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Unanimous Supreme Court Decision On Arbitration

Monday, June, 17, 2013


With so much attention regarding mandatory arbitration provisions in contracts, the Supreme Court decision from June 10th delved into the issue.  Much of the focus about the mandatory arbitration provisions has been around employment contracts, although the case in question actually didn’t relate directly to this context.  The Supreme Court decision should encourage employers to explore the mandatory arbitration wording in their current contracts to verify that the intent is clear. 


When a New Jersey case involving a physician alleging that a healthcare company was unfairly denying or delaying doctor reimbursement for claims, an arbitrator was appointed to review the case, per the contract with the physician.  The contract was worded as such:


No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.


The arbitrator determined that the language in the contract agreement was actually quite broad and that it included all court actions, such as class actions.  The Supreme Court has previously had decisions stating that parties have to agree to class action arbitration, but in this scenario the arbitrator’s findings were supported.  The final decision found that federal court reviews of arbitrator decisions are actually very limited.  The federal court’s powers are limited to determining whether the arbitrator actually interpreted the parties’ contract.  The federal review does not include determination of whether the arbitrator correctly or incorrectly interpreted the contract. 


The arbitration wording for the specific agreement in this case dates back to 1998, and should have every employer with a clause like this reviewing their contracts to determine whether the language is broad enough to warrant problems.  Some employers have already updated their mandatory arbitration provisions to specifically spell out the exclusion of class arbitration.