Arbitration of Employment Disputes

Background

Churches have various defenses available if they are sued as a result of a personal injury. One such defense is an arbitration policy. By adopting an arbitration policy, a church can compel members to arbitrate specified disputes with their church rather than pursue their claim in the civil courts.

In Hayward v. Trinity Church, 2015 WL 1924552 (M.D. Tenn. 2015), a federal district court in Tennessee ruled that an agreement between a church and a church employee to arbitrate all employment disputes was enforceable, and therefore a dismissed church employee’s lawsuit seeking unpaid overtime compensation had to be arbitrated.

A part-time church employee (the “plaintiff”) was promoted to a full-time position as facilities manager. Upon his promotion, the plaintiff and his employing church signed an arbitration agreement that provided, in part, “I [plaintiff] agree and acknowledge that the church and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context.”

The plaintiff alleged that upon his promotion to facilities manager in 2008 he was classified as an “exempt employee” and, therefore, he did not receive overtime pay for hours worked in excess of 40 hours per week. He claimed that during this period, he regularly worked over 40 hours per week, typically working an average of 50 hours per week. In 2013, he began to inquire whether he was properly classified as an exempt employee. He further claimed that, in December 2013, the church voluntarily reclassified him as a nonexempt employee and began paying him on an hourly basis. The church terminated his employment in 2014. Following his dismissal, the plaintiff sued the church, claiming that it failed to properly compensate him for his overtime pay during the period that he was classified as an exempt employee. His lawsuit alleged that the church was aware of his misclassification and, therefore, willfully violated the Fair Labor Standards Act by failing to properly compensate him.

The church asked the court to dismiss the plaintiff’s lawsuit on the ground that the arbitration agreement required that the plaintiff’s claims be arbitrated. The plaintiff asserted that the arbitration agreement was unenforceable because (1) it lacked the “mutuality” and definiteness necessary to be a valid contract and (2) the contract was procedurally unconscionable because it was an “adhesion contract.” Further, the plaintiff claimed that he did not recall signing the arbitration agreement, but he presumes that it was “one of those many, many documents” that he was required to sign as a condition of his continued employment. He noted that:

there were multiple documents in the stack of employment paperwork given to him when he was promoted;
he did not recall who gave the paperwork to him, but he remembered being told he could not begin work until he signed the paperwork;
no one explained to him anything about the arbitration agreement;
no one advised him to consult with an attorney;
he signed the documents the same day that he received them; and
no one provided him with a copy of the paperwork that he signed.

The plaintiff also claimed that he did not understand that the arbitration agreement provided for an equal division of the costs of arbitration upon him and the church, and, that had he understood that he would be responsible for a pro rata share of arbitration costs, or even travel expenses, to pursue his employment rights, he did not know if he would have signed the agreement. Further, he claimed that he did not understand that he was waiving his right to a jury trial when he read the arbitration agreement.

The church insisted that the arbitration agreement, and all its terms, were enforceable because:

the plaintiff did not dispute that he signed the agreement;
the agreement contained a bolded stand-alone paragraph explaining the mutual waiver of right to trial by jury, which could not be considered hidden or oppressive; and
the plaintiff did not lack in education or experience such that he could not understand the agreement.

The Federal Arbitration Act

The plaintiff and church both acknowledged that the arbitration agreement was governed by the Federal Arbitration Act (FAA), which was enacted to overcome courts’ reluctance to enforce arbitration agreements. Congress enacted the FAA “to place arbitration agreements upon the same footing as other contracts.” Section 2 of the FAA states that “a written provision in any contract … to settle by arbitration a controversy thereafter arising out of such contract or transaction … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” For example, the courts “have routinely held arbitration agreements invalid in circumstances where the agreements lack consideration, mutuality of obligation, or where the record demonstrates that employees did not knowingly and voluntarily waive their constitutional right to trial.”

The arbitration agreement

Applying Tennessee law (the state in which the church was located), the court noted that “to find a contract enforceable, courts reviewing a contract must be able to ascertain what obligations the respective parties have in the performance of the contract, and the contract must be sufficiently definite and certain to allow the court to make such a determination.”

In concluding that the parties’ agreement to arbitrate was legally enforceable, the court observed:

The second paragraph of the agreement begins with the sentence, “I [plaintiff] agree and acknowledge that the church and I will utilize binding arbitration to resolve all disputes that may arise out of the employment context.” This sentence is a “mutual promise,” which constitutes adequate consideration, and is straightforward and clear. Consequently, the court considers this promise to be sufficiently mutual and definite to be enforceable.

However, the court noted that the remainder of the second paragraph contained a “venue clause” mandating that any arbitration had to occur in Orange County, California, and it concluded that this provision was unenforceable. The court noted that the remainder also inexplicably contained several California-specific provisions, including certain remedies that the employee retains under California law, including the right to file and pursue proceedings before the California Department of Fair Employment and Housing and a variety of California statutory claims, including claims arising under the California Workers’ Compensation Act, Employment Development Department, and the California Fair Employment and Housing Act. Clearly, the church was using a template intended for use in California, and neglected to make it specific to Tennessee. The court concluded that “even if an arbitration provision is unenforceable, the unenforceable provision should be severed in favor of arbitration, unless the provision taints the entire agreement.” On this basis, the court severed the mandatory arbitration provision from the unenforceable venue clause.

Signing legal documents without reading them

The third paragraph of the agreement included a bolded paragraph reiterating the parties’ mutual promise to arbitrate and to forfeit their rights to a trial by jury of any claim against each other. The court noted that “the plaintiff appears to state that he read the agreement before signing it, but, despite its clearly marked bolded paragraph with respect to the waiver of jury trial, the plaintiff did not ‘understand’ that waiver. Conversely, the defendant suggests that, in all likelihood, the plaintiff signed the agreement but did not read it.” The court observed:

It is well settled that a party is presumed to know the contents of a contract he has signed. Tennessee courts have stated that to allow a party to admit he signed a contract, but deny it expresses the agreement he made, or to allow him to admit he signed it but did not read it or know its stipulations would absolutely destroy the value of all contracts. As the defendant notes, the plaintiff has not denied signing the agreement, which contains clearly marked, bold letters explaining that parties who sign the agreement are giving up their right to a trial by jury. Thus, the court concludes that the plaintiff was sufficiently informed of the waiver of his right to a jury trial.

Application

Arbitration has many advantages over litigation in the civil courts. Consider the following:

(1) a much faster resolution of disputes;

(2) often, lower attorneys’ fees;

(3) monetary awards often are less than civil court judgments;

(4) there is little if any risk of punitive damages or verdicts astronomically disproportionate to the alleged wrong due to “runaway juries”;

(5) disputes are resolved privately, with little or no media attention;

(6) the plaintiffs’ attorneys appealing to the emotions of juries through courtroom theatrics is eliminated;

(7) arbitration can reconcile the parties involved in a dispute unlike civil litigation in which the parties almost always enter and leave court as enemies;

(8) no threatening letters from attorneys demanding exorbitant payoffs in order to avoid litigation;

(9) parties to a dispute can select one or more arbitrators having specialized knowledge concerning the issues involved (unlike civil court judges who often have limited familiarity with applicable law in church disputes);

(10) arbitration awards are final (no time-consuming appeals).

There are additional reasons for churches to consider the mediation or arbitration of disputes. First, most lawsuits against churches are brought by “insiders” (i.e., members and employees). Arbitration is ideal for such disputes. Second, there is scriptural support for arbitration of internal church disputes. In (NIV), the apostle Paul observed:

If any of you has a dispute with another, do you dare to take it before the ungodly for judgment instead of before the Lord’s people? Or do you not know that the Lord’s people will judge the world? And if you are to judge the world, are you not competent to judge trivial cases? Do you not know that we will judge angels? How much more the things of this life! Therefore, if you have disputes about such matters, do you ask for a ruling from those whose way of life is scorned in the church? I say this to shame you. Is it possible that there is nobody among you wise enough to judge a dispute between believers? But instead, one brother takes another to court—and this in front of unbelievers! The very fact that you have lawsuits among you means you have been completely defeated already. Why not rather be wronged? Why not rather be cheated? Instead, you yourselves cheat and do wrong, and you do this to your brothers and sisters.

With these numerous advantages, arbitration is becoming an increasingly common way of resolving disputes.

Key Point. Employment-related claims are significant not only because of their number, but also because they represent an uninsured risk for most churches. Most church general liability insurance policies contain no coverage for such claims. This means that when a church is sued for such a claim, it will be compelled to hire and pay its own attorney, and pay any settlement or court judgment. The costs associated with even a single claim can be substantial, and this can force a church to divert funds budgeted for ministry to legal fees.

Further, a discrimination complaint filed by a current or former employee with the Equal Employment Opportunity Commission (EEOC) or its state or local counterparts, can lead to time-consuming and often unpleasant interaction with government investigators that many church leaders have found to be condescending if not hostile toward religion.

Clearly, it is in the best interests of every church to consider alternatives to civil litigation. The decisions of the United States Supreme Court in the Gilmer, Circuit City, and Waffle House cases (see sidebar Three Supreme Court Rulings) demonstrate that arbitration is a legally valid alternative.

Here are some points to consider:

1. The arbitration of employment claims under state law

In the past, some courts and state legislatures attempted to impose limits on the enforceability of arbitration provisions in employment contracts under state law. The Supreme Court’s decision in the Circuit City case (see sidebar on page 4) addressed the enforceability of arbitration provisions in the context of state employment or civil rights claims. The Court concluded that (1) arbitration provisions are enforceable and are not barred by the FAA (for employees not directly engaged in transportation); and (2) the FAA preempts state laws that seek to impose limits on the enforceability of arbitration provisions in employment contracts. It is now clear that employers can compel employees to arbitrate wrongful dismissal and discrimination claims under state law by inserting valid arbitration provisions in employment contracts and applications.

The Supreme Court concluded in the Circuit City case that arbitration clauses prevent employees from pursuing discrimination or wrongful dismissal claims under state law. And it is these state law claims that expose employers to the greatest amount of money damages since there are limits on employer liability under Title VII of the federal Civil Rights Act of 1964. The Civil Rights Act of 1991 limits the amount of compensatory and punitive damages that are available to most discrimination victims. Because of these limits, plaintiffs’ attorneys who represent current and former employees often file claims under state law. It is these state law claims that expose employers to substantial jury verdicts, and it is these that the Supreme Court has said may be preempted by arbitration provisions.

2. The arbitration of employment claims under federal law

Can a clause in an employment application or contract calling for binding arbitration of employment disputes preempt the jurisdiction of the EEOC under federal employment and civil rights laws?

Example A church employs Barb as an office secretary. After working for the church for two years, Barb is dismissed because of extramarital sexual relations in violation of the church’s religious and moral teachings. Barb files a complaint with the EEOC claiming that her dismissal constituted unlawful sex discrimination in violation of Title VII of the federal Civil Rights Act of 1964 since the church had not dismissed a male youth pastor who was guilty of the same kind of misconduct a year earlier. The church insists that the EEOC must drop its investigation since Barb signed an employment application prior to being hired in which she agreed to resolve all legal disputes with the church, including discrimination claims under Title VII, through binding arbitration.

Is the EEOC deprived of jurisdiction over this claim by virtue of the arbitration clause in the church’s employment application? This issue was addressed by the Supreme Court in the Waffle House case (see sidebar on page 4). The Court ruled that arbitration agreements do not divest the EEOC of suing employers for violating federal employment discrimination laws, since the EEOC is not a party to such agreements. However, there is still a significant advantage to using arbitration clauses in employment applications and contracts, even with respect to claims under federal law. As the Court noted:

When speculating about the impact this decision might have on the behavior of employees and employers, it is worth recognizing that the EEOC files suit in less than one percent of the charges filed each year.

3. Should a church compel employees to arbitrate employment claims?

To answer this question, churches should consider these pertinent points:

(1) Review the advantages to arbitration (summarized above).

(2) Employment claims represent one of the most common grounds for lawsuits against churches.

(3) Is your church subject to state or federal civil rights laws protecting employees against various forms of discrimination? What about other kinds of employment claims, such as wrongful dismissal?

(4) Employment lawsuits generally are not covered under church general liability insurance policies. This means that if your church is sued for such a claim, you may be required to hire and pay your own attorney, and pay any settlement or court judgment. Costs associated with a single claim can be substantial.

(5) Check with your insurance agent to see if your church has insurance to cover employment claims. Note that such coverage may be available under a directors and officers insurance policy even if it is not provided under your general liability policy.

Key Point. If you don’t have insurance coverage for employment claims, then arbitration may help your church limit costs associated with such claims. But remember, the costs associated with a single claim may be substantial. As a result, church leaders should discuss with their insurance agent or broker the availability of employment practices insurance coverage. And, they should take steps to minimize or manage the risk of employment-related legal claims.

(6) If you have insurance to cover employment claims, then check with your insurance company to be sure that an arbitration award would be honored under your insurance policy up to your coverage limits.

(7) Consult an attorney concerning the advantages and disadvantages of an arbitration policy. You may want to have an attorney meet with your board or congregation concerning this issue. If possible, use an attorney who specializes in employment law.

4. How do we implement a policy for the arbitration of employment disputes?

In drafting policy, keep in mind:

How will the policy be implemented? There are a number of options, including an amendment to the church’s bylaws or a board-adopted policy that is referenced on each new member’s membership card. The most effective means of adopting an arbitration policy is for the church membership to adopt one as an amendment to the church bylaws. Since members are bound by the church bylaws (including any amendments), this approach will have the best chance of binding all members. In this regard, the Supreme Court has observed that “all who unite themselves to such a body do so with an implied consent to its government, and are bound to submit to it.” Watson v. Jones, 80 U.S. 679, 729 (1871).

What disputes will be referred to arbitration? Only those disputes relating to church affairs? Disputes between members? What about disputes between a minister and other members or between a minister and either the church board or the church itself? What about disputes between employees and the church? These are very important questions to resolve.

Key Point. While this article only addresses the arbitration of employment disputes, church leaders should consider expanding any policy to address other disputes as well.

How will the arbitration process be conducted? Often, each side in a dispute selects an arbitrator, and the two persons selected choose a third arbitrator. The third arbitrator must be completely unbiased. Arbitration procedure often is informal, and attorneys may or may not be allowed to participate.

It is essential to consult the church’s liability insurer before implementing any arbitration policy to ensure that it is in agreement with the process and will honor arbitrators’ judgments up to the policy limits. Churches should not change insurers without obtaining the same assurances. The arbitration policy may even contain language conditioning its use on acceptance by the church’s liability insurer.

Given the importance of having a policy that complies with applicable state and federal laws, we recommend that any church wanting to adopt an arbitration policy retain the services of an attorney who specializes in employment law. The last thing you want is a false sense of security based on a homemade and unenforceable arbitration policy. Here are some recommendations you may want to share with your attorney:

(1) Find churches in your state that have adopted arbitration policies and ask if you can see their policies.

(2) Ask your insurance company for sample arbitration policies for churches.

(3) Be sure that the arbitration policy covers claims under federal, state, and local civil rights and employment laws. Ideally, you will want to refer to applicable laws by name. If you don’t, then employees may be able to avoid arbitration by saying that they did not understand what they were agreeing to arbitrate because the arbitration clause was not specific enough.

(4) Be sure the arbitration policy contains a “severability” clause. Such a clause states that if any provision of the policy is determined to be invalid by a court of law, the remaining provisions will remain valid. To illustrate, if the Supreme Court reverses the Waffle House case (see sidebar on page 4), then employees cannot be compelled to arbitrate claims under federal civil rights laws. A church arbitration clause that covers both federal and state claims will likely remain valid as to state claims, and this conclusion will be reinforced by the presence of a severability clause.

Tip Your attorney will assist you in deciding whether to place the arbitration policy in your employment application, an employee handbook, or the church’s governing documents.

Caution Be wary of “form” agreements that you find online or in a bookstore since they seldom will be adequate and often will create problems and ambiguities. This is illustrated by the ruling of the federal court in Tennessee addressed at the beginning of this article. The parties were in Tennessee, but the arbitration agreement (obviously a form agreement) required arbitration to occur in Orange County, California. The court also noted that the arbitration agreement inexplicably contained several California-specific provisions, including certain remedies that the employee retains under California law, including the right to file and pursue proceedings before the California Department of Fair Employment and Housing and a variety of California statutory claims, including claims arising under the California Workers’ Compensation Act, Employment Development Department, and the California Fair Employment and Housing Act. Clearly, the church was using a template that was intended for use in California, and neglected to make it Tennessee-specific.

(5) What about employment disputes regarding ministers?

Should church arbitration policies apply to ministers as well as lay employees? Note the following unique rules:

In 2012, a unanimous Supreme Court affirmed the so-called “ministerial exception” which bars the civil courts from resolving employment disputes between churches and ministers:

We agree that there is such a ministerial exception. The members of a religious group put their faith in the hands of their ministers. Requiring a church to accept or retain an unwanted minister, or punishing a church for failing to do so, intrudes upon more than a mere employment decision. Such action interferes with the internal governance of the church, depriving the church of control over the selection of those who will personify its beliefs. By imposing an unwanted minister, the state infringes the Free Exercise Clause, which protects a religious group’s right to shape its own faith and mission through its appointments. According the state the power to determine which individuals will minister to the faithful also violates the Establishment Clause, which prohibits government involvement in such ecclesiastical decisions. Hosanna-Tabor Evangelical Lutheran Church and School v. E.E.O.C., 132 S.Ct. 694 (2012).

What is the relevance of this ruling to church arbitration policies? Some have suggested that church arbitration policies do not apply to ministers and those serving in positions that would be deemed “ministerial.” The reasoning is, why submit claims to arbitration that the civil courts would not accept? But note that churches and denominational agencies continue to be sued by current or former ministers who seek judicial recognition of exceptions to the ministerial exception. A few of these cases have been successful, and as a result, church leaders should not assume that the ministerial exception renders clergy coverage under a church’s arbitration policy unnecessary.

Many churches have bylaws or other governing documents that prescribe how ministers are selected and removed. If a congregation acts to remove a minister in accordance with its governing documents and the minister threatens to challenge the church’s decision, you need to decide if this is the kind of claim you want to submit to arbitration. That is, if the church acts consistently with its bylaws in removing the pastor, should the pastor be able to use the church’s arbitration policy to challenge the church’s decision? Once again, the courts generally have not been willing to resolve such claims.

In some churches, ministers are selected and removed only through action of a parent denominational agency. Employment claims involving ministers are resolved within the denomination using existing procedures. An arbitration of such claims may be preempted by denominational rules. This issue must be clarified with denominational officers before adopting an arbitration policy that applies to ministers.

(6) What about the arbitration of other claims?

This article is addressing only the arbitration of employment disputes. Church leaders may want to consider adopting a separate policy to resolve disputes involving members and the church, or disputes between members.

(7) Civil court review of arbitration awards.

Note that the FAA cautions that “an agreement in writing to submit to arbitration an existing controversy … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” In other words, an agreement to arbitrate is a contract, and like any contract, is subject to challenge on the basis of a number of legal theories. This is why it is important for churches to have arbitration policies drafted by an attorney who specializes in employment law.

(8) What about current employees who have not signed an arbitration agreement?

Let’s say that your church has seven employees and that you decide to adopt an arbitration policy this year. Will your policy be binding on existing employees or only on new employees hired after implementation of the policy? The courts have reached conflicting answers to this question. Ask your attorney how to best ensure that your policy covers both current and future employees. The key consideration is the legal doctrine of “consideration.” In order for a contract or contractual amendment or provision to be legally enforceable, the party to be bound by it must receive something of value (called “consideration”) in return for the obligation to be bound by it. As a result, any new employment conditions, such as the arbitration of disputes, are not legally enforceable unless employees receive something of value (other than compensation or benefits to which they are already entitled).

For example, some courts have ruled that an agreement to arbitrate future employment claims is enforceable if incorporated into current employees’ annual performance reviews. Other courts have allowed an arbitration policy to apply to current employees so long as they agree in writing to be bound by the policy at the time they receive a pay raise.

5. Are there disadvantages to arbitration that we should consider?

Some attorneys who specialize in employment law point to several potential disadvantages to the arbitration of church disputes that church leaders should consider in making informed decisions. These include the following:

First, and perhaps most importantly, the arbitration of a church employment dispute may leave the church with little if any recourse should arbitrators reach an adverse decision. To illustrate, assume that a church elects to arbitrate a dispute with a dismissed pastor who is alleging age discrimination. The civil courts would not adjudicate such a dispute due to the ministerial exception mentioned above. What if an arbitrator is a layperson who is unfamiliar with the ministerial exception and decides to award the pastor monetary damages? The church may have no appeal or other recourse. Or, what if an arbitrator awards a disgruntled church employee an excessive sum of money out of proportion to the alleged injury? Or, what if an arbitrator is a layperson unfamiliar with the legal issues involved in the arbitration of an employment dispute? An arbitration award may be final even if based on the arbitrator’s lack of knowledge of the relevant law.

Second, the integrity of arbitration depends entirely on the competence and objectivity of the arbitrators. But how can the objectivity of arbitrators be ensured? In some cases, both parties to arbitration agree upon a single arbitrator, while in other cases each side selects an arbitrator and these two select a third. It is impossible to guaranty objectivity in all cases, and this can lead to unfair results with little if any recourse.

Third, the right of the parties in an arbitration to gather relevant evidence through depositions and requests for the production of documents may be limited, resulting in arbitration awards based on incomplete evidence.

Fourth, in any civil lawsuit, parties can “join” or add another defendant who is ultimately responsible for a plaintiff’s injuries. The important principle of joinder generally is unavailable in arbitration because the third party has not consented to it.

6. The “I didn’t read it” defense

Many employees have tried to avoid a binding arbitration requirement in an employment application or employer policy manual by claiming that they did not read it or were not aware of it and therefore cannot be bound by it. The Tennessee federal district court rejected this defense, as noted above, by observing:

Several other courts have reached the same conclusion. To illustrate, an employee, at the time of hire, signed a form indicating that she was aware of the employer’s arbitration policy and agreed to be bound by it. Her employment was terminated six months later, and she sued her former employer. The employer claimed that the arbitration policy precluded her from suing in civil court. The former employee claimed that she was unaware of the arbitration policy because she did not carefully read the form she signed agreeing to be bound by it, or the policy itself, or the employee handbook. The court rejected this as a basis for avoiding the legal effect of the documents she signed, noting that “a person of ordinary mind cannot be heard to say that he was misled into signing a paper which was different from what he intended, when he could have known the truth by merely looking when he signed.”

Further, the fact that the employee signed a form agreeing to be bound by the arbitration policy in the course of signing 18 different forms during her new employee orientation did not nullify the legal validity of those forms, since “the parties to an agreement should be able to rely on the fact that affixing a signature which acknowledges one has read, understood, and agrees to be bound by the terms of an agreement means what it purports to mean.” Butcher v. Bally Total Fitness Corporation, 2003 WL 1785027 (Ohio App. 2003).

7. Leading cases involving church arbitration

Several courts have addressed the ar-bitration of various church disputes. Summarized below are the leading cases.

Case Study Prescott v. Northlake Christian School, 141 Fed.Appx. 263 (5th Cir. 2005)

A federal appeals court enforced the decision of an arbitrator in an employment dispute between a church-operated school in Louisiana and its principal. The principal of a private Christian school (the “plaintiff”) was fired from her position, and she later sued the school for breach of contract and discrimination. The school asked the court to compel the plaintiff to arbitrate her claims pursuant to an arbitration provision in her employment contract. The plaintiff was reluctant at first to pursue arbitration because she was concerned the process was biased in favor of the school. She ultimately agreed to the arbitration policy with modifications. One modification made the arbitration procedure subject to the Montana Arbitration Act. The court granted this request, and an arbitration was conducted in accordance with the Rules of Procedure for Christian Conciliation (“Rules”) of the Institute for Christian Conciliation (ICC). In arbitration, the plaintiff prevailed on her breach of contract claim and was awarded $150,000 in damages. In reaching his decision, the arbitrator determined the school had wrongfully discharged the plaintiff by failing to follow biblical precepts, as required in her employment contract; specifically, the conflict resolution process described in Matthew 18.

The school asked a federal district court to vacate the arbitration on the basis of the Montana Arbitration Act, which empowers the civil courts to vacate arbitration awards under narrow conditions including arbitrator bias and an arbitrator acting outside the scope of his or her authority. A federal district court ruled that none of these exceptions applied, and the school appealed. A federal appeals court agreed that none of the narrow grounds for vacating the arbitrator’s award existed in this case. It concluded:

The parties freely and knowingly contracted to have their relationship governed by specified provisions of the Bible and the Rules of the ICC, and the arbitrator’s determination that the school had not acted according to the dictates of Matthew 18 relates to that contract. Further, the Rules of the ICC indisputably contemplate that an arbitrator will have extremely broad discretion to fashion an appropriate remedy; and no language in the parties’ contracts expresses their intent to depart from the Rules of the ICC. We hold that the arbitrator’s award of damages is rationally derived from [the plaintiff’s] employment contract with the school and is not contrary to any express contractual provisions, either biblical or secular. Consequently, the school is not entitled to a vacating of the arbitrator’s decision on this ground.

The court also rejected the school’s claim that the arbitrator’s award should be vacated on the basis of the arbitrator’s lack of impartiality since the school failed to address or explain this argument in the brief it submitted to the court.

Case Study Jenkins v. Trinity Evangelical Lutheran Church, 825 N.E.2d 1206 (Ill. App. 2005)

An Illinois court upheld the validity of a church arbitration policy despite the alleged “bias” of the arbitrators. The plaintiff pointed out that the procedure called for arbitrators who are either members or employees of the church or parent denomination. He claimed that these people cannot be impartial, and this made the agreement to arbitrate invalid. The court disagreed, noting that “the purpose of the dispute resolution procedure is to resolve disputes within the church,” and that the plaintiff had “not pointed to any specific prejudice he would suffer under the bylaws, but only a generalized fear of partiality. This anxiety is insufficient to overturn the arbitration process.” Further, the court noted that the plaintiff consented to this procedure when he became a pastor.

Case Study General Conference v. Faith Church, 809 N.W.2d 117 (Iowa 2012)

An Iowa court compelled a church to submit to the arbitration of a dispute it had with a denominational agency as a result of an arbitration provision in the agency’s governing documents. A pastor wrote his denomination (the “national church”) informing it that his church had voted unanimously to withdraw from the national church. An officer of the national church informed the pastor that the actions of his church violated the denominational Book of Discipline in several respects, including a requirement that all disputes be resolved through Christian arbitration. The Book of Discipline specifies that the national church and its affiliated congregations “agree that they will attempt to resolve all non-doctrinal disputes among themselves without resort to the courts. A non-doctrinal dispute is a dispute … that a civil court could otherwise decide and, therefore, does not include matters of church doctrine.”

When the pastor refused to resolve the dispute through arbitration, the national church responded by asking a court to compel arbitration as required by the Book of Discipline. The court granted the national church’s request and ordered the dissident church to submit to arbitration. The church appealed, claiming that there was no enforceable agreement to arbitrate.

A state appeals court began its opinion by noting that arbitration “is a matter of contract and parties cannot be compelled to arbitrate a question which they have not agreed to arbitrate.” The court cited a state statute requiring agreements to arbitrate to be contained in a “written contract.” The court ruled that the Book of Discipline constituted a written contract requiring disputes to be settled through arbitration even though it did not use the term “contract.” It construed the Book of Discipline as an “offer” to local churches to join the national church, and churches “accepted” the offer by adopting a resolution for affiliation. The court concluded that “based on general principles of contract law, the record supports there was an offer and acceptance between the parties in their assent to be bound and formally affiliated.”

Having found that a valid arbitration agreement existed, the court addressed the question of whether the conflict in this case was nondoctrinal in nature, since such a finding would compel arbitration under the Book of Discipline. The court agreed with the national church that the dispute was nondoctrinal since it involved control of church property, which is an issue that the civil courts may resolve. It concluded:

Because either a proper withdrawal under the Discipline or an improper withdrawal where [the church’s] building could be left in the hands of [the national church] will affect the property interests of both parties, and these property interests are contemplated in and embraced by the language of [the Book of Discipline] we find that a non-doctrinal dispute exists between the parties and that the dispute concerning the property, which stems from the proposed withdrawal, is subject to resolution via the agreed upon method under the Discipline utilizing “Christian conciliation, mediation, or arbitration.” We therefore affirm the district court’s ruling, granting [the national church’s] application for order to compel arbitration.

Case Study American Union of Baptists v. Trustees of the Particular Primitive Baptist Church, 644 A.2d 1063 (Md. 1994)

Maryland’s highest court ruled that an arbitration award addressing the composition of a church’s board of trustees was not reviewable by the civil courts since any review would require an interpretation of religious doctrine. A dispute arose within a church regarding control of church property. A faction of the church board (the “dissident faction”), headed by the board’s president, claimed that the church had become extinct because its minister had died and there were no living members. This group did not recognize the current congregation to be “members.” Another faction of the board opposed the dissidents and called a special business meeting to elect a new board. The dissident faction claimed that this election was invalid because the meeting had not been properly called by the president as required by the church’s bylaws. The dissident group later authorized the merger of the church with another congregation, and the resulting church elected new trustees including the dissident members and president. As a result, there were two boards of trustees claiming control of the church and its property.

In order to resolve this impasse, the parties submitted the dispute to arbitration pursuant to a provision in the Maryland nonprofit corporation law. This provision specifies that “if any contest arises over the voting rights or the fair conduct of an election,” then the matter shall be submitted to arbitration and the arbitrators’ judgment will be “final.” The arbitrators ruled in favor of the board elected at the special business meeting, and the dissident board members immediately appealed to a civil court. The court refused to adopt a rule preventing civil court review of all arbitration awards involving church elections. While conceding that the civil courts could not review such awards if they involve religious doctrine or polity, it noted that not all disputes fall into this category. The court concluded that this dispute did involve religious doctrine and polity, making any judicial review of the arbitration award impermissible: “The root question, then, is whether the [church] was extinct … . The church would be deemed extinct if it had no members; the existence of members, conversely, would keep the church alive. It is well-settled in this state that the determination of a membership in a church is a question well embedded in the theological thicket and one that will not be entertained by the civil courts.” See also Seat Pleasant v. Long, 691 A.2d 721 (Md. App. 1997).

Case Study Elmora Hebrew Center v. Fishman, 570 A.2d 1297 (N.J. Super. 1990), aff’d, 593 A.2d 725 (N.J. 1991)

A New Jersey court upheld an arbitration award entered in a dispute between a synagogue and its rabbi. The synagogue and its rabbi were embroiled in a “lengthy and destructive dispute” that they agreed to submit to binding arbitration by a panel of ecclesiastical experts (a “Beth Din”). The “arbitration agreement” signed by the parties specified:

This is to certify that we the undersigned fully accept upon ourselves the following judgment of the Beth Din of the Union of Orthodox Rabbis of the United States and Canada … to adjudicate between us according to their judicious wisdom, we affirm hereby that we have accepted upon ourselves to obey and fulfill the judgment which shall issue forth from this Beth Din whether it be verdict or compromise, according to the determination of the aforementioned judges without any appeal whatsoever before any Beth Din under Jewish law or any civil court, but it is incumbent upon us to obey the verdict of the aforementioned Beth Din without any further complaint. All of the above was entered into voluntarily … without any reservations whatsoever in a recognizable and legally binding manner and is entered into in a manner so to be completely and lawfully binding.

After an extended hearing involving “voluminous documentary evidence” and “lengthy oral testimony,” the Beth Din ordered the synagogue to pay the rabbi $100,000, and asked the rabbi to resign “for the sake of peace” (it found no other basis to remove him). The synagogue appealed this arbitration order to a state civil court. A state appeals court upheld the decision of the Beth Din, and rejected the synagogue’s appeal. It observed that the “arbitration agreement” was entered into “freely and voluntarily, with an awareness on the part of both sides as to the meaning and significance of that form of religious dispute resolution.” The court noted that the authority of a civil court to review an arbitration award is “extremely limited,” and is not permissible “absent proof of fraud, partiality, [or] misconduct on the part of the arbitrators … .” The court concluded by noting that “the law favors dispute resolution through consensual arbitration, and so the award is presumed to be valid. So it is here. On this record, the Beth Din’s decision and award must be confirmed.”

Case Study South Huntington Jewish Center, Inc. v. Heyman, 723 N.Y.S.2d 511 (App. Div. 2001)

A New York court ruled that an arbitration clause in an employment contract between a synagogue and a rabbi was legally enforceable, and so the rabbi was barred from suing the synagogue in civil court for discrimination and wrongful termination. The court concluded: “We perceive no public policy reasons for not enforcing anticipatory agreements to arbitrate statutory employment discrimination claims arising under [state law]. Moreover, the broad arbitration clause in [the rabbi’s] employment contract encompasses his claim of wrongful discharge based on a physical disability.

Three Supreme Court Rulings

The United States Supreme Court issued important decisions in 1991, 2001, and 2002 regarding the validity of arbitration policies:

(1) Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20 (1991). The Supreme Court ruled that a compulsory arbitration clause in an employment agreement prevented an employee from bringing an age discrimination claim against his employer. The Court concluded: “It is by now clear that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA … . 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 arbitrator rather than a judicial forum… . Although all statutory claims may not be appropriate for arbitration, having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.” And, “it should be kept in mind that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.”

(2) Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001). The Court ruled that a clause in an employment application requiring disputes to be settled through binding arbitration was legally enforceable. As a result, the Court threw out a lawsuit brought by an employee for alleged violations of a state nondiscrimination law and ordered the dispute to be resolved through arbitration.

(3) EEOC v. Waffle House, Inc., 534 U.S. 279 (2002). The Court held that the EEOC could not be barred from seeking victim-specific relief under Title VII, even where the individual employee signs a mandatory arbitration agreement. The Court noted that “nothing in the statute authorizes a court to compel arbitration of any issues, or by any parties, that are not already covered in the agreement. The Federal Arbitration Act does not mention enforcement by public agencies; it ensures the enforceability of private agreements to arbitrate, but otherwise does not purport to place any restriction on a nonparty’s choice of a judicial forum.” The Court further observed that “it goes without saying that a contract cannot bind a nonparty.” Thus, the Supreme Court concluded that the EEOC (a nonsignatory) could not be bound by an employee’s arbitration agreement.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.