A federal appeals court enforced the decision of an arbitrator in an employment dispute between a church-operated school and its principal.

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 appeals court enforced the decision of an arbitrator in an employment dispute between a church-operated school and its principal. The principal ('Julie') of a private Christian school was fired from her position, and she later sued the school for breach of contract and discrimination. The school asked the court to compel Julie to arbitrate her claims pursuant to an arbitration provision in her employment contract. Julie was reluctant at first to pursue arbitration because she was concerned that the ICC 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, Julie prevailed on her breach of contract claim and was awarded $150,000 in damages. In reaching his decision, the arbitrator determined that the school had wrongfully discharged Julie 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 Julie'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.

. This case is important for the following reasons:

1. It illustrates the value of using arbitration policies to resolve disputes. 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 implement arbitration policies. This is one of the few courts to address the validity of such policies. The court's conclusion that the school's arbitration policy was legally enforceable will be a helpful precedent in support of the validity of such policies.

2. Note that the arbitrator ruled in favor of the employee and against the school. 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.

3. The case also illustrates the fundamental principle that arbitration awards ordinarily are binding and not subject to civil court review except under very narrow conditions that were not met in this case. A party that 'loses' in an arbitration proceeding generally cannot run to the courts to have the award reversed.

4. Any arbitration policy should be drafted by an attorney, and submitted to the church's liability insurer for review. It is advisable that any church arbitration procedure be conditioned on its acceptance by the church's insurers.

5. The ability of employers to apply new policies to current employees has been a troubling legal question. In general, for a promise or commitment (such as an employee's "agreement" to be bound by a new employment policy) to be legally enforceable, the employee must receive some "consideration" or value in exchange for his or her agreement. Is continuing employment sufficient consideration to extend new policies to current employees? The courts have reached different answers to this question. To be certain, it is always advisable to offer additional consideration to current employees in return for their agreement to be bound by a new employment policy. This is another reason why it is important to have an attorney work with you in implementing an arbitration policy. Prescott v. Northlake Christian School, 141 Fed.Appx. 263 (5th Cir. 2005).

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