A sharply divided U.S. Supreme Court recently ruled that provisions of a collective bargaining agreement (CBA) that clearly and unmistakably require union members to arbitrate age discrimination claims are enforceable. While the decision is unlikely to affect many employers, the ruling is the latest in a series of Supreme Court decisions finding arbitration to be a legitimate means of resolving employment disputes. But before employers jump to the conclusion that arbitration is the preferred method for resolving workplace disputes, consider legislation afoot on Capitol Hill that would ban mandatory arbitration of employment claims.
Stephen Pyett, Michael Phillips, and Thomas O’Connell worked as night watchmen at 14 Penn Plaza, a New York City office building owned and operated by 14 Penn Plaza LLC. The three individuals also were members of the Service Employees International Union (SEIU) covered by a CBA between the SEIU and the Realty Advisory Board, a multiemployer bargaining association in which 14 Penn Plaza was a member. Under the CBA, union members were required to submit all employment claims — specifically including discrimination claims under the Age Discrimination in Employment Act (ADEA) and other federal and state antidiscrimination statutes — to binding arbitration. The agreement added that arbitration would be the “sole and exclusive remedy for violations” of federal and state antidiscrimination laws.
In August 2003, 14 Penn Plaza entered into an agreement with a security contractor (whose employees were also members of the SEIU) to provide licensed security guards for the office building. As a result, Pyett, Phillips, and O’Connell were reassigned to jobs as porters and cleaners. The three claimed their reassignment cost them a loss of pay and emotional distress.
The SEIU filed grievances on behalf of Pyett, Phillips, and O’Connell alleging that the reassignment violated the CBA and discriminated against them on the basis of their age in violation of the ADEA. The union proceeded to arbitration on the wage issues, but it withdrew its request to arbitrate the three members’ ADEA claims. The watchmen then filed discrimination charges with the Equal Employment Opportunity Commission (EEOC). After receiving their right-to-sue letter from the EEOC, they filed a lawsuit against 14 Penn Plaza alleging their reassignment amounted to age discrimination under the ADEA.
Based on the CBA provision requiring arbitration of discrimination claims, 14 Penn Plaza asked the trial court to dismiss the lawsuit and compel arbitration. The court denied the request, however, holding that the employees had the right to have their claims heard in court. The Second U.S. Circuit Court of Appeals affirmed the trial court’s decision, ruling that under the U.S. Supreme Court’s 1974 decision in Alexander v. Gardiner-Denver Co. CBAs can’t require union members to arbitrate their statutory discrimination claims.
Supreme Court’s decision
By a narrow 5-4 majority, the Supreme Court reversed the Second Circuit and found that the arbitration provision was enforceable. Writing for the majority, Justice Clarence Thomas began his opinion by stating that an agreement between an employer and a union to arbitrate discrimination claims is “no different from the many other decisions made by parties in designing grievance machinery” and is a “condition of employment” subject to mandatory arbitration under the National Labor Relations Act (NLRA). Because a union will agree to the inclusion of an arbitration provision in a CBA in exchange for other concessions from the employer, courts aren’t free to interfere with this bargained-for exchange, and the arbitration provision applicable to age discrimination claims “must be honored unless the ADEA itself removes this particular class of grievances from the [NLRA’s] broad sweep.”
According to Justice Thomas, nothing in the language or legislative history of the ADEA precludes parties from resolving federal age discrimination claims through arbitration. Indeed, the Supreme Court previously held in Gilmer v. Interstate/Johnson Lane Corp. that when an employee and his employer have entered into an agreement to arbitrate all contractual and statutory employment claims, including claims under the ADEA, a court may close the courthouse door to the employee and compel him to submit his claims to arbitration. Because “nothing in the law suggests a distinction between the status of arbitration agreements signed by an individual employee and those agreed to by a union representative,” Thomas concluded that there is no legal basis for failing to enforce a CBA arbitration provision that was freely negotiated by the union and the employer and clearly and unmistakably requires union members to arbitrate their age discrimination claims.
Justice Thomas also said that relying on the Gardiner-Denver ruling to find the arbitration provision in this case unenforceable was misplaced. The Gardiner-Denver ruling involved a CBA that required arbitration of contractual claims but was silent about whether statutory discrimination claims also had to be arbitrated. Because that CBA didn’t clearly and unmistakably require union members to arbitrate their federal discrimination claims, the Supreme Court held that compulsory arbitration of union members’ federal discrimination claims wasn’t required. This case, wrote Justice Thomas, differs from the Gardiner-Denver ruling insofar as the CBA covering Pyett, Phillips, and O’Connell clearly and unmistakably requires them to arbitrate their discrimination claims, including ADEA claims.
While not explicitly overruling the Gardiner-Denver decision, Justice Thomas leveled several criticisms at it. First, he stated that the Court erroneously assumed that an agreement to arbitrate statutory discrimination claims was tantamount to a waiver of the employee’s rights under those statutes. “The decision to resolve ADEA claims by way of arbitration instead of litigation does not waive the right to be free from workplace age discrimination,” he said. Rather, an agreement to arbitrate discrimination claims like those under the ADEA “waives only the right to seek relief from a court in the first instance.” In other words, employees lose no substantive rights by agreeing to have their discrimination claims submitted to arbitration and simply substitute an arbitral forum for a judicial one.
Justice Thomas also took issue with the Gardiner-Denver decision’s conclusion that arbitrators aren’t competent to decide statutory discrimination claims. According to him, the timeworn mistrust of the arbitral process harbored by the Supreme Court in the Gardiner-Denver case has long since been abandoned by the Court and is out of step with its more recent cases endorsing arbitration of federal discrimination disputes. “In light of the ‘radical change, over two decades, in the Court’s receptivity to arbitration,’ . . . reliance on any judicial decision littered with … overt hostility to the enforcement of arbitration agreements would be ill advised,” said Justice Thomas.
Addressing the concern raised in the Gardiner-Denver decision that if arbitration of statutory discrimination claims is allowed under a CBA, unions, which have exclusive control over the presentation of an individual’s grievance, may subordinate the interests of the individual employee to the collective interests of the bargaining unit, Justice Thomas stated that the subordination of individual interests to those of the majority is simply a trade-off that is at the heart of the NLRA. He added that individual members are adequately protected if the union fails to pursue their discrimination claims in arbitration because they have the ability to file a fair representation lawsuit against the union under such circumstances.
In two dissenting opinions, Justice John Paul Stevens and Justice David H. Souter stated that the issue presented by this case is controlled by the Court’s Gardiner-Denver decision, and they accused the majority of “subversion of precedent to the policy favoring arbitration.” However, Justice Souter concluded that the majority opinion is likely to have little effect because it explicitly reserves the question of whether a CBA’s waiver of a judicial forum is enforceable for when the union controls access to and presentation of employees’ claims in arbitration, which, he noted, “is usually the case.” 14 Penn Plaza LLC et al. v. Pyett et al., No. 07-581 (April 1, 2009).
Arbitration under legislative attack
While this case is another example of the Supreme Court’s endorsement of arbitration as a means of resolving employment disputes, the practical impact of the case may be limited. While most CBAs have antidiscrimination provisions, few specifically list federal discrimination statutes as subject to grievance and arbitration procedures and provide that arbitration is the sole and exclusive remedy for violations of those statutes. If an employer wants to require its bargaining unit employees to submit to mandatory arbitration of their statutory employment claims, the employer may need to make big concessions to the unions in exchange for this provision in the CBA.
Employers also should be mindful that while the Supreme Court may endorse arbitration to resolve employment disputes, many in Congress do not. In February, Representative Henry C. Johnson (D-Georgia) and 36 cosponsors introduced the Arbitration Fairness Act of 2009. If passed, the bill would, among other things, amend the Federal Arbitration Act to invalidate all predispute arbitration agreements that require the arbitration of employment disputes or any conflict arising under any statute intended to protect civil rights. Some employers may remember that similar legislation was introduced in 2007, but the legislation never left the House floor. However, with the change in the administration, the Act may now have a better chance of passage. At the time of publication, the bill had been referred to the House Committee on the Judiciary.