The 11th Circuit puts a major new dent in the armor surrounding arbitration awards.

• Author: Blonsky, Daniel
• Position: Florida

The court refuses to permit arbitrators or employers to "ignore the dictates of the law" in Montes v. Shearson Lehman.

A very significant recent 11th Circuit decision, Montes v. Shearson Lehman Brothers, Inc., 128 F.3d 1456 (11th Cir. 1997), reestablishes the rule of law as part of the arbitration system through its unprecedented application of the "manifest disregard of the law" basis for vacating arbitration awards. This important decision should be welcomed by both employers and employees, as well as anyone involved in arbitration.

In an understandable desire to lessen the perceived time and expense of litigation arising from employment disputes, employers increasingly are turning to the vehicle of mandatory arbitration of disputes with their employees. While the goals of mandatory employment arbitration are salutary, left unchecked, arbitration has the danger of acting as a system with insufficient connection to traditional concepts of due process and justice. Employees shotgunned into signing employment agreements with mandatory arbitration clauses are vulnerable to a capricious forum that, at its worst, is barely governed by the rule of law.

Delfina Montes was employed as a sales assistant in the Hallandale, Florida, office of Shearson, Lehman Brothers, Inc. (now a part of Smith Barney, Inc.) from September 28, 1991, through April 8, 1993, when she was terminated. After her termination, Montes realized that she had been entitled to the payment of overtime compensation under the provisions of the Fair Labor Standards Act of 1938, as amended (FLSA), 29 U.S.C. [subsections] 201 et seq. Indeed, her entitlement to overtime compensation seemed obvious. Throughout her tenure in the Hallandale office, Shearson's internal records exclusively documented her as a "nonexempt" employee, entitled to the payment of overtime compensation for all time worked beyond 40 hours in a workweek.

Shearson rejected Montes' claim for overtime compensation, resulting in her pursuing a suit in the U. S. District Court for the Southern District of Florida. Shearson subsequently moved to compel arbitration, based on a mandatory arbitration clause contained in a securities industry "U-4 form" that Montes executed during her preceding employment at a Shearson office in New Jersey. Montes did not have an employment contract and was not party to a collective bargaining agreement. The district court granted the motion to compel arbitration on April 30, 1994, which resulted in the filing of a statement of claim with the National Association of Securities Dealers (NASD).

Evidence Submitted at Arbitration

The three-day arbitration proceeding was conducted before a three-person NASD arbitration panel. The proceeding commenced on April 19, 1995, more than two years after Montes had been terminated. The evidence introduced by Montes established that, although Shearson could have documented her employment as exempt from the FLSA overtime compensation requirements, its records exclusively defined her as a nonexempt sales assistant. According to Shearson's internal policies, while nonexempt employees were required to complete time cards, exempt employees did not have to do so. It was conceded by Shearson at the arbitration that, throughout her employment at the Hallandale branch office, Montes was required to complete falsified time cards stating that she never worked in excess of 40 hours in a workweek. Her supervisors acknowledged that they were aware that she was actually working far in excess of 40 hours per week, although the precise amount of hours could not be reconstructed.[1]

In opposition to Montes' claim, Shearson contended that she fit under two different FLSA overtime compensation exemptions -- the administrative exemption[2] and the executive exemption.[3] The evidence that it presented, however, actually served to buttress Montes' position that her duties did not qualify her for any exemption.

For instance, her direct supervisor testified tellingly that Montes "was never able to take control of the person's side of that business, you know, really dealing effectively with the staff. There was too much friction. It was not something that happened .... She was not able to do that."...