Update: On September 18, 2014, the Supreme Court of Ohio handed down a merit decision in this case. Read the analysis here.
Read the analysis of the oral argument here.
On April 9, 2014, the Supreme Court of Ohio will hear oral argument in the case of Cedar Fair, L.P. v. Jacob Falfas, 2013-0890. The issue on appeal is whether, absent statutory authority, courts may order specific performance of personal services employment contracts. This case will be argued at the University of Toledo College of Law as part of the Court’s off-site program.
Jacob Falfas was employed by Cedar Fair for 39 years. In 2007, he was promoted to Chief Operating Officer under an employment agreement that ran through 2012. In the event that Flafas was terminated, the extent of Cedar Fair’s obligations depended on whether the termination was with or without cause.
In 2010, Falfas’ employment ended. Cedar Fair claims that Falfas quit. Falfas claims he was fired in breach of the employment agreement.
The employment agreement between the parties contained a mandatory, final, and binding arbitration provision. The parties arbitrated their dispute, resulting in a finding that Falfas was “terminated for reasons other than cause” and that there were insufficient facts to establish that he resigned. The arbitrators found that equitable relief was needed to restore the parties to the positions they held prior to Cedar Fair’s breach of the employment agreement. Therefore, the arbitrators directed that Falfas be reinstated to his former position with back pay and all other benefits to which he was entitled under the agreement.
Both parties filed suit in the common pleas court-Falfas to confirm the arbitrator’s decision; Cedar Fair to modify it. The trial court confirmed the award as it related to back pay, benefits, reasonable costs, expenses, and attorney fees, but modified the award in part by determining that Falfas should not be reinstated to his position. Falfas appealed.
The Sixth District Court of Appeals reversed in the part pertinent to this appeal, finding that the trial court erred in refusing to order reinstatement. Cedar Fair appealed to the Supreme Court of Ohio and the appeal was accepted only on the issue of a court’s authority to order specific performance of a personal services employment contract.
Key Statute and Precedent
R.C. 2711.10 Bases on which a court of common pleas shall vacate an arbitration award.
Goodyear Tire & Rubber Co v. Local Union No. 200, 42 Ohio St.2d 516 (1975) – The arbitrator is the final judge of both law and facts, and an award will not be set aside except upon a clear showing of fraud, misconduct, or some other irregularity rendering the award unjust, inequitable, or unconscionable. Even a grossly erroneous decision is binding in the absence of fraud.
Masetta v. Natl. Bronze & Aluminum Foundry Co., 159 Ohio St. 306 (1953) – a court of equity will not decree specific performance of a contract for personal services.
Cedar Fair’s Argument
Cedar Fair argues that it is well settled law in Ohio that specific performance is not available as a remedy in cases involving personal services contracts. To this end, counsel cites to Masetta v. National Bronze and Aluminum Foundry Company, a 1953 Supreme Court of Ohio case.
One reason for refusing to order specific performance of personal service contracts is lack of mutuality, meaning a worker cannot be forced to work for an employer against the worker’s will, and an employer can’t be forced to hire a particular worker against the employer’s will. Another reason is judicial repugnance at compelling the continuation of a close relationship grown sour. Finally, equitable relief should be denied when money damages provide an adequate remedy, which is clearly the case here.
It should not be for arbitrators to decide who corporations hire as their top executives. Such a rule would be bad for business, bad for employees, and bad for employers. Therefore, Cedar Fair urges the court to reverse the Court of Appeals’ decision and find that courts may not order specific performance of a personal services contract.
Falfas argues that Cedar Fair’s reliance on Masetta is misplaced because Masetta applies only to collective-bargaining cases.
Generally, it is Falfas’ position that the arbitration awarding specific performance and the Sixth District’s decision affirming it were correct both procedurally and substantively. However, even assuming that the Sixth District misread the Masetta decision, this alone is not enough to vacate an arbitrator’s decision. For this proposition, Falfas relies on Goodyear, which holds that even a grossly erroneous decision by an arbitrator is binding in the absence of fraud. Cedar Fair has not satisfied the requirements for vacating the arbitrators’ decision in this case.
Falfas urges the court to affirm the decision of the Sixth District Court of Appeals, upholding the award of specific performance.
Cedar Fair’s Proposed Proposition of Law
This Court’s holding in Masetta v. National Bronze & Aluminum Foundry Co., 159 Ohio St. 306 (1953), barring specific performance as a remedy for a personal services contract under Ohio law, is not limited to cases seeking class-wide injunctive relief based on collective bargaining agreements, but rather applies to employment agreements generally.
Falfas’ Proposed Counter-Propositions of Law
1. An error of law or fact, even an egregious one, is not grounds for vacating an arbitrator’s decision under R.C. 2711.10(D), on the basis that the arbitrators exceeded their powers absent a showing of corruption, fraud, undue means or an irregularity of equal magnitude. Goodyear Tire & Rubber Co. v. Local Union No.. 200, 42 Ohio St. 2d 5.16 (1975) applied
2. In a proper case Ohio law allows the reinstatement of an employee who has been wrongfully terminated if a court determines, in its sound discretion, that :
(1) An adequate remedy at law does not exist; (2) The decree of specific performance will be manageable; and (3) The employer and employee appear to be prepared to continue the employment in good faith .
Student Contributor: Elizabeth Chesnut