (upholding a jury
award of $2million in punitive damages and $500,000 in actual damages (only a 4:1 ratio)); Daka, Inc. v. McCrae, 839 A.2d 682
(D.C. Ct. App. 2003) (vacating a jury award of $4.8 million in punitive damages after comparing 26:1 ratio with $187,500 in
actual damages); and Roth v. Farner-Bocken Co., 667 N.W.2d 651 (S.D. 2003) (vacating a jury award of $500,000 in punitive
damages after comparing 20:1 ratio with $25,000 in actual damages). Cf. Jones v. Rent-A-Center, Inc., 281 F. Supp. 2d 1277 (D.
Kan. 2003) (upholding a jury award of $290,000 in punitive damages notwithstanding 29:1 ratio to actual damages, because of the
employer’s reprehensible conduct).
166 In the same year that Gilmer was decided, Justice Sandra Day O’Connor--an early proponent of strict regulation of jury awards of
punitive damages--could make her point only in a dissenting opinion. See Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 42
(1991) (O’Connor, J., dissenting). She believed that “punitive damages are a powerful weapon. Imposed wisely and with restraint,
they have the potential to advance legitimate state interests. Imposed indiscriminately, however, they have a devastating potential
for harm. Regrettably, common-law procedures for awarding punitive damages fall into the latter category.” Id. The constitutional
import of this problem is that the “Due Process Clause does not permit a State to classify arbitrariness as a virtue. Indeed, the
point of due process--of the law in general--is to allow citizens to order their behavior. A State can have no legitimate interest in
deliberately making the law so arbitrary that citizens will be unable to avoid punishment based solely upon bias or whim.” Id. at
59.
167 State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 414 (2003).
168 Jury instructions must refer to the three guideposts that the Court announced in BMW of N. Am., Inc. v. Gore, 517 U.S. 559
(1996). Punitive jury awards are constitutional only when they reflect: “(1)[T]he degree of reprehensibility of the defendant’s
misconduct; (2)the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and
(3)the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable
cases.” Id. at 575.
169 In State Farm, the Court emphasized its guidance in Gore that “the most important indicium of the reasonableness of a punitive
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damages award is the degree of reprehensibility of the defendant’s conduct.” State Farm, 538 U.S. at 419 (quoting Gore, 517 U.S.
at 575). In weighing the reprehensibility factor, courts must consider whether the harm was physical or economic; the degree of
indifference or reckless disregard for the health or safety of others; the financial vulnerability of the injured party; the frequency
of acts of misconduct; and the presence of malice, trickery, deceit, or inadvertence. Even in the presence of one or more factors,
judges should presume that “a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages
should only be awarded if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant
the imposition of further sanctions to achieve punishment or deterrence.” Id. After a lengthy review, the State Farm majority
concluded that while punitive damages were not awarded in error, “a more modest punishment for this reprehensible conduct
could have satisfied the State’s legitimate objectives, and Utah courts should have gone no further.” Id. at 419-20.
170 While the State Farm majority “decline[d] again to impose a bright-line ratio which a punitive damages award cannot exceed,”
they stated that “[s]ingle-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of
deterrence and retribution, than awards with ratios in the range of 500 to 1 ... or, in this case, of 145 to 1.” Id. at 425 (citation
omitted). The Court allowed for the possibility of a larger ratio for “a particularly egregious act [that] has resulted in only a small
amount of economic damages,” and “the converse.” State Farm, 538 U.S. at 425. Concluding that the $145million punitive award
was not reasonable nor proportionate to State Farm’s actual misconduct, the Court concluded that Utah was “irrational and
arbitrary” in depriving the company of due process. Id. at 429.
171 Id. at 418.
172 Juries exercise state power and are therefore subject to constitutional standards. See Davis v. Prudential Sec., Inc., 59 F.3d 1186,
1191 (11th Cir. 1995) (reasoning that arbitration does not implicate constitutional protection when the parties voluntarily submit
to it and thereby privatize their dispute resolution process. The first time that state action arose in that matter--when a court
reviewed the punitive damage award--was found insufficient to transform the private ADR process into a state action of
constitutional import). Cf. Commonwealth Assocs. v. Letsos, 40 F. Supp. 2d 170, 177 (S.D.N.Y. 1999) (finding that once a court
exercises power to review an award, this creates state action).
173 See Muschany v. United States, 324 U.S. 49, 66 (1945).
174 Early warning of this problem is reported in David E. Feller, The Coming End of Arbitration’s Golden Age, 29 Proc. Nat’l. Acad.
Arb. 97, 109 (1976) (“Arbitration is not an independent force, but a dependent variable, and to the extent that collective
bargaining is diminished as a source of employee rights, arbitration is equally diminished.”).
175 Delta Airlines, Inc. v. Air Line Pilots Ass’n, 861 F.2d 665 (11th Cir. 1988).
176 Georgia Power Co. v. Int’l Bhd. of Elec. Workers, Local No. 84, 896 F.2d 507 (11th Cir. 1990).
177 Stroehmann Bakeries, Inc. v. Local 776, Int’l Bhd. of Teamsters, 969 F.2d 1436 (3d Cir. 1992).
178 461 U.S. 757 (1983). The employer had entered into a consent decree with the Equal Employment Opportunity Commission that
required the company to maintain its extant proportion of women and blacks in the work force in the event of layoffs to remedy
past sex and race discrimination at its Corinth, Mississippi plant. A year after entering into the decree, the employer needed to lay
off part of its work force and, consistent with the decree, protected females and blacks by laying off white males. Having more
seniority than the protected employees, white males filed a grievance to vindicate this contractual right. After being compelled by
federal courts to arbitrate this grievance, the company lost at arbitration. The arbitrator ruled that the employer breached the CBA,
notwithstanding the consent decree, and awarded the affected employees damages rather than reinstatement. Id. at 763-64.
179 484 U.S. 29 (1987); see also E. Associated Coal Corp. v. United Mine Workers, 531 U.S. 57 (2000); and Major League Baseball
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Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001).
180 W.R. Grace, 461 U.S. at 766.
181 Id.
182 State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) (stating the following policy: “The Due Process Clause of
the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.”).
183 State Farm, 538 U.S. at 439.
184 Four years after W.R Grace, the Court revisited the public policy exception to enforcement of labor arbitration awards in Misco,
484 U.S. at 29. An arbitrator reinstated a paper mill worker who was fired after he was arrested in the company parking lot on a
drug charge. Id. at 33. Lower courts vacated the award--and thus, the Company did not reinstate the grievant--because the judges
believed that the arbitrator’s ruling would violate a public policy against operating dangerous machinery by drug-users. Id. at
34-35. Misco reversed these rulings, holding that awards may be set aside only if they “would violate some explicit public policy
that is well-defined and dominant, and is to be ascertained by reference to laws and legal precedents and not from general
considerations of supposed public interests.” Id. at 43.
185 Although the public policy exception developed in the labor arbitration domain, courts apply a similar concept--manifest
disregard of the law--for employment arbitration awards that are challenged under the FAA. E.g., LaPrade v. Kidder, Peabody &
Co., 246 F.3d 702, 706 (D.C. Cir. 2001); and Kanuth v. Prescott, Ball & Turben, Inc., 949 F.2d 1175 (D.C. Cir. 1991). An award
made in “manifest disregard of the law” may be vacated. E.g., DeGaetano v. Smith Barney, Inc., 983 F. Supp. 459, 464 (S.D.N.Y.
1997) (vacating the panel’s denial of attorney’s fees because the arbitrators “appreciate[d] the existence of a clearly governing
legal principle but decide [d] to ignore or pay no attention to it”).
186 514 U.S. 52 (1995). A married couple from Illinois was awarded $400,000 in punitive damages by a panel of NASD arbitrators
after a brokerage firm mishandled their account. Id. at 54. Although the firm won a court order to stay the couple’s lawsuit and
compel enforcement of the parties’ arbitration agreement, it returned to court after the arbitration to vacate the punitive element of
the award. Id.
187 Id. at 58 (“[I]f contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the FAA ensures
that their agreement will be enforced according to its terms even if a rule of state law would otherwise exclude such claims from
arbitration.”).
188 The company relied upon a choice-of-law clause in its contract with the Mastrobuonos. The agreement provided that the laws of
New York would apply to a dispute. Id.
189 State courts determined that they alone had power to award punitive damages. Mastrobuono v. Shearson Lehman Hutton, Inc. 514
U.S. 52, 55 (1995) (citing the Garrity decision). See also Belko v. AVX Corp., 251 Cal. Rptr. 557 (Cal. 1988).
190 Federal appeals courts disagreed on whether a contractual choice-of-law provision precludes an arbitral award of punitive
damages. Compare Barbier v. Shearson Lehman Hutton, Inc., 948 F.2d 117 (2d Cir.1991), and Pierson v. Dean, Witter, Reynolds,
Inc., 742 F.2d 334 (7th Cir. 1984) with Bonar v. Dean Witter Reynolds, Inc., 835 F.2d 1378, 1386-88 (11th Cir. 1988), Raytheon
Co. v. Automated Bus. Sys., Inc., 882 F.2d 6 (1st Cir.1989), and Lee v. Chica, 983 F.2d 883 (8th Cir. 1993).
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191 Mastrobuono, 514 U.S. at 64.
192 Id. at 59.
193 Id. at 60-62.
194 United Paperworkers Int’l Union v. Misco, 484 U.S. 29, 44 (1987). In its first post-W.R. Grace decision, the Court in Misco made
the point that judges are not to use generalized conceptions of public policy to vacate awards. Although Misco did not make new
law, it bluntly admonished courts not to usurp the functions of an arbitrator, stating that “as long as the arbitrator is even arguably
construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious
error does not suffice to overturn his decision.” Id. at 38. Persisting in its message to lower courts, Misco added: When “only
improvident, [or] even silly, fact-finding is claimed ... [t]his is hardly a sufficient basis for disregarding what the agent appointed
by the parties determined to be the historical facts.” Id. at 39. Eastern Associated Coal presented a closer conflict of an award and
public policy. E. Associated Coal Corp. v. United Mine Workers, 531 U.S. 57 (2000). An arbitrator reinstated a coal truck driver
who was a repeat offender of his employer’s drug policy. While federal transportation regulations did not expressly deny this
power to an arbitrator, they clearly aimed to safeguard the public from the hazard presented by this recidivist truck driver. The
Supreme Court rejected this basis to vacate an award, explaining that Department of Transportation rules also favor rehabilitation
of drug users and no rule expressly prohibits a drug offender from being employed as a truck driver. Id. at 64-65. The peak of the
Court’s impatience with meddlesome courts was reached in Garvey. The Ninth Circuit rejected an arbitrator’s factual findings and
then resolved the merits of the parties’ dispute instead of remanding the case for further arbitration proceedings. An irritated
Supreme Court scolded the appeals court, stating: “We recently reiterated that if an arbitrator is even arguably construing or
applying the contract and acting within the scope of his authority, the fact that a court is convinced he committed serious error
does not suffice to overturn his decision.” Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001).
195 Cf. TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 473 (1993) (O’Connor, J., dissenting) (observing that “jurors are not
infallible guardians of the public good. They are ordinary citizens whose decisions can be shaped by influences impermissible in
our system of justice.”). Justice O’Connor complained: “Arbitrariness, caprice, passion, bias, and even malice can replace
reasoned judgment and law as the basis for jury decision-making.” Id. at 474.
196 See United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960).
197 See Bernhardt v. Polygraphic Co. of Am., 350 U.S. 198 (1956).
198 In alphabetical order, the sample includes: Acciardo v. Millenium Sec. Corp., 83 F. Supp. 2d 413 (S.D.N.Y. 2000); Bacardi Corp.
v. Congreso de Uniones Industriales de P.R., 692 F.2d 10 (1st Cir. 1982); Balt. Reg’l Joint Bd. v. Webster Clothes, Inc., 596 F.2d
95 (4th Cir. 1979); Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704 (7th Cir. 1994); Belko v. AVX Corp., 251 Cal. Rptr.
557 (Cal. Ct. App. 1988); Bethlehem Steel Corp. v. United Steelworkers of Am., Civ. No. 90-3071, 1991 WL 338553 (D. Md.
Sept. 18, 1991); Bd. of Educ. of Cent. Sch. Dist. No. 1 of Towns of Niagra, Wheatfield, Lewiston & Cambria v.
Niagra-Wheatfield Teachers Ass’n, 46 N.Y.2d 553 (N.Y. 1979); Bd. of Educ. of Cmty. High Sch. Dist. No. 155 v. Ill. Educ.
Labor Relations Bd., 247 Ill. App. 3d 337 (Ill. App. Ct. 1993); Borman’s, Inc. v. UFCW Local Union No. 876, Nos. 87-19009,
87-1948, 1998 WL 123727 (6th Cir. Nov. 21, 1983); Cannelton Indus., Inc. v. Dist. 17, United Mine Workers, 951 F.2d 591 (4th
Cir. 1991); City of Chi. v. AFSCME Council 31, 283 Ill. App. 3d 446 (Ill. App. Ct. 1996); City of Chi. v. Water Extension,
Bureau of Eng’g, 302 Ill. App. 3d 940 (Ill. App. Ct. 1999); City of Hartford v. IAFF, Local 760, 49 Conn. App. 805 (Conn. App.
Ct. 1998); Communication Workers of Am. v. GTEL Corp., 59 F.3d 174 (9th Cir. 1995); Communication Workers of Am., Local
787 v. Alcatel U.S.A. Mktg., Inc., No. CIV.A. 3:02-CV-1376, 2003 WL 21882433 (N.D. Tex. Aug. 8, 2003); Cook County v.
AFSCME, 294 Ill. App. 3d 985 (Ill. App. Ct. 1998); Desert Palace, Inc., d/b/a Caesar’s Palace v. Local Joint Bd. of Las Vegas,
679 F.2d 789 (9th Cir. 1982); Dorado Beach Hotel Corp. v. Union de Trabajadores de La Industria Gastronomica de P.R., Local
610, 959 F.2d 2 (1st Cir. 1992); Eaton Vance Distrib., Inc. v. Ulrich, 692 So. 2d 915 (Fla. 1997); Fahnstock & Co., v. Waltham,
935 F.2d 512 (2d Cir. 1991); Fletcher v. Kidder Peabody & Co., 81 N.Y.2d 623 (N.Y. 1993); Ga. Power Co. v. IBEW Local 84,
995 F.2d 1030 (11th Cir. 1993); Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132 (6th Cir. 1996); Goss Golden West Sheet
Metal, Inc. v. Sheet Metal Workers Int’l Union, Local Union No. 104, 933 F.2d 759 (9th Cir. 1991); Harty v. Cantor Fitzgerald &
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Co., No. CV030194387, 2003 WL 22853715 (Conn. Super. Ct. Nov. 18, 2003); Hobet Mining Co. v. Dist. 17, United Mine
Workers of Am., Civ. A. No. 3:96-0503, 1996 WL 732536 (S.D. W. Va. Dec. 16, 1996); Hotel & Rest. Employees and
Bartenders Int’l Union v. Michelson’s Food Services, Inc., 535 F.2d 1248 (9th Cir. 1976); Howard P. Foley Co. v. IBEW Local
Union No. 639, 789 F.2d 1421 (9th Cir. 1986); Int’l Ass’n of Heat & Frost Insulators & Asbestos Workers, Local Union No. 34 v.
Gen. Pipe Covering Co., 792 F.2d 96 (8th Cir. 1986); Int’l Ass’n of Heat & Frost Insulators & Asbestos Workers, Local Union
No. 66 v. Leona Corp., 489 F.2d 1032 (5th Cir. 1974); Int’l Bhd of Teamsters, Local Union 117 v. Wash. Employers, Inc., 557
F.2d 1345 (9th Cir. 1977); Int’l Union of Operating Eng’rs, Local No. 450 v. Mid-Valley, Inc., 347 F. Supp. 1104 (S.D. Tex.
1972); Island Creek Coal Co. v. Dist. 28, United Mine Workers of Am., 29 F.3d 126 (4th Cir. 1994); Kanuth v. Prescott, Ball &
Turben, Inc., 949 F.2d 1175 (D.C. Cir. 1991); Local 369, Bakery & Confectionery Workers Int’l Union of Am. v. Cotton Baking
Co., 514 F.2d 1235 (5th Cir. 1975); Local 416, Sheet Metal Workers Int’l Union v. Helgesteel Corp., 507 F.2d 1053 (7th Cir.
1974); Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159 (7th Cir. 1984); Norfolk & W. Ry. Co. v. Bhd
of Ry., Airline & Steamship Clerks, 657 F.2d 596 (4th Cir. 1981); Padilla v. D.E. Frey & Co., 939 P.2d 475 (Colo. Ct. App.
1997); Park v. First Union Brokerage Serv., Inc., 926 F. Supp. 1085 (M.D. Fla. 1996); Polin v. Kellwood Co., No. 00-9148, 2002
WL 737048 (2d Cir. Apr. 23, 2002); Pullman Power Prod. Corp. v. Local 403, United Ass’n of Journeymen & Apprentices of
Plumbing & Pipefitting Ass’n, 856 F.2d 1211 (9th Cir. 1987); Safeway Stores, Inc. v. Int’l Ass’n of Machinists, Local Lodge
1486, 534 F. Supp. 638 (D.C. Md. 1982); Sawtelle v. Waddell & Reed, Inc., 789 N.Y.S.2d 857 (N.Y. 2004); Sch. of E. Chicago,
Ind. v. E. Chicago Fed. of Teachers, 422 N.E.2d 656 (Ind. 1981); Siegel v. Prudential Ins. Co. of Am., 67 Cal. App. 4th 1270
(Cal. Ct. App. 1998); Union Plaza Operating Co. v. Local Jt. Exec. Bd. of Culinary Workers Union No. 226, D.C.No.
CV-S-97-00678-DWH, 1999 WL 386755 (9th Cir. May 21, 1999); United Elec., Radio & Mach. Workers of Am., Local Union
No. 1139 v. Litton Microwave Cooking Prod., Litton Sys., Inc., 704 F.2d 393 (8th Cir. 1983); Westinghouse Elec. Corp. v. IBEW
Local No. 1805, 561 F.2d 521 (4th Cir. 1977); Westmoreland Coal Co. v. United Mine Workers of Am., Dist. 28, 550 F. Supp.
1044 (W.D.C. Va. 1982).
199 For the significance of this search term, see Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793 (N.Y. 1976).
200 E.g., Al-Safin v. Circuit City Stores, Inc., 394 F.2d 1254 (9th Cir. 2005); Zuver v. Airtouch Communication, Inc., 154 Wash. 2d
293 (Wash. 2004); Cap Gemini Ernst & Young U.S. L.L.C. v. Nackel, No. 02-9447, 2004 WL 11779252 (2d Cir. May 27, 2004);
Martin v. SCI Mgmt L.P., 296 F. Supp. 462 (S.D.N.Y. 2003); Alexander v. Anthony Int’l, L.P., 341 F.3d 256 (3d Cir. 2003);
Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir. 2003); Beta First Inc. v. Liu, No. E033436, 2003 WL 22994528 (Cal.
Ct. App. Dec. 22, 2003); Gannon v. Circuit City Stores, Inc., 262 F.3d 677 (8th Cir. 2001); Armendariz v. Found. Health
Psychcare Serv., 99 Cal. Rptr. 2d 745 (Cal. 2000); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1 (1st Cir.
1999); Morrison v. Circuit City Stores, Inc., 70 F. Supp. 2d 815 (S.D. Ohio 1999); Hooters of Am., Inc. v. Phillips, 39 F. Supp. 2d
582 (D. S.C. 1998); Oldroyd v. Elmira Sav. Bank, F.S.B., 134 F.2d 72 (2d Cir. 1998); Trumball v. Century Mktg. Corp., 12 F.
Supp. 2d 683 (N.D. Ohio 1998); DeGaetano v. Smith Barney Inc., 983 F. Supp. 459 (S.D.N.Y. 1997); Great Western Mortgage
Corp. v. Peacock, 110 F.3d 222 (3d Cir. 1997); and Mulder v. Donald, Lufkin & Jenrette, 224 A.D.2d 125 (N.Y. 1996).
201 88 F. Supp. 2d 600 (S.D. W. Va. 2000).
202 Id. at 602.
203 Id.
204 Flexsys, 88 F. Supp. 2d at 602. Notably, however, the company did not argue that the award was punitive.
205 Id. at 604.
206 Banc of America Securities v. Knight, 787 N.Y.S.2d 676 (N.Y. Sup. Ct. 2004) is a close employment arbitration case that was
excluded. An NASD arbitration panel awarded Knight $680,000 without explaining its reasoning. The employer petitioned a
court to vacate the award on grounds that it was irrational. Confirming the award, the court distinguished between irrational and
punitive awards. Id. at 766 n.4.
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207 This measurement is important because it shows that the definition of a punitive arbitration award is more elastic than a punitive
judgment from a court. The latter is awarded in express, unambiguous terms. Our research shows, however, that in more than half
the cases where a court reviewed an arbitration award that was challenged because it was punitive, the arbitrator never mentioned
terms or concepts such as punishment, deterrence, or exemplary. The arbitrators believed that their awards were only making an
aggrieved party whole for losses under the contract.
208 See Marvin Hill, Jr. & Anthony Sinicropi, Remedies in Arbitration 22-26 (1981).
209 83 F. Supp. 2d 413 (S.D.N.Y. 2000).
210 304 A.D.2d 103, 107 (N.Y. App. Div. 2003).
211 See Polin v. Kellwood, 34 F. App’x 406 (2d Cir. 2002). The arbitration panel determined that an employee’s attorney filed a
frivolous age discrimination claim, made false representations to the panel, tape-recorded without permission or authority a
telephone conference with Kellwood’s counsel and one of the arbitrators, and prolonged the arbitration with lengthy and pointless
witness questions and spurious objections. The panel further concluded that this misbehavior significantly harmed the employer.
Therefore, the arbitrators awarded punitive damages to pay the company for one-half of its arbitration fees and expenses, in the
amount of $153,237.64.
212 Int’l Union of Operating Eng’rs, Local No. 450 v. Mid-Valley, Inc., 347 F. Supp. 1104, 1109 (S.D. Tex. 1972).
213 Int’l Ass’n of Heat & Frost Insulators & Asbestos Workers, Local Union No. 34 v. Gen. Pipe Covering Co., 792 F.2d 96 (8th Cir.
1986). The judges vacated a $75,000 award that fined an employer who shifted bargaining unit work to a nonunion entity. The
appellate panel believed that this amount exceeded the customary remedy of $5000 per infraction. Id. at 100-01.
214 29 F.3d 126 (4th Cir. 1994).
215 Id. at 128.
216 Id.
217 Island Creek Coal Co. v. District 28, United Mine Workers of Am., 29 F.3d 126, 129 (4th Cir. 1994).
218 Id.
219 Id.
220 United Elec. Radio & Mach. Workers of Am., Local Union No. 1139 v. Litton Microwave Cooking Prod., Litton Sys., Inc., 704
F.2d 393, 397 (8th Cir. 1983).
221 Board of Educ. of Cmty. High Sch. Dist. No. 155 v. Ill. Educ. Labor Relations Bd., 247 Ill. App. 3d 337 (Ill. App. Ct. 1993).
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222 Id. at 339.
223 Id.
224 Id. at 338.
225 Ill. Educ. Labor Relations Bd., 247 Ill. App. 3d at 340.
226 Id.
227 Id.
228 Id.
229 Ill. Educ. Labor Relations Bd., 247 Ill. App. 3d at 340.
230 Id. at 350. The first reviewing body was a state labor board that exercised adjudicatory powers.
231 Howard P. Foley Co. v. IBEW Local Union No. 639, 789 F.2d 1421 (9th Cir. 1986).
232 Pullman Power Prod. Corp. v. Local 403, United Ass’n of Journeymen & Apprentices of Plumbing & Pipefitting Ass’n, 856 F.2d
1211 (9th Cir. 1987).
233 Pullman Power, 856 F.2d at 1212 (summarizing facts for both decisions).
234 Id.
235 Id.
236 Id.
237 Pullman Power, 856 F.2d at 1213.
238 Howard P. Foley Co. v. Int’l Bhd. of Elec. Workers, Local 639, No. Cv 84-8343-Er (Jrx), 1985 WL 56722 (C.D. Cal. Jan. 31,
1985).
239 Local 369, Bakery & Confectionery Workers Int’l Union of Am. v. Cotton Baking Co., 514 F.2d 1235, 1237 (5th Cir. 1975).
240 Id.
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241 City of Chic. v. AFSCME Council 31, 283 Ill. App. 3d 446, 448 (Ill. App. Ct. 1996).
242 Id.
243 Id. at 450.
244 Id.
245 AFSCME Council 31, 283 Ill. App. 3d at 452.
246 Int’l Ass’n of Heat & Frost Insulators, Local Union No. 66 v. Leona Corp., Civil No. EP-67-CA-11, 1973 WL 1217, at *9 (W.D.
Tex. Jan. 8, 1973).
247 Id. at *1.
248 Id. at *2.
249 Id. at *9.
250 Bethlehem Steel Corp. v. United Steelworkers of Am., Civ. No. JFM-90-3071, 1991 WL 338553, at *1 (D. Md. Sep. 18, 1991).
251 Bethlehem Steel, 1991 WL 338553 at *1.
252 Id.
253 Id. at *4.
254 Id. at *3 (“The arbitrator’s award in this case is punitive because it bears no rational relation to any loss suffered by the Crane
Millwrights.”).
255 Id.
256 Balt. Reg. Joint Bd. v. Webster Clothes, Inc., 596 F.2d 95, 98 (4th Cir. 1979).
257 E.g., Siegel v. Prudential Ins. Co. of Am., 67 Cal. App. 4th 1270 (Cal. App. Ct. 1998).
258 E.g., Park v. First Union Brokerage Serv., Inc., 926 F. Supp. 1085 (M.D. Fla. 1996).
259 E.g., Padilla v. D. E. Frey & Co., 939 P.2d 475 (Colo. Ct. App. 1997).
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260 E.g., Eaton Vance Distrib., Inc. v. Ulrich, 692 So. 2d 915 (Fla. 1997).
261 See Belko v. AVX Corp., 251 Cal. Rptr. 557, 563 (Cal. Ct. App. 1988), where the court reasoned:
We believe the Garrity rule is unduly restrictive. It has been characterized as “an anomaly, frustrating the goals of fairness and
finality that are the essence of arbitration and undermining the valuable role that punitive damages play in deterring fraudulent or
malicious conduct.” (citation omitted). We find no public policy significant enough to restrict the right of contracting parties to
vesting agreed upon arbitrators with the authority to consider and resolve claims for punitive damages.
262 Acciardo v. Millenium Sec. Corp., 83 F. Supp. 2d 413 (S.D.N.Y. 2000). A brokerage firm harmed a lawyer who was employed as
its director of compliance by forcing him out of the firm after he refused to participate in regulatory frauds. Id. at 415. The
attorney offered proof that the firm filed defamatory statements to the NASD and thereby limited his employment prospects. Five
former employees testified that they had observed regulatory violations at the firm, and three testified that when they left the firm
their industry termination forms were marked with false and derogatory statements. Id. The arbitrators awarded $5,000 in
compensatory damages and $100,000 in punitive damages. Id. at 416-17. The firm relied on BMW of N. Am., Inc. v. Gore, 517
U.S. 559 (1996) to argue that this 20:1 ratio violated the company’s due process rights. Acciardo, 83 F. Supp. 2d at 422. The court
implicitly agreed that this precedent applies to arbitrations. The decision observed that Gore rejects the idea “that the
constitutional line is marked by a simple mathematical formula.” Id. (quotation omitted). Consistent with Gore’s pronouncement
that “low awards of compensatory damages may properly support a higher ratio than high compensatory awards,” the decision
reasoned that arbitrators could base their punitive award on testimony that proved that the firm engaged in repeated and malicious
misuse of the NASD’s termination forms. Id. In addition to applying this constitutional standard, the court considered whether the
award was made in manifest disregard of the law. Id. at 422. The firm contended that the law requires a fact-finder to determine a
defendant’s ability to pay as a pre-condition for determining the amount of punitive damages. Acciardo, 83 F. Supp. 2d at 422.
Acciardo concluded that even if the arbitrators ignored the firm’s financial standing, their error was “not so obvious or egregious
as to require overturning the award.” Id. at 423.
263 See Banc of Am. Sec. v. Knight, 787 N.Y.S.2d 676 (N.Y. Sup. Ct. 2004).
264 Sawtelle v. Waddell & Reed, Inc., 754 N.Y.S.2d 264, 270 (N.Y. 2003) (“A grossly excessive award that is arbitrary and irrational
under Gore should be equally arbitrary and irrational under the FAA.”).
265 Sawtelle v. Waddell & Reed, Inc., 789 N.Y.S.2d 857 (N.Y. Sup. Ct. 2004).
266 Id. at 858.
267 Id. at 859. The hearing phase of the first arbitration lasted more than two and one-half years and used over fifty hearing days. The
transcript exceeded 10,000 pages, and Sawtelle’s personal legal fees totaled $747,000.
268 Id. at 858.
269 Sawtelle, 789 N.Y.S.2d.at 858.
270 Sawtelle, 754 N.Y.S.2d at 276.
271 Id. at 273. The award “greatly exceeded the ratio of two-to-one [on actual damages] commonly used under ... CUTPA
[Connecticut Unfair Trade Practices Act].” Id. at 272.
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272 The appeals court concluded the firm’s conduct was not so egregious as to warrant a $25 million punitive damages award. This
award was “well above the four-to-one ratio that the Supreme Court regards as ‘close to the line”’ in Haslip. Id. at 272. The court
added that the “punitive damage award here also runs afoul of Gore because it is vastly out of proportion to the civil or criminal
penalties that could be imposed for comparable misconduct.” Sawtelle, 754 N.Y.S.2d at 272. In addition, the appeals court
applied “rigorous” review of the punitive award because it “was made in manifest disregard” of Connecticut’s law on punitive
damages. Id. at 274. For emphasis, the court said that it “is no answer to argue, as the motion court noted, that the law on either
the maximum ratio or the maximum amount, of punitive damages that can be awarded under CUTPA is by no means ‘well
defined [and] explicit’.” Id. (citation omitted). To the contrary, when Gore stated a clear policy that punishment should fit the
crime, the Court explained that this rule “‘is deeply rooted and frequently repeated in common-law jurisprudence.”’ Id. at 274.
273 Sawtelle, 789 N.Y.S.2d.at 858.
274 Id. The only change that the panel made was to modify its finding that the employer “orchestrated a campaign of deception,” to
the phrase that the company “orchestrated and conducted a horrible campaign of deception, defamation and persecution of
Claimant.”
275 Id.
276 Id.
277 Sawtelle, 789 N.Y.S.2d at 858.
278 Id. at 859.
279 Id.
280 Id.
281 Sawtelle, 789 N.Y.S.2d at 860.
282 LeRoy & Feuille, supra note 10.
283 Id.
284 Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159, 1164 (7th Cir. 1984).
285 Acciardo v. Millenium Sec. Corp., 83 F. Supp. 2d 413, 422 (S.D.N.Y. 2000).
286 See supra note 149.
287 See supra note 116.
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288 See supra note 187.
289 For example, some concern has been raised as to whether employment arbitrations are gender-biased. One aspect of this issue is
the adequacy of remedies in employment arbitrations. Michael H. LeRoy, Getting Nothing for Something: When Women Prevail
in Employment Arbitration Awards, 16 Stan. L. & Pol’y Rev. 573, 607 (2005), expressed concern that women may be
disadvantaged in having access to arbitration:
Surely, experienced discrimination lawyers have some sense of the growing expense and complexity of employment arbitrations.
If they also know from their practice or anecdotes what this study shows--that women have less chance of being awarded
attorney’s fees in otherwise successful arbitrations--they have less reason to represent female workers in this forum. This problem
is especially acute when arbitration is mandatory. Because this blocks a woman’s access to courts, the practical implication of my
research finding is that women will disproportionately proceed to arbitration without counsel.
See also Michael H. LeRoy & Peter Feuille, When Is Cost an Unlawful Barrier to Alternative Dispute Resolution? The Ever
Green Tree of Employment Arbitration, 50 UCLA L. Rev. 143, 191 (2002) (“While courts broadly approve this ADR method,
they are willing to deny enforcement of contracts that create access barriers for employees.”); and Michael H. LeRoy & Peter
Feuille, Private Justice in the Shadow of Public Courts: The Autonomy of Workplace Arbitration Systems, 17 Ohio St. J. on Disp.
Resol. 19, 90 (2001) (“While some cases fit the prototype of a short, inexpensive and therefore accessible process, others
functioned worse than court adjudications. It appears that when employment arbitrations fail to deliver on their reputed
advantages over civil trials, courts invest less faith in this ADR process.”).
290 Sawtelle v. Waddell & Reed, Inc., 789 N.Y.S.2d 857, 858 (N.Y. Sup. Ct. 2004).
291 See Belko v. AVX Corp., 251 Cal. Rptr. 557 (Cal. Ct. App. 1988) (involving a male complainant who was president, chairman,
and CEO); Padilla v. D. E. Frey & Co., 939 P.2d 475 (Colo. Ct. App. 1997) (involving a male complainant who originally sued
his employer in tort); Eaton Vance Distrib., Inc. v. Ulrich, 692 So. 2d 915 (Fla. 1997) (involving a male complainant who was a
long-time broker for this employer); Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704 (7th Cir. 1994) (involving a male
complainant who alleged retaliatory discharge, defamation, and other causes of action); Harty v. Cantor Fitzgerald & Co., No.
CV030194387, 2003 WL 22853715 (Conn. Super. Ct. Nov. 18, 2003) (involving a male complainant who was a manager of a
brokerage firm’s database who alleged that the company breached the employment agreement); Acciardo, 83 F. Supp. 2d 413
(involving a male complainant who was a securities lawyer who alleged defamation); Siegel v. Prudential Ins. Co. of Am., 67 Cal.
App. 4th 1270 (Cal. App. Ct. 1998) (involving a male complainant who was a sales manager who claimed wrongful termination);
Sawtelle v. Waddell & Reed, Inc., 754 N.Y.S.2d 264 (N.Y. 2003) (involving a male complainant who was a broker who alleged
defamation); and Fahnstock & Co., v. Waltham, 935 F.2d 512 (2d Cir. 1991) (involving a male complainant who was an
insurance manager who alleged wrongful discharge and defamation).
292 See Park v. First Union Brokerage Serv., Inc., 926 F. Supp. 1085 (M.D. Fla. 1996). Laura Park alleged that her employer
wrongfully terminated her employment in retaliation for complaints and objections regarding the firm’s sales practices. She also
alleged defamation, tortious interference with her business relationships, and emotional distress. Id. at 1086-87.
293 Sawtelle, 754 N.Y.S.2d at 264.
294 Bell v. Helmsley, No. 111085/01, 2003 WL 1453108 (N.Y. Sup. Ct., Mar. 4, 2003).
295 United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960).
296 Id.
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