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Supreme Court Decision Allows Unionized Employers Flexibility in Arbitrating Discrimination Claims

April 7, 2009

Many employers prefer to arbitrate employee claims of age, race or sex discrimination. The lower costs and streamlined procedures of the arbitral process offer significant advantages over costly, protracted litigation in court. Many non-union employers have secured arbitral review of discrimination claims through various forms of arbitration agreements with individual employees. Whether unionized employers could similarly require the arbitration of individual employee discrimination claims through language in a collective bargaining agreement with the employee's union was not as clear.

In 14 Penn Plaza, LLC v. Pyette (decided Tuesday, April 1), the Supreme Court unequivocally resolved this uncertainty in favor of arbitration of statutory discrimination claims. Specifically, the Court held that where an employer and a union negotiate contract language, which expressly requires the arbitration of statutory discrimination claims, employees who subsequently raise such claims must arbitrate them in accordance with procedures outlined in the parties' collective bargaining agreement.

The Court's holding was based on the following facts: a union and a multi-employer bargaining association negotiated a "no discrimination" clause in their collective bargaining agreement, which prohibited discrimination on the basis of any characteristic protected by law. The clause specifically enumerated "claims made pursuant to" Title VII, the ADA, the ADEA and state anti-discrimination laws. The clause provided that "all such claims shall be subject to the grievance and arbitration procedures . . . as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination." Several employees subsequently filed grievances arising from their transfer to a different position. The grievances alleged both a violation of the terms of the collective bargaining agreement itself, as well as claims that the employees were discriminated against because of their age. The question before the Court was simple: was the CBA's provision requiring arbitration of age discrimination claims enforceable such that the employees were required to pursue their claims before an arbitrator and not a court?

The Court decided that the arbitration provision was enforceable for a number of reasons. First, noting that "the decision to fashion a CBA to require arbitration of employment discrimination claims is no different from the many other decisions made by parties in designating grievance machinery," the Court recognized it was bound to respect the "bargained-for exchange" represented by the collective bargaining agreement between the employer and the union. Second, the Court held that there was nothing in the text or intent of the federal statute implicated by the employees' grievances (the ADEA) that removed it from the scope of the parties' freedom to bargain a labor contract on their own terms. Third, the Court noted that unions are vested with the statutory authority to bargain on behalf of their members – authority that is counter-balanced by a union's duty to represent employees fairly. Given this, the Court reasoned that "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."

Finally, the Court disagreed with the employees' position that arbitration of their statutory claims was tantamount to a waiver of those claims. The Court found a distinction between foregoing those claims altogether (i.e., a true "waiver") and consideration of those claims in a different (i.e., arbitral) forum. The Court held that any previous judicial mistrust of arbitration as a dispute resolving mechanism was outdated and had been replaced by a general acceptance of arbitration by courts and parties alike, especially in the context of employment discrimination claims.

Pyette presents the potential for unionized employers who previously were limited in their ability to obtain arbitration of discrimination claims by the well-established prohibition on "direct dealing" with unionized employees. Employers with a bargaining obligation can now bargain to include "non-discrimination" clause in their collective bargaining agreements which would subject individual claims to the same arbitration procedures applicable to alleged contract violations. Some caution is advised, however: first, employers should seek to bargain these clauses with language that is as explicit as possible – the unambiguous nature of the contract language at issue in Pyette was a key factor in the Supreme Court's decision. Further, although the early returns look promising for such contract language to be applicable to all forms of discrimination, the Supreme Court's decision technically only upheld the arbitrability of ADEA claims – contract language purporting to require the arbitration of non-ADEA discrimination claims (i.e., ADA, Title VII claims) could still be subject to attack.

The Court did not address several key aspects of this deferral to arbitration. Key among them is what happens to the employee's right if the union refuses to process the employee's age discrimination claim through the arbitration stage. Does the employee then have a right to proceed individually, without the union's consent? Or does the employee, if the matter has not been submitted through the contract grievance procedure retain the right to resort to the EEOC and courts? Further, what happens where there is not an agreement? Can the employer bargain to impasse and implement a binding waiver of the employee's right to resort to the courts? It is almost certain that there will be further developments in this area, as the courts and perhaps the legislature (ala the Lilly Ledbetter Act) sort this out.

Employers too need to carefully consider whether they want to pursue such clauses in their bargaining agreements. The advantages of avoiding a jury may be countered balanced by lack of appeal rights that also come with binding arbitration. Arbitrators, unlike judges, stay employed by not offending management or the unions too often. The chances of winning early or completely may become more difficult.

For more information about this issue, a member of Varnum's Labor and Employment Relations group.

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