In Quality Custom Distribution Services LLC v. International Brotherhood of Teamsters, Local 710, the U.S. Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) upheld an arbitrator’s ruling requiring the employer to compensate workers for lost wages during the COVID-19 pandemic. The case underscores both the advantages and challenges of arbitration, emphasizing the finality of arbitrators’ interpretations of collective bargaining agreements (“CBAs”).
Background
Quality Custom Distribution Services LLC (“QCD”) entered into a CBA with Teamsters Local 710, which guaranteed 40 hours of work per week for senior employees. However, during the early months of the pandemic, as indoor dining restrictions led to reduced demand for deliveries, QCD cut employee hours below the contractual minimum. The company argued that this reduction was justified under the CBA’s “Act of God” clause.
The union contested the reductions, and an arbitrator ruled in its favor, concluding that government-imposed COVID-19 restrictions were not an “Act of God” within the meaning of the contract. QCD sought to overturn the arbitration award in federal court, but both the district court and, subsequently, the Seventh Circuit affirmed the arbitrator’s decision.
Key Takeaways on Arbitration
The ruling highlights the binding nature of arbitration and its pros and cons for employers and unions alike.
Pros of Arbitration
- Efficiency & Cost Savings: Arbitration is often faster and less expensive than traditional litigation.
- Finality & Limited Review: Courts give significant deference to arbitration awards, reducing prolonged disputes.
- Expertise: Arbitrators with industry-specific knowledge can interpret contract terms more effectively than generalist judges.
Cons of Arbitration
- Limited Appeal Rights: Once an arbitrator makes a decision, it is difficult to overturn—even if one party disagrees with the interpretation.
- Potential for Unfavorable Outcomes: Employers like QCD may find themselves bound by arbitration decisions that they believe are incorrect or overly broad.
- Lack of Judicial Oversight: Arbitrators’ rulings are generally upheld unless they exceed their authority or violate public policy.
Courts Defer to Arbitration
The Seventh Circuit reaffirmed that courts will not second-guess an arbitrator’s interpretation of contract language, even if the employer believes the ruling is erroneous. The panel emphasized that arbitration agreements mean parties are bound by an arbitrator’s interpretation—so long as the arbitrator stays within the contract’s terms.
QCD’s case demonstrates the challenges of overturning an arbitration ruling. Employers and unions must carefully consider the wording of their CBAs, as courts will uphold arbitrators’ decisions unless they are wholly unsupported by the contract.
Practical Takeaways
- In commercial transactions, arbitration clauses should be carefully crafted to address specific contingencies, ensuring they align with the business goals of the parties.
- Parties entering arbitration should prepare for finality—judicial review is highly limited.
- The pros and cons of arbitration should be considered and weighed before deciding to include an arbitration agreement in a contract or agreeing to an agreement that contains an arbitration agreement.
If you have questions about arbitration, please contact:
- Andrew Dick at (317) 977-1491 or adick@hallrender.com;
- Kathryn Daggett at (317) 977-1415 or kdaggett@hallrender.com; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
