I have written some of the disadvantages of arbitration over other procedural methods of resolving cases such as waivers of jury trial. (See post and post). However, in an opinion from the Supreme Court of Texas, one disadvantage of arbitration (i.e., the limited appellate review of arbitration awards that is available) can be minimized where the parties draft their agreement to apply the Texas General Arbitration Act (TAA) rather than the Federal Arbitration Act (FAA).
In Nafta Traders, Inc. v. Quinn, an arbitrator found for the plaintiff in a sex discrimination case. The arbitration agreement contained a provision limiting the arbitrator’s authority such that he lacked "authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law."
The employer sought to vacate the arbitration award claiming that the arbitrator exceeded his authority by rendering a decision containing reversible error. The issue tackled by the Supreme Court of Texas was whether the TAA precludes an agreement for judicial review of an arbitration award for reversible error, and if not, whether the FAA preempts enforcement of such an agreement. The Court held that parties may, pursuant to the TAA agree (subject to limits) to expanded judicial review of arbitration awards and that the FAA did not preempt such a conclusion.
Consequently, parties in Texas are free to agree that arbitration awards made subject to state law may be reviewed on a more expanded basis than awards rendered under the FAA. However, the scope of that expanded judicial review is not without limits. As the Court stated:
arbitration parties cannot agree to a different standard of judicial review than the court would employ in a judicial proceeding involving the same subject matter. ‘[A]n arbitration agreement providing that a ‘judge would the award by flipping a coin or studying the entrails of a deal fowl’ would be enforceable.’
Moreover, to have a meaning judicial review the Court cautioned parties that they will need to be able to submit "a sufficient record of the arbitral proceedings, and complaints must have been preserved, all as if the award were a court judgment on appeal." Consequently, some of the perceived advantages of arbitration (i.e., reduced cost, less formal etc.) will have to give way to parties that want to preserve a right to expanded judicial review because proper objections will have to be preserved and a transcript of the proceeding made. In any event, employers who use arbitration as a form of alternative dispute resolution made consider making those agreements subject to state law so that they can take advantage of opportunities for judicial review. Employers should keep in mind that, unlike the FAA, the TGAA requires that agreements to arbitrate personal injury (and like tort claims) be made only after the cause of action has accrued thereby excluding some claims from arbitration that would be covered by the FAA.
You can access a copy of the concurring opinion here.