A federal court in Louisiana refused to overturn an arbitration award in an employment dispute between a church-operated school and a former employee.

Church Law and Tax2003-11-01


Key point 10-16.8. Churches have various defenses available to them 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.
Negligence as a Basis for Liability

* A federal court in Louisiana refused to overturn an arbitration award in an employment dispute between a church-operated school and a former employee, and concluded that a mandatory arbitration provision in the school’s employment contracts was binding on the courts. A church-operated school hired a woman (“Pamela”) to serve as elementary principal. The contract required that all disputes arising out of the employment relationship be submitted to biblically-based mediation and arbitration. The contract further required that the arbitration process be governed by the Rules of Procedure for Christian Conciliation, written by the Institute for Christian Conciliation (ICC Rules). The parties agreed that this would be the sole method for resolving claims and disputes between them, and that employees waived the right to file lawsuits.

Pamela’s employment was terminated by the school. She later sued the school, and its board of directors, on several grounds including sex discrimination, sexual harassment, retaliation, and breach of contract. The court granted the school’s motion to compel arbitration based on the employment contract’s arbitration provision. The parties then submitted their dispute to biblically-based mediation and arbitration. The parties signed a mediation/arbitration agreement stating that they would proceed before the Institute for Christian Conciliation (ICC) and would be governed by the ICC Rules. The agreement also stated that the agreement was subject to arbitration pursuant to the Montana Uniform Arbitration Act. Lastly, the parties agreed to include a handwritten clause which stated that “no party waives appeal rights, if any, by signing this agreement.”

After unsuccessful attempts at mediation, the parties proceeded before a sole arbitrator. During the course of the six-day arbitration hearing, the arbitrator heard testimony from at least twenty-eight witnesses and received and reviewed the evidence and affidavits submitted by the parties. The arbitrator rendered a decision awarding Pamela $157,856 for damage to her reputation and future loss of income. The arbitrator also concluded that the school owed Pamela an additional $786 for past due “COBRA” payments. The arbitrator concluded that the evidence failed to prove Pamela’s claims for sex discrimination and sexual harassment. However, the arbitrator did conclude that the school breached its contract “legally as well as Biblically” in wrongfully terminating Pamela. The arbitrator stressed that the school failed to follow Matthew 18, one of the major biblical principles which guided and governed the parties’ employment contract and relationship. The school unsuccessfully urged the arbitrator to reconsider his decision.

Pamela asked a federal court to confirm the arbitration award, arguing that the award was final and binding. The school asked the court to revoke the award on the ground that the arbitrator engaged in misconduct and exceeded the powers given to him by the arbitration agreement. The school also claimed that the handwritten clause included in the arbitration agreement by the parties expands the scope of the court’s judicial review. Pursuant to this expanded scope of review, the school argued that the court should vacate the award on the grounds that the arbitrator erred as a matter of law in concluding that Pamela was wrongfully terminated and in awarding her damages despite the fact that the school fully compensated her after her termination.

The court noted that judicial review of an arbitration award “is strictly limited” and is possible only if (1) the award was the product of corruption or fraud; (2) the arbitrator was biased; or (3) the arbitrator exceeded his authority. The court concluded that none of these exceptions applied, and therefore the arbitration award had to be confirmed. It observed,

Defendant is a Christian private school. As a condition of being hired by the school, Pamela was required to be a “born again” Christian. Paragraph eleven of the employment contract states that she had to follow the principles of Matthew 18 and other biblical principles. The contract further required that both parties resolve their disputes in conformity with Matthew 18 and other biblical principles. The arbitrator found that the school wrongfully terminated Pamela by failing to follow Matthew 18. The arbitrator concluded that Matthew 18 applied to the actual employment relationship of the parties and was not just a procedural rule to govern the mediation and arbitration process. Given the unique nature of this employment agreement and the parties’ choice of arbitration method, it appears that the arbitrator’s award was rationally related to the parties’ agreement. While the employment contract does state that it should be interpreted under the laws of Louisiana, the contract and the arbitration agreement stress the supreme authority of the Bible in the employment relationship between the school and its employees. The parties intended to be guided not only by state and federal secular law, but also by the Bible. Under [state law] the award cannot be overturned merely because a court would not have been able to award similar damages. Consequently, the arbitrator did not exceed his powers in the instant case by finding that there was a “biblical” breach of contract.

Application. Our research indicates that employment disputes are one of the most common forms of church litigation. One way that some churches are attempting to manage this risk is to incorporate arbitration clauses in employment contracts or handbooks. This is one of the few courts to address the validity of such clauses. The court’s conclusion that an arbitration clause was enforceable, and deprived the parties of taking their dispute to the civil courts, will be a helpful precedent in support of the validity of such clauses. Note, however, that the arbitrator ruled in favor of the employee and against the church. Church leaders should recognize that an arbitration clause does not necessarily mean that the church will be “better off” than if employment disputes were resolved in court. Further, church leaders should have an arbitration clause drafted by an attorney, and approved by the church insurance company. If the insurer refuses to honor arbitration awards, then arbitration clauses will expose churches to uninsured risks. Prescott v. Northlake Christian School, 2002 WL 31545856 (E.D. La. 2002).

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