03/25/2008
CONTACT: Melissa Sharp, 202-314-2068
Washington, D.C.--The Supreme Court's decision issued today in Hall Street Associates v. Mattel is a disappointment to small business owners. Small firms were hoping the court would rule in favor of allowing contracting parties to have a right to expand the scope of judicial review of arbitration awards. Instead the court found that the Federal Arbitration Act precludes parties from contracting for expanded judicial review of arbitration decisions.
The National Federation of Independent Business Small Business Legal Center filed a brief in this case urging the court that allowing parties the right to contract for expanded judicial review would have made arbitration a more attractive option for small business owners.
"Most companies prefer to have a standard-of-review clause in arbitration agreements that permit a court to fix erroneous awards," said Karen Harned, executive director of the NFIB Small Business Legal Center. "Today's decision says that parties can no longer contract for this type of judicial review. The court has limited the amount of judicial review that parties can agree to contract for to the specific criteria specified in the Federal Arbitration Act. This makes agreeing to arbitration much more risky for small employers."
Recent studies indicate that businesses are indeed avoiding arbitration and that the absence of judicial review is a strong motivating factor for these decisions. According to an NFIB Research Poll, only 21 percent of small businesses use arbitration to resolve disputes.
"The court had an opportunity in this case to make arbitration a more workable alternative for small business owners," said Harned. "Unfortunately, the court decided that the Federal Arbitration Act should preempt how parties voluntarily contract to use arbitration to resolve disputes. This will likely discourage small business owners from agreeing to use arbitration to resolve disputes. If business owners want the security to know that a decision can be reviewed or appealed, they will have no choice but to take their disputes through the formal court system."
