Advancing Arbitration: Supreme Court Upholds Mandatory Arbitration of Discrimination Claims

While the headlines out of Washington have documented a series of labor wins since the Obama administration came to town, the Supreme Court offered employers with unionized workforces a piece of good news in April: a new tool to use in contract negotiations and possible relief from escalating discrimination litigation.

A divided high court ruled that an employer and a union can agree that unionized employees must take their statutory discrimination claims to arbitration, rather than filing lawsuits in court.

While the case, 14 Penn Plaza LLC v. Pyett, specifically involved a claim under the federal Age Discrimination in Employment Act (ADEA), it paves the way for including in collective bargaining agreements a provision requiring arbitration of all statutory discrimination and retaliation claims.

The decision came as a surprise because a 1974 Supreme Court decision, Alexander v. Gardner-Denver Co., held that unions couldn't bargain away their members' individual right to have their discrimination claims heard in court.

"My prediction was that [14 Penn Plaza] would go the other way," says Jeffrey Braff, a Cozen O'Connor member. "What the majority did in my view--and certainly in the view of the scathing dissent--was to find a way around Gardner-Denver."


Conflict Resolved

14 Penn Plaza resolves an apparent conflict between how the high court viewed discrimination claim arbitration agreements between an employer and an individual and how it viewed such agreements a union made on behalf of its members.

In 1991, in Gilmer v. Interstate Johnson Lane Corp., another ADEA case, the court upheld arbitration requirements when employees individually agreed to submit such claims to arbitration. Employers eager to reduce litigation costs seized on the opportunity that Gilmer opened up. Mandatory arbitration clauses became common elements in individual employment agreements and employee handbooks, although those continue to be challenged (see "Knowing Agreement").

But employers didn't have the high court's blessing on mandatory arbitration of discrimination claims for unionized employees. In light of Gardner-Denver, many labor lawyers advised employers that such provisions would be unenforceable--and indeed the 2nd Circuit found 14 Penn Plaza's agreement with the Service Employees International Union (SEIU) to be just that.

But the Supreme Court, underscoring its preference for arbitration over litigation, said that its ruling on individual employment agreements in Gilmer "fully applies in the collective-bargaining context." Justice Clarence Thomas wrote, "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 theorized that Gardner-Denver was decided when arbitration was not as widely accepted as an equitable way to resolve disputes as it is today.

The decision opens the way for making mandatory arbitration of discrimination claims a bargaining table issue. But there are cautionary notes on whether--and how--to do that.

Crystal Clear

For one thing, Thomas made it clear that arbitration provisions will only be enforceable if--like the agreement 14 Penn Plaza had with the SEIU--clear language defines exactly what claims are subject to arbitration. In fact, he differentiates this case from Gardner-Denver on the grounds that in the earlier case, the clause did not make clear which statutory rights it affected.

Existing contracts don't typically contain the clear and statute-specific arbitration clauses that 14 Penn Plaza calls for, according to David Kresser, a partner at Fisher & Phillips. "Most wouldn't meet the test of saying the union waived its members' rights to statutory claims," he says. As a result, there will be little immediate impact from the decision, as most employers who want to pursue mandatory discrimination arbitration will have to wait for their next contract negotiations.

Even then, it's not clear how successful they will be. Unions may resist the arbitration provisions, fearing it would look like they are bargaining away their members' individual rights. Such provisions also would push unions into the unfamiliar role of defending discrimination claims.

"Not all unions want to be plaintiffs discrimination lawyers," says Kresser. "The employer can use this as a bargaining chip. If the union doesn't want it, maybe they will give on another issue."

On the other hand, the employer may have to give on a union demand to obtain the arbitration agreement. In 14 Penn Plaza, the union got wage concessions in return for the arbitration deal.


Pros and Cons

The bargaining trade-offs are just one factor in-house counsel should consider in deciding whether to push for arbitration of discrimination claims.

A more basic step is evaluating whether arbitration is really the best path for resolving these claims, and on this point, there are clear differences of opinion. Proponents point to lower costs, faster resolution of cases, confidentiality and more even-handed judgments. "A lot of employers say it levels the playing field, instead of having to convince a jury that identifies with the plaintiffs," says Brian McDermott, an Ogletree Deakins shareholder.

Kresser thinks arbitration of discrimination claims would be an improvement on the current system, where a discharged employee may file a union grievance that is arbitrated and then follow up with a discrimination lawsuit in federal court. "The problem is that if you have an arbitration on a discharge [grievance] and the employee loses, you have to defend the same claims all over again in federal court. The person gets two bites of the apple."

But Jeffrey Pagano, a Crowell & Moring partner, disagrees.

"In the end, I do not like arbitration," he says. "You never can get summary judgment, and there is never a vindication of either side. If you have arbitration, you will have more claims and you will win less."

Gavin Appleby, a Littler Mendelson shareholder, says the pros and cons vary with geography. In states that do not cap court-awarded damages, arbitration has a clearer advantage. In jurisdictions like Atlanta where employers often win summary judgment, arbitration is a less attractive option than in Los Angeles, where summary judgment is less likely. He also points out that employment arbitration often results in an order that the employer rehire a discharged employee.

"A favored remedy [of arbitrators] is to bring someone back," he says. "Often that can be a real problem. In court cases, reinstatement rarely happens."

Contributing Author

Mary Swanton

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