Fifth Circuit Rejects Argument that Class Action Waivers in Arbitration Agreements Violate the NLRA

I first wrote about the NLRB's decision that pre-dispute arbitration agreements waiving the right to assert claims as part of a class action violated federal labor law in January 2012 (post).  Back then, I thought it was prudent for employers to wait for the result of the the inevitable appeal that would follow before revising or throwing out their arbitration agreements containing class action waivers. 

The Fifth Circuit Court of Appeals held recently that D.R. Horton's pre-dispute arbitration agreement requiring the builder and its employees to arbitrate disputes on an individual, non-class action basis did not violate the NLRA.  The Court affirmed, however, the Board decision to the extent it required D.R. Horton to clarify to its employees that the arbitration agreements did not waive their right to file unfair labor practice charges with the National Labor Relations Board.

The takeaway from the Court's decision is that arbitration agreements with class action waivers are enforceable under the Federal Arbitration Act and employers may still consider these kinds of agreements as part of their alternative dispute resolution programs.  However, employers should clarify in those agreement that they do not eliminate the employee's right to file or pursue unfair labor practice charges with the National Labor Relations Board. 

You can access a complete copy of the opinion here

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U.S. Supreme Court Holds that Arbitrator, Not State Court, Must Determine Enforceability of Noncompetition Agreement

In a per curiam opinion, the U.S. Supreme Court held that under the Federal Arbitration Act arbitrators, not courts,must determine the enforceability of covenants not to compete when the parties are subject to agreements that call for the mandatory arbitration of disputes.

In Nitro-Lift Technologies v. Howard, two employees left their employment with Nitro-Lift and began working for a competitor. During their employment with Nitro-Lift, the employees parties to employment agreements containing covenants not to compete and provisions requiring the mandatory arbitration of all disputes between the parties. Nitro-Lift served a demand for arbitration on the employees and they responding by commencing a declaratory judgment action in state court seeking to declare the noncompetition provisions unenforceable under state law.

The trial court dismissed the complaint based on the existence of a valid arbitration provision. The Oklahoma Supreme Court, however, issued a show cause order requesting briefing on why the restrictive statutory provisions of Oklahoma state law on the enforcement of noncompete agreements did not dispose of the issues. The Oklahoma high court determined that it had adequate and independent state law grounds to consider the enforceability of the agreement notwithstanding the arbitration provision, and held the agreement unenforceable under Oklahoma law.

On appeal to the U.S. Supreme Court, the Court reversed the Oklahoma Supreme Court. The Court explained that when an arbitration provision is governed by the Federal Arbitration Act, the court has jurisdiction to consider challenges to the arbitration provision, but it is the arbitrator’s jurisdiction to consider all other challenges to the validity of the contract (if the arbitration provision is valid). Because the Oklahoma court assumed the role of the arbitrator in determining that the noncompetition agreements at issue violated state law, the U.S. Supreme Court vacated the decision and remanded the case for further proceedings consistent with its opinion.

You can download a complete copy of Nitro-Lift Technologies v. Howard here.

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Dodd-Frank Act Effect on Employer Arbitration Programs

The Dodd-Frank Act created a "reward" (bounty) program for  whistle blowers that voluntarily provide original information of fraud or unlawful activity in violation of the Sarbanes-Oxley Act, the Foreign Corrupt Practices Act and other securities law violations.  The Dodd-Frank Act also provides whistle blowers protection from retaliation and renders pre-dispute arbitration agreements of whistle blower or retaliation claims unenforceable.  

As a result of the provisions regarding pre-dispute arbitration agreements, a number of plaintiff-employees have attempted to invalidate their arbitration agreements based on the Dodd-Frank and Sarbanes-Oxley Act provisions.  A recent federal trial court opinions illustrates the limits of those efforts.

In Holmes v. Air Liquide, Inc., the plaintiff asserted claims under the ADA, Texas Labor Code and Title VII following his termination.  During his employment with the company, he signed an arbitration agreement agreeing to submit all disputes to mandatory, binding arbitration.  When the employer sought to compel the case to arbitration, the plaintiff argued that the agreement was rendered invalid and unenforceable with the passage of Dodd-Frank.  While ducking the issue of whether the invalidity of pre-dispute arbitration agreements applies only to claims asserted under Dodd-Frank (as opposed to other federal statutes like the ones Holmes sued on), the Court held the arbitration agreement was valid and enforceable because the agreement was entered before the passage of Dodd-Frank and the statute should not be applied retroactively.  Consequently, the Court enforced the arbitration agreement and compelled the parties to engage in arbitration.

A full copy of the Court's opinion is available for download here.

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Fifth Circuit Holds 24 Hour Fitness Arbitration Agreement Illusory and Unenforcable

24 Hour Fitness operates health clubs and fitness facilities across the country.  As part of its operations, 24 Hour Fitness employs sales representatives.  As a condition of employment, employees are required to enter into arbitration agreements to arbitrate their employment disputes with their employer.  FLSA claims (i.e., overtime and minimum wage claims) are covered within the scope of the arbitration agreement.  John Carey was a sales representative for 24 Hour Fitness.  He signed a handbook acknowledgment containing the arbitration agreement.  Not only did the arbitration agreement require the arbitration of disputes, it further provided that disputes could not be brought as class actions or in representative capacities.  Unfortunately for the employer, the handbook also included a provision that permitted it to revise, delete or add to the handbook at any time and that it would communicate those changes to the employees through official written notices.  Nothing in the policy precluded the employer from applying changes to the arbitration agreement retroactively. 

After Carey's employment ended, he filed an FLSA collective action seeking unpaid overtime on behalf of all similarly-situated employees.  24 Hour Fitness moved the court to compel arbitration.  Carey, in response, argued that he agreement was illusory because the employer retained the right to unilaterally amend the agreement. 

The Fifth Circuit Court of Appeals found against the employer holding that its arbitration agreement was unenforceable.  The Court held that the arbitration agreement was illusory because: 1) 24 Hour Fitness retained the right to alter, amend or changes the policy at any time; 2) the policy did not foreclose the prospect of unilateral amendments to claims existing on or before the amendment; and 3) nothing in the policy precluded the employer from applying any of its changes retroactively.  As a result, 24 Hour Fitness will be left to defend Carey's lawsuit in Court, with a jury, and potentially as a collective action. 

The take-away form the opinion is that regardless of the type of ADR you use (e.g., arbitration, waiver of jury trial), if the agreement is contained in an employee handbook, ensure that the handbook's express contractual disclaimer contained in the handbook (You know, that provision that says nothing contained in this agreement is intended to create an express or implied contract) carves out those ADR procedures and specifically states that such provisions are intended to be contractual in nature; that the employer and employee are bound by such provisions and that neither party may alter or amend the contract unilaterally.  At a minimum, if the employer wants to retain the right to unilaterally amend the policy, it should state that the employer cannot amend it to apply retroactively to claims that existed prior to the amendment and notice to the employee. 

A full copy of Carey v. 24 Hour Fitness is available here

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Court Strikes Employer's Arbitration Agreement With Employee For Lack of Consideration

There are a few pockets in the state where lawyers representing employees still vigorously fight the arbitration agreements their clients signed with employers agreeing to arbitrate all disputes. One of the pockets is in El Paso, Texas as evidenced by the number of opinions out of the court of appeals addressing the enforceability of an arbitration agreement between employers and employees.

An example of one of these challenges is found in the recent opinion of Mendivil v. Zanios Foods, Inc.  In Mendivil, the plaintiff-employee challenged the arbitration agreement he signed with his employer when he wanted to sue in court under a workers’ compensation retaliation theory. Mendivil challenged the agreement on a variety of grounds including the fact his employer did not promise to arbitrate its disputes with Mendivil; he had to arbitrate his claims in New Mexico rather than El Paso; he had give notice of intent to arbitrate within thirty days of the incident and respond to all correspondence from his employer within ten days or waive arbitration; and he had to pay for one-half of the arbitration fees. In legalese, Mendivil claimed the agreement was illusory and not supported by adequate consideration (because the employer made no return promises) and was legally unconscionable (because it made him arbitrate far away, bear one-half of the arbitration expenses and make requests for arbitration on short time tables). 

 

The court of appeals considered Mendivil’s challenge to the trial court’s order to arbitrate. The appeals court was persuaded that the agreement was unsupported by adequate consideration because the employer made no promises to Mendivil and that alone was sufficient to warrant reversal of the trial court’s arbitration order.   

 

The takeaway from this case is twofold. First, an employer that desires to enforce an arbitration programs with its workforce must make sure the agreement is supported by valuable consideration. This is usually accomplished by having the employer make the return promise to arbitrate all of its disputes it has with employees. The mutual promises to arbitrate claims will almost always suffice as adequate consideration to support the arbitration agreement. Second, arbitration is meant to be a meaningful alternative to a judicial forum. Where a party uses the arbitration agreement to impose onerous conditions far more restrictive than would be found in a judicial forum, the court will view the enforceability of the agreement more skeptically. Remember, pigs get fat but hogs get slaughtered.

 

You can download a full copy of the Court’s opinion in Mendivil v. Zanios Foods, Inc. here.

 

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NLRB Says Agreements to Waive Participation in Class Action Violate Federal Labor Law

Wow!  That is all I could say after I read the recent NLRB decision holding that an employer's requirement that employee sign mandatory arbitration agreements waiving the right to litigate claims in a collective or class action violates the National Labor Relations Act.  

In the case styled D.R. Horton, Inc. and Michael Cuda, the Board considered an arbitration program used nationwide by the home builder employer.  The arbitration agreement, signed by all employees, required that all disputes be resolved through arbitration and that no disputes would be arbitrated on a class or collective basis in any forum, judicial or arbitral.  When Michael Cuda sought to bring a nationwide wage and hour class action on behalf of all of the company's superintendents, the company sought to enforce the arbitration agreement and its mandate that claims be litigated individually --not collectively.  Cuda filed an unfair practice charge claiming that the waiver of arbitrating or litigating claims on a representative, class or collective action basis violated the employees' Section 7 rights to engage in mutual aid or protection.  

Since the U.S. Supreme Court decision in Concepcion, more employers have incorporated strategies to ensure that claims are litigated on a level playing field by requiring employees to arbitrate or litigate those claims on an individual (or non-class action) basis.  Notwithstanding the Board's commentary to the contrary (i.e., the Board professed that the decision would impact few agreements), the Board's decision will have widespread ramifications on companies use of arbitration programs.  Despite the disadvantages that arbitration carries, one advantage was the widespread belief that employers could better manage the prospect of having to litigate class actions with large numbers of their workforce through arbitration agreements designed to decide claims on an individual basis. The decision in D.R. Horton eliminates that potential advantage of arbitration.  Moreover, the Board's decision is not limited to arbitration programs and its rationale may be applied outside of arbitration agreements such as agreements with individual employees

Finally, because it is a decision applying federal labor law, a law that applies to most employers and employees, the Board's position could have wide-reaching, adverse consequences for employers seeking to control the risk of defending against class or collective actions.  This is an important decision that warrants following through the inevitable appeal that D.R. Horton will make.

You can download a full copy of the Board's decision here.

Follow me on Twitter @RussellCawyer.

 

Texas Supreme Court Holds that Arbitration Agreements Governed by State Law May Include Avenues for Appellate Review

I have written some of the disadvantages of arbitration over other procedural methods of resolving cases such as waivers of jury trial.  (See post and post).  However, in an opinion from the Supreme Court of Texas, one disadvantage of arbitration (i.e., the limited appellate review of arbitration awards that is available) can be minimized where the parties draft their agreement to apply the Texas General Arbitration Act (TAA) rather than the Federal Arbitration Act (FAA).

In Nafta Traders, Inc. v. Quinn, an arbitrator found for the plaintiff in a sex discrimination case.  The arbitration agreement contained a provision limiting the arbitrator's authority such that he lacked "authority (i) to render a decision which contains a reversible error of state or federal law, or (ii) to apply a cause of action or remedy not expressly provided for under existing state or federal law."

The employer sought to vacate the arbitration award claiming that the arbitrator exceeded his authority by rendering a decision containing reversible error.  The issue tackled by the Supreme Court of Texas was whether the TAA precludes an agreement for judicial review of an arbitration award for reversible error, and if not, whether the FAA preempts enforcement of such an agreement.  The Court held that parties may, pursuant to the TAA agree (subject to limits) to expanded judicial review of arbitration awards and that the FAA did not preempt such a conclusion.

Consequently, parties in Texas are free to agree that arbitration awards made subject to state law may be reviewed on a more expanded basis than awards rendered under the FAA.  However, the scope of that expanded judicial review is not without limits.  As the Court stated:

arbitration parties cannot agree to a different standard of judicial review than the court would employ in a judicial proceeding involving the same subject matter.  '[A]n arbitration agreement providing that a 'judge would the award by flipping a coin or studying the entrails of a deal fowl' would be enforceable.'

Moreover, to have a meaning judicial review the Court cautioned parties that they will need to be able to submit "a sufficient record of the arbitral proceedings, and complaints must have been preserved, all as if the award were a court judgment on appeal."  Consequently, some of the perceived advantages of arbitration (i.e., reduced cost, less formal etc.) will have to give way to parties that want to preserve a right to expanded judicial review because proper objections will have to be preserved and a transcript of the proceeding made.  In any event, employers who use arbitration as a form of alternative dispute resolution made consider making those agreements subject to state law so that they can take advantage of opportunities for judicial review.  Employers should keep in mind that, unlike the FAA, the TGAA requires that agreements to arbitrate personal injury (and like tort claims) be made only after the cause of action has accrued thereby excluding some claims from arbitration that would be covered by the FAA. 

You can access a copy of the concurring opinion here.

Dallas Court Vacates Arbitration Award in Discrimination Case Because of Arbitrator's Failure to Disclose Prior Contacts with Party Representative

It is pretty difficult for a party to get an adverse arbitration award reversed or vacated.  A recent Dallas Court of Appeals decision shows the rare instance were such a reversal occurred.  In Alim v. KBR (Kellogg, Brown & Root) --Halliburton, the Dallas court held that an arbitrator's failure to disclose, in an employment discrimination, breach of contract and retaliation case, that he had served as an arbitrator in a prior case involving KBR's party representative and a related company established facts that might create a reasonable impression of the arbitrator's partiality.  Consequently, the court vacated the adverse arbitration award and remanded for a new arbitration proceeding.  You can access the court's opinion here.

Texas Supreme Court to Consider Validity of Arbitration Agreement in Employee Handbooks

Don Cruse at the Supreme Court of Texas Blog, wrote about the first case of the new term on which the Supreme Court of Texas requested full briefing --Hatton v. D.R. Horton, Inc.  that case involves an issue of significant importance to Texas employers.  According to Don, this case

concerns the enforceability of arbitration clauses in employee handbooks. In this case, the employer is alleged to have disclaimed any attempt to bind itself by the handbook, and stated that it reserved the right to change those terms unilaterally and without prior notice.

This is an issue that frequently comes up in Texas.  Employers occasionally include provisions in employee handbooks that purport to constitute binding agreements the employer may want to enforce.  Frequent examples include noncompetition and arbitration agreements.  The problem arises when the handbook also contains an express disclaimer provision stating that nothing the handbook constitutes a contract or other agreement and the employer reserves the right to amend the policies at any time.  Where the noncompetition or arbitration provisions of the handbook are not exempted from the disclaimer provisions, a party wanting to avoid the effect of those provisions, argues that no binding contract was created because the employer reserved the right to alter or amend the policy at any time.  Several Texas courts have refused to enforce arbitration agreements contained in employee handbooks because of the existence of broad disclaimer language.  The fact that the Court has requested full briefing does not mean that the Court will accept the case.   

In the meantime, employers and their counsel, should review their employee handbooks to ensure that broad disclaimers do not undermine important contractual agreements contained elsewhere in the employee handbooks that the employer intends to create and enforce.  You can follow the status of Hatton v. D.R. Horton, Inc. here.

Supreme Court of Texas Directs Trial Court to Vacate Order and Send Case to Arbitration

Texas courts routinely enforce arbitration agreements between employers and their employees. In most parts of the state, lawyers representing employees agree to go to arbitration upon being presented with a copy of an arbitration agreement signed by the plaintiff-employee. On occasion, however, there are disputes over the enforceability of an arbitration agreement. The Supreme Court of Texas’ recent opinion spotlights another challenge to an employer’s alternative dispute resolution program.

In In re Odyssey Healthcare, Maria Morales sued her El Paso-based employer (and her supervisor) for negligence after she was injured at work when she tripped on an uneven step at a patient’s home. Odyssey is a non-subscriber (i.e., it does not have workers’ compensation insurance) and provides its employees with an “Occupational Injury Benefit Plan.” All Odyssey employees must enroll in the program as a condition of employment. The program requires that all disputes between the employer and employee must be resolved through mandatory, binding arbitration. The arbitration was to be conducted with an arbitrator selected from a panel based in Dallas. The employer reserved the right to modify or terminate the arbitration program, but only after providing the employees with advance notice.

The plaintiff challenged the arbitration program arguing that it was invalid, unenforceable and substantively unconscionable; it violated the Texas Workers Compensation Act’s non-waiver provisions; the Federal Arbitration Act violated the Tenth Amendment by encroaching on a state’s power to enact and regulate its workers’ compensation system; and the agreement was illusory. The Texas Supreme Court rejected each of these arguments and directed the trial court to vacate its prior order and grant the motion to compel arbitration.

You can access the full opinion here.

A Non-Employment Case Important to Employment Lawyers

In a non-employment case of significant importance to employers and employment lawyers, the U.S. Supreme Court held today that imposing class arbitration on parties who have not agreed to class arbitration is inconsistent with the Federal Arbitration Act and is therefore not permitted.  This case arose out of an MDL antitrust case alleging that certain competitors were engaged in a price-fixing scheme.  The parties to the underlying transaction were signatories to an arbitration agreement that was silent on whether the arbitrator had the authority to conduct class action arbitrations. For a more detailed review of the factual and procedural background of the case, see the SCOTUS Wiki on the case here

The significance of this case to employers is that many employment agreements containing arbitration provisions are also silent on the issue of class arbitration (and some specifically exclude class action arbitration).  Without doubt this opinion will be used to argue that an arbitrator lacks the authority under the FAA to arbitrate class action employment disputes where the parties' agreement, or other probative evidence, fails to establish that the parties agreed to arbitrate those claims collectively. 

Supreme Court of Texas Compels Arbitration of Discrimination and Retaliation Claims

Texas courts strongly favor the resolution of disputes through arbitration. When parties to a dispute have signed an agreement to arbitrate covered disputes, Texas courts will rarely disregard that agreement.   A recent per curiam opinion of the Supreme Court of Texas continues that trend by conditionally granting mandamus relief in a case alleging national origin discrimination and retaliation for reporting alleged sexual harassment. (Opinion available here).

In In re Polymerica, LLC, a plastics manufacturer hired Angelica Soltero in 1998. In 2002, Polymerica retained Dickason Staff Leasing Company to manage its human resources operations. Soltero signed a Dispute Resolution Plan with Dickason that required all disputes (including disputes over discrimination, wrongful termination and harassment) between Polymerica, Dickason and/or Soltero be submitted to a four-step dispute resolution process. The final stage in that process included mandatory, binding arbitration under the Federal Arbitration Act.

Thereafter, Polymerica distributed an employee handbook that purported to take “precedence over, supersede[], and revoke[] any previous memo, bulletin, policy or procedure issued prior to [the handbook effective date], by [the employer] on any subject discussed in the Handbook.” The handbook included a section on arbitration that discussed the existence of the Dickason Dispute Resolution Plan. At the end of 2005, Polymerica and Dickason terminated their relationship and Polymerica took the human resources functions in-house. Five days later Soltero’s employment was terminated.

Soltero challenged the arbitration agreement first by claiming that the 2003 handbook provisions nullified the Dispute Resolution Plan she signed with Dickason. The court rejected that argument stating that “the Handbook provision, however, does not cover contracts like the Plan’s arbitration agreement” and observing that if the handbook nullified the Plan, the Handbook’s discussion of the Plan’s arbitration procedures and other multiple references to the Plan would be rendered meaningless. The court also made quick work of Soltero’s second claim that the Plan was illusory because the Handbook reserved the right to be modified at any time. Because the Plan, according to its own termination procedures, could only be modified with notice to the employees, and even then, only modified prospectively, the Plan was not illusory.

And finally, the Court rejected Soltero’s argument that Polymerica could not avail itself of the arbitration procedures of the Plan because it was a nonsignatory to the Plan. The Court noted that it has never required that an employer be a signatory to an arbitration agreement before it may insist on arbitrating a dispute with its employee. Because the arbitration agreement was enforceable and the scope of Soltero’s claims fell within its scope, the Supreme Court conditionally granted the writ of mandamus and directed the trial court to stay the proceedings and compel arbitration of all of Soltero’s claims.

2008 Term U.S. Supreme Court Wrap-up

The U.S. Supreme Court completed its 2008-09 term. On the docket were five cases of interest dealing with employment law.  Here is a summary of the holdings in those cases.

  • Crawford v. Metropolitan Gov’t of Nashville and Davidson County, Tenn., (2009) An employee’s participation in an employer’s internal harassment investigation by responding to the employer's questions may constitute protected oppositional activity under Title VII that would support a retaliation claim. 
  • 14 Penn Plaza LLC v. Pyett, (2009) Provisions in collective bargaining agreements that clearly and unmistakably require union members to submit statutory discrimination claims to the grievance and dispute resolution provisions of the agreement are binding and enforceable on the bargaining unit members.  More detail here.
  • AT&T Corp. v. Hulteen(2009) An employer does not necessarily violate the Pregnancy Discrimination Act when it calculates and pays pension benefits based on an accrual rule that applied only pre-PDA, and gives less retirement credit for pregnancy leave than for other medical leave.
  • Gross v. FBL Financial Services, Inc., (2009)  A plaintiff asserting an age discrimination claim under a disparate (i.e., intentional) treatment theory must prove that age was the “but for” cause of the challenged employment action and the burden of proof never shifts to the employer to show that it would have taken the same action regardless of the age of the plaintiff.  More detail here.
  • Ricci v. DeStefano, (2009)  An employer can avoid Title VII disparate-impact liability related to a promotional exam having a disparate impact on minorities if the employer can show a strong basis in evidence that, had it not certified the results, if would have been subject to disparate-treatment liability.  More detail here.

Defending Judicial Trials of Employment Disputes

I just returned from Tulane University Law School's 27th Annual Multi-State Labor and Employment Law Seminar held at the La Cantera resort in San Antonio, Texas.  (See brochure here).  Attendees and presenters at this conference are some of the finest and most experienced labor and employment lawyers in the country.  During my three days at the conference, I did an unscientific, anecdotal survey of the practitioners I visited with.  Without exception, the practitioners I talked to disfavored the arbitration of employment disputes.  I've already written about the disadvantages of arbitration on this blog. (See post here). However, I was surprised that I did not find a single lawyer at this conference (and I don't profess to have spoken to all or even a majority of them) that preferred trying a case in arbitration over a case tried to a judge of jury.  No one I spoke to had ever enjoyed the "benefits" of a faster or more inexpensive resolution of the dispute in arbitration than would have realized in court.  No attorney extolled the virtue of the the limited appeal rights or the "finality" arbitration promises over the appellate rights our Texas rules provide.  Therefore, I want to encourage Texas employers to abandon the use of mandatory arbitration programs with their employees in favor of adopting mutual waivers of jury trials.  To read about the advantages of jury waivers, click here.

 

Supreme Court Holds Collective Bargaining Agreement Can Require Arbitration of Age Discrimination Claims

Today, the U.S. Supreme Court held that provisions in collective bargaining agreements that clearly and unmistakably require union members to submit statutory discrimination claims to the grievance and dispute resolution provisions of the agreement are binding and enforceable. 

In 14 Penn Plaza LLC v. Pyett ,  a dispute arose over a commercial office building's reassignment of night watchmen employees (whose duties were outsourced) to less desirable positions such as light duty cleaners and porters.  The reassigned employees, members of the Service Employee International Union, Local 32BJ, filed a grievance with the union contending that the reassignments violated, among other things, the CBA's ban on age discrimination.  When the grievances were unsuccessful, the Union requested arbitration under the dispute resolution procedures of the CBA.  The union later withdrew the grievances to the extent they complained about age discrimination prohibited by the contract but continued to press for arbitration on the remaining claims.

The disgruntled reassigned employees then filed a charge of discrimination with the EEOC over their reassignment claiming the reassignments were discriminatory.   After the EEOC issued a right to sue letter and the employees sued in federal district court, the defendant filed a motion to compel arbitration relying on the language of the grievance and dispute resolution procedures of the CBA with the union that stated:

§ 30 NO DISCRIMINATION. There shall be no discrimination against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, . . . or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

The trial court and Second Circuit Court of Appeal refused to compel arbitration holding that a CBA could not waive the bargaining unit members' right to a judicial forum over statutory civil rights claims created by Congress.

The Supreme Court reversed holding that where the intent to submit statutory discrimination claims to the grievance and dispute resolution procedures of the CBA is clear and unmistakable (an issue that was not in dispute before the court --i.e., the parties agreed that the language was sufficiently explicit) nothing precluded the union's ability to waive its members right to a judicial forum to resolve those discrimination claims.  A majority of the Court rejected the employee's argument that the union was waiving important, substantive rights to be free from age discrimination. 

The Court noted that the union had not waived (nor could it) the employee's right to be free from and to challenge employment actions that were based on unlawful motivations such as age discrimination.  Rather, the Court observed, the Union had merely negotiated for and agreed that such claims would be resolved in a forum other than a judicial one --i.e., arbitration.  Consequently, the Court held that to the extent the employees were to litigate their statutory age discrimination claims they would have to do so within the confines of the grievance and dispute resolution procedures of the CBA.

As a consequence of this ruling it is unlikely that unions will agree in future negotiations that their grievance and arbitration procedures include employment discrimination and civil rights claims.  Placing the unions in the position of using limited resources to arbitrate otherwise individual claims is unlikely to be something that benefits the majority of the bargaining unit members.  This potential conflict of interest is something most unions would prefer to avoid. 

Other commentators have suggested, and I agree, that the holding of this case is likely to be limited because Congress may seek to overturn it as it did with the Court's Ledbetter decision.  See Jottings by an Employer's Lawyer and The Delaware Employment Law Blog

Another potential consequence is that the existence of a mandatory arbitration provision in a CBA covering employment discrimination claims may be an important factor the EEOC considers in deciding whether to litigate over a particular charge of discrimination.  Under the current law the EEOC is not be bound by the grievance and arbitration provisions in CBA's (nor individual employment contracts between employees and employers) and it could vindicate an employee's rights in a federal judicial forum notwithstanding the CBA.

Until legislation is passed to overturn 14 Penn Plaza, employers and unions with CBAs that clearly and unmistakably include employment discrimination and civil rights claims in the grievance and dispute resolution provisions will now be forced to resolve those disputes in an arbitral forum.