Client Bulletin #411

4.21.09

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The Supreme Court recently held, 5-4, that employees with age discrimination claims could be compelled to arbitrate their claims pursuant to provisions in collective bargaining agreements. The decision, 14 Penn Plaza v. Pyett, may not have a dramatic effect on Unionized employers because on its face it applies only to agreements that give the arbitrator authority to adjudicate such claims.

On the other hand, the decision can be read as effectively (though not explicitly) overruling longstanding precedent regarding the arbitration of discrimination claims . . . in which case it a decision of magnitude, and a great victory for unionized employer.

Arbitration of Statutory Claims: A Short History

The Supreme Court’s rulings on arbitration have been anything but consistent, perhaps in large part due to changes in the makeup of the Court. In 1974, the Supreme Court held in Alexander v. Gardner-Denver that an employee could pursue his Title VII claim in court even after having arbitrated the claim pursuant to a collective bargaining agreement. In an opinion written by Justice Lewis Powell, the Court said that the federal policy favoring arbitration was counterbalanced by the federal policy against discriminatory employment practices.

Then, in 1991, the Court held in Gilmer v. Interstate/Johnson Lane Corp. that an employee asserting a claim under the Age Discrimination in Employment Act was bound by an agreement in a New York Stock Exchange registration application to arbitrate all employment disputes. In a majority opinion by Justice Byron White, the Court held that arbitration of ADEA disputes did not undermine the policies against age discrimination. The Court also said that Gardner-Denver was inapplicable because Gardner-Denver did not implicate the Federal Arbitration Act and did not even involve the enforceability of the agreement to arbitrate. Because Gilmer did not explicitly overrule Gardner-Denver, there remained a question about the effect of an arbitration clause in a collective bargaining agreement.

In Penn Plaza, the Supreme Court clarified the issue in favor of arbitration.

Justice Clarence Thomas, joined by Chief Justice Roberts and Justices Alito, Kennedy, and Scalia, ruled that a collective bargaining agreement that “clearly and unmistakably” requires employees to arbitrate grievances involving claims under the ADEA is enforceable as a matter of federal law. Justice Thomas noted that “[n]othing 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.”

14 Penn Plaza

The plaintiffs worked for a maintenance service and cleaning contractor as night watchmen at the Penn Plaza office building and were members of SEIU, Local 32BJ, which is the exclusive representative of employees within the building services industry in New York City. The SEIU contract with the multi-employer association, to which Penn Plaza belonged, required employees to submit all claims of employment discrimination to the grievance and arbitration procedures. In the language of the agreement, “employment discrimination claims” specifically included both contractual claims and statutory claims made pursuant to Title VII, the Americans with Disabilities Act, the ADEA, the New York State Human Rights Law, the New York City Human Rights Code, or any other similar laws, rules or regulations. According to the provision,

All such claims shall be subject to the grievance and arbitration procedures (Article V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

A dispute arose after the night watchmen were reassigned to jobs as porters and cleaners. Contending that the reassignments led to a loss of income and other damages, and were otherwise less desirable than their former positions, the employees asked the Union to file grievances alleging, among other things, that the company and the contract violated the ADEA, and that the watchmen were unlawfully reassigned on the basis of age.

When the grievance was not resolved, the Union appealed to arbitration, then withdrew the age discrimination claim. The employees then filed charges of age discrimination with the U.S. Equal Employment Opportunity Commission, followed by an age discrimination lawsuit in a federal district court in New York. The company moved to compel arbitration but was denied, and lost on appeal to the U.S. Court of Appeals for the Second Circuit (New York, Connecticut and Vermont). The Second Circuit held that Gardner-Denver forbade the enforcement of provisions in collective bargaining agreements that required arbitration of discrimination claims.

The thin majority on the Supreme Court reversed, but they stopped short of explicitly overruling Gardner-Denver. According to Justice Thomas, Gardner-Denver did not apply because it involved a collective bargaining agreement that gave the arbitrator authority to resolve only questions of contractual rights, not discrimination claims. The contract at issue in Penn Plaza, by contrast, authorized the arbitrator to resolve both contractual claims and statutory discrimination claims.

Justice Thomas also said that dicta in Gardner-Denver disfavoring arbitration of statutory claims “rested on a misconceived view of arbitration that this Court has since abandoned.” First, Justice Thomas said, an agreement to submit statutory claims to arbitration does not amount to a waiver of those claims. Second, the Gardner-Denver court’s concerns about an arbitrator’s expertise to adjudicate a discrimination case, the inferiority of arbitral factfinding, and the arbitrator’s ability to apply “public law concepts” are no longer valid, particularly in light of the Gilmer decision. Finally, he rejected the concern expressed in Gardner-Denver that unions representing employees in discrimination claims might give higher priority to the interests of the collective bargaining unit than to the individual employee’s interests. He noted that a union’s duty of fair representation and its potential liability as a defendant in its own right under the anti-discrimination laws sufficiently deterred any “conflict of interest.”

Justices Souter, Stevens, Ginsburg, and Breyer disagreed, arguing that the majority had inappropriately rejected a longstanding precedent. Justice Thomas retorted that, if the dissenters’ broad interpretation of Gardner-Denver were correct, the case “would appear to be a strong candidate for overruling.”

What does it mean?

The Court’s decision may not have a significant immediate impact because only a limited number of collective bargaining agreements currently cover statutory bias claims. However, when these agreements come up for renegotiation, employers will have to seriously consider whether they will want to include statutory claims in light of Penn Plaza. On the other hand, they will have to consider how long Penn Plaza will be valid in light of the 5-4 majority and the fact that President Obama will be filling the next vacancies on the Court. Meanwhile, employers with collective bargaining agreements who thought they’d had no choice but to let employees litigate their discrimination claims may now  have strong arguments for dismissal.

Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A “Go To” Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by publications such as Chambers USA, Super Lawyers, and Top One Hundred Labor Attorneys in the United States. More than 100 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, Florida, South Carolina, North Carolina, Tennessee, Alabama, Virginia, Missouri, Illinois, Wisconsin, Texas and California. For more information, visit www.constangy.com.

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