Commentary

A look behind a different curtain: Arbitration 101

Photo: Earl Gardner

In lieu of news about player signings and such involving your Philadelphia Union, fans are instead being entertained by the recent revelations involving the club’s very first coach and technical director, Peter Nowak, contained in Tuesday’s release of court documents concerning his lawsuit against the team for wrongful dismissal.

Well, “entertained” may not be the word. Rather, fans have been given a rare glimpse behind the curtain of a franchise in a league not known for being especially transparent, and what we have seen is, in a word, ugly. Fans have learned (shock!) that at the time of Nowak’s firing the Union was grossly under-financed — so much so that it could not pay its franchise fee (and was placed on a payment plan that it duly met). Fans have learned (shock!) that Nowak was a martinet of the worst order, bullying and abusing players like a character from a Dickens novel. And so on.

As it is, I’ll spare you the details. Instead, let’s take a look at how we got to learn all of this stuff in the first place: Why did Nowak sue, how did he lose, and where does he go from here?

The Great Barstool Myth

First, you should know one thing: You are not Peter Nowak. This is a good thing, as you would probably be in jail if you carried on like he did in the workplace.

More to the point, unlike Nowak, most readers of this piece are at will employees. What does that mean? It means that, contrary to popular belief, you have no right to your job. Your employer can terminate you at any time, and for any reason — or, indeed, no reason. Unless you are represented by a union, or (like Nowak) have a personal employment contract, your employment is at the whim of the employer. It should be noted that certain laws limit reasons for termination; for instance, you cannot be fired based on your race, sex, age, religious affiliation, etc. However, for the most part, you are on your own.

Your end of the bargain? You are not required to give two weeks’ notice.

Anyway, Nowak had a contract with the Union. As a result, he had more rights under contract than he would have under the law. Once the Union fired him, he decided that he would attempt to enforce those rights.

Going to court

Nowak’s first move was to file a lawsuit in federal court in the Eastern District of Pennsylvania, claiming breach of contract and, basically, seeking an order requiring the team to hire him back (or, in the alternative, pay the balance of the salary owed under the contract).

How is this different from most firings of coaches, where the coach continues to get paid?

Most coaches get the ax because they are not very good at their jobs. As their contracts are guaranteed, they get paid anyway. However, most of these contracts also contain a “just cause” provision stating, in essence, if the coach does something really bad — beyond simply being a poor coach — then he forfeits the remainder of pay due him under the agreement.

In this case (and, in light of the recent disclosures, we can see why), the Union fired Nowak for cause. Nowak disputed such cause existed, and sought to get himself reinstated.

One small problem for Nowak’s lawsuit: The Union had the foresight to include a clause stating that any disputes under the agreement would not be settled in court but, rather, at arbitration. As a result, the federal court did not act on the case and instead forced the parties to go to arbitration.

Why arbitration?

Virtually every collective bargaining agreement (that is, a contract between an employer and the union representing its employees) and an ever-increasing number of employment contracts include arbitration clauses, whereby the parties are required to take disputes before a neutral arbitrator and she issues a decision. Basically, arbitration is no different than a trial in court. However, it is much less formal, moves a lot quicker, and, as a result, tends to be a lot less expensive than litigation. Arbitration also tends to be a lot more “final” — for reasons I’ll discuss a little later, reviewing courts have much less authority to second-guess an arbitrator than they could a lower court.

The arbitrator is both judge and jury. In other words, she is both the finder of fact and the finder of law. In a trial, it is the jury that is usually the finder of fact (although judges can fill that role if a trial by jury has been waived).

Here, the Nowak Employment Agreement required the parties to use the American Arbitration Association (“AAA”)  for the resolution of disputes. After being ordered to go to arbitration, Nowak’s attorney dutifully filed a demand for arbitration and, pursuant to AAA rules, the parties then set about mutually agreeing upon an arbitrator. Ultimately, the parties selected Margaret Brogan, a very experienced labor arbitrator.

Incidentally, it should be noted that, while this case was processed as an “employment arbitration,” under AAA’s rules for such cases, the issues concerning Nowak’s discharge basically made it a labor case. In essence, the Philadelphia Union was required to meet the same burden of proof as Coca-Cola would after firing an employee represented by the Teamsters — that is, that there was just cause for the discharge.

What is “just cause”?

Entire books have been written about the “just cause” concept, none of which you’ll want to read. Generally speaking, there are the “seven tests of just cause.” Rather than spell them out, I’ll summarize them in one sentence: the employer needs to have a reason for termination, it must be a good reason, and — even if a good reason — the punishment must fit the crime. In other words, an employee with 25 years of service cannot be discharged for being late to work one time, even if being late to work might otherwise be a good reason for discharge.

An employee in a discharge case is innocent until proven guilty. If you think of the employer as the District Attorney and the employee as a defendant, you have pretty good idea of how a discharge arbitration works. One huge difference, however, is this: The burden of proof in a criminal case is beyond a reasonable doubt. In a discharge case, however, all the Philadelphia Union needed to do was prove by a preponderance of the evidence that it had just cause to sack Nowak. What is the preponderance standard, exactly? Think of a scale — however slightly that scale tips, that side wins the case.

The arbitration award

Before Arbitrator Brogan, the Philadelphia Union bore the burden of proof and persuasion to show it had just cause to terminate Nowak. As it presented witnesses, Nowak’s attorney could then cross-examine them. Once the Union’s case concluded, Nowak was able to present witnesses who, in turn, would be cross-examined by the team’s counsel. Along the way, documentary evidence would be submitted through those witnesses. The net result is a record upon which the arbitrator could make her findings of fact and conclusions of law.

After the five days of hearing in this case, both sides submitted briefs and reply briefs. With those submissions, the record was closed, and it was time for Arbitrator Brogan to make her decision.

During the hearing, the Union presented testimony from a number of players and team officials, as well as a representative from the players’ union, concerning:

  1. Nowak’s edict that players not contact their union about employment issues (itself a violation of federal law);
  2. A 12-mile run in which players were denied water and injured players were required to participate, over the strenuous objection of the team’s head trainer;
  3. A hazing ritual that found rookies being spanked; and
  4. Nowak’s indifference to concussions. Apparently, Nowak did not deny the substance most of the assertions, although he offered “explanations” (such as his “water makes you weak” speech being a story about a coach in Germany).

Interestingly, although such actions would also be in breach of the employment agreement, it does not appear that evidence about Nowak’s bad-mouthing the club or seeking employment elsewhere while employed by the Union was a primary part of the Union’s case-in-chief.

In any event, Arbitrator Brogan weighed all of the evidence, and the credibility of the witnesses. As we now know, she found that Nowak was guilty of all that he had been accused of and that, as a result, the team had just cause to terminate his employment contract. She also ruled on counterclaims presented by the team (which were not disputed by Nowak), and further held that Nowak has to repay loans and other moneys advanced by the Union.

As the employment agreement also provided that the losing party has to pay the other’s legal fees, Nowak was also ordered to pay the Union’s lawyers.

In sum: Nowak was blown out of the water. And, frankly, deservedly so, based upon the facts as Arbitrator Brogan found them.

Court action

Although arbitration awards are usually referred to as “final and binding,” federal law does allow litigants at an arbitration to file appeals with federal court. Not surprisingly, Nowak filed an appeal, and the Union cross-filed seeking confirmance of the award.

However, as noted earlier, arbitration is a bit more “final” than a court case. When a reviewing court reviews a lower court decision, it has the authority to second-guess the findings of the trial judge. This is known as de novo (“a new”) review.

The federal court will not get to review Arbitrator Brogan’s decision de novo. Rather, the court is bound by the principles of the Uniform Arbitration Act, which limits a court’s ability to vacate (or, in other words, throw out) an award to cases where an Arbitrator shows evident bias, engages in misconduct, fails to consider evidence or imperfectly executed his or her powers.

Nowak’s appeal offers a shotgun blast of allegations. “The Arbitration Award was internally inconsistent, unsupported by the evidence and misread the underlying employment contract, misapplies the law and showed evidence of clear bias,” offers Nowak in his memorandum of law in support of vacatur. Distilled to its essence, his argument can be summarized as follows: “The Arbitrator was wrong, and she was biased because she ruled against me.” However, this is insufficient to justify vacatur — even if the reviewing court happens to agree with the argument.

Instead, the court will apply what is called the “essence test.” In laymen’s terms, a court’s view is that the parties “get what they pay for.” In other words, if the parties have agreed to utilize arbitration to resolve disputes, then it is the arbitrator’s judgment and all that it connotes that was bargained for. Part of what the arbitrator’s judgment includes is the arbitrator’s view of the facts and of the meaning of the contract that the parties have agreed to accept. Therefore, a court may not reject the arbitrator’s findings simply because it disagrees with them, nor may it reject an award on the ground that the arbitrator misread the contract. As stated by the United States Supreme Court, “[c]ourts therefore are prohibited from second guessing the arbitrator’s fact finding and contract interpretation as long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,” rather than simply applying her own brand of industrial justice.

Simply put, an arbitrator cannot rewrite the terms of the agreement (for example, if the Nowak Agreement clearly and unequivocally said that he could be fired “for cause” if he traded the team’s leading scorer, the arbitrator is not allowed to ignore those terms and essentially re-write the agreement by finding that, even though Nowak did sell Sebastien Le Toux for a bag of beans, he deserves another chance). However, that’s pretty much the only limitation. Other than something like clear evidence of fraud, or trying to re-write the contract, courts will not disturb arbitration awards.

In a few months the District Court will issue a decision on the motions. For all intents and purposes, however, Nowak’s quixotic attempt to force the Union to pay him for the final three and-a-half years of his contract is over.

17 Comments

  1. Jeremy Lane says:

    I find these pieces fascinating. Thanks!

  2. Wonderful job Steve. Thank you for taking the time and effort. It is much appreciated.

  3. pragmatist says:

    We have the greatest fan site for any sport anywhere in this country.
    .
    Great job, Steve. This was a great read, and spelled things out very well.
    .
    My personal favorite: “In sum: Nowak was blown out of the water.” Not for the legal basis of that statement, but because it was a very cathartic sentence!

  4. el Pachyderm says:

    I appreciate the quick like work accomplished here … quite informative though I admit to being in a fog reading the remainder of it after, ‘bullying and abusing players like a character from a Dickens novel’.
    .
    The man can decode lawyer-ease with the skill of a litigator and write with imagination. Magic.

  5. Thanks! Can’t wait for further discussions in Lot A with beer and brisket.

  6. thanks for putting in the effort to give us such a clear and understandable summary (that completely avoided esoteric legalese, no less). I understand arbitration and what went on a lot better now. Well done. FYI, I support a different MLS team, and tripped over this summary. Even our biggest MLS rivals don’t deserve what your team’s been through…

  7. Great read Steve!

  8. Steve thank you so much. These pieces are both excellent and fascinating.

  9. Jim Presti says:

    Excellent piece. Thanks Steve!

  10. Very informative. Thank you.

  11. Zizouisgod says:

    Fantastic stuff, Steve. Thanks.

  12. Steve Holroyd says:

    Thank you, everyone, for liking the piece. It’s tough making the law readable, and I’m glad I was able to succeed.

    • Atomic Spartan says:

      You have more than succeeded. Accessible enlightenment ain’t easy. What everybody else has said, multiplied many times over – except about the brisket. Masterful exposition. May I enroll in your course?

  13. Old Soccer Coach says:

    I echo the appreciation of my more prompt colleagues, Steve, thank you.

  14. My only question with this whole mess is, why in the heck did Nowak file suit in the first place? Did he just have really bad counsel? Or do you think he may not have been honest with his lawyers?

    • pragmatist says:

      He wanted to get paid the rest of his contract. With an ego like his, it’s likely he simply ignored the counsel he received and proceeded anyway.

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