The U.S. Supreme Court Enforces a Collectively-Bargained Clause Requiring Arbitration of Employees'

April 17, 2009
In August 2003, Steven Pyett and two other night-lobby watchmen for the 14 Penn Plaza LLC New York office building, were reassigned to jobs as night porters and light duty cleaners in the building. The employees, all over 50 years old and with decades of seniority, found that these reassignments led to loss of income and were less desirable than their former positions.

The employees were members of the Service Employees International Union, Local 32BJ ("Union"), which entered into a collective bargaining agreement (CBA) with the Realty Advisory Board on Labor Relations (RAB), a multiemployer bargaining association, including 14 Penn Plaza LLC. As Union members, the employees first filed a grievance under the CBA procedures to challenge their reassignment, alleging claims of age discrimination, among others. When their grievance claims proved unsuccessful, the employees filed suit against 14 Penn Plaza in the U.S. District Court, alleging that their reassignment violated the federal Age Discrimination in Employment Act (ADEA) and state and local laws prohibiting age discrimination. The company filed a motion to compel arbitration of the employees' discrimination claims based on the following arbitration clause in the parties' CBA:

§ 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. (emphasis added.)

The Supreme Court, in 14 Penn Plaza LLC v. Pyett (2009) --- S.Ct. --- [2009 WL 838159], upheld the enforceability of this arbitration clause, stating that "A provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law."

The Key Features Of Pyett's Arbitration Clause Which Determined Its Enforceability

Under the National Labor Relations Act ("NLRA"), parties are required to engage in good faith bargaining on "wages, hours, and conditions of employment" to negotiate a mutually agreeable collective bargaining agreement. (29 U.S.C. 158(a)(5).) The Court noted that the NLRA provided the Union and the RAB with statutory authority to collectively bargain for arbitration of workplace discrimination claims. Therefore, the CBA's provision requiring arbitration of ADEA claims must be honored unless the ADEA itself prohibits arbitration of ADEA claims. Since nothing in the text or legislative history of the ADEA explicitly precludes arbitration, the parties are free to negotiate to require arbitration of ADEA claims.

Even where the underlying statute (the ADEA in this case) allows arbitration of its claims, the clause requiring arbitration must clearly and unmistakably state the parties' agreement to arbitrate. The CBA's arbitration clause survived the Court's scrutiny and was held enforceable based on these two key features:

1. The clause explicitly specified the statutory claims required for arbitration. The CBA expressly included the statutory claims subject to arbitration, such as "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."

The Court distinguished a previous case, Alexander v. Gardner-Denver Co. (1974) 415 U.S. 36, where an employee was permitted to bring a Title VII discrimination claim in federal court despite an arbitration clause in his collective-bargaining agreement. The Court explained that the arbitration agreement in Gardner-Denver did not mandate arbitration of statutory anti-discrimination claims. Rather, the clause merely required arbitration for any "differences arising between the [employer] and [union] as to the meaning and application of the provisions of this [collective bargaining] Agreement ." Thus, the employee in Gardner-Denver was required to arbitrate contractual disputes over the agreement, but the employee was not required to arbitrate a Title VII discrimination claim under the arbitration clause. The Gardner-Denver Court declined to read in an arbitration requirement for Title VII claims where the agreement did not clearly express such an intent.

2. The clause did not waive employees' substantive rights to be free of discrimination. The CBA's arbitration clause expressly stated that discrimination under any federal or states law is prohibited, but chose the CBA's grievance and arbitration procedures, rather than the courts, as the express forum to resolve discrimination claims.

In doing so, the arbitration clause was upheld, not unlike a "choice of forum" clause, where the parties agree on a certain mechanism for resolving a particular category of claims (i.e. workplace discrimination claims). Affirming its holding in a related case, Gilmer v. Interstate/Johnson Lane Corp.(1991) 500 U.S. 20, 26, the Court explained that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Since the parties here, in their CBA, clearly and expressly elected arbitration rather than the courts to resolve statutory discrimination claims, the parties' intent to do so was honored and upheld by the Court.

Does Pyett Apply To California Arbitration Clauses?

The question of whether California courts will adopt the U.S. Supreme Court's reasoning upholding arbitration of federal claims to California state claims remains to be seen. However, as of now, current California Supreme Court precedent is consistent with the Pyett decision.

California employment contracts requiring arbitration of state discrimination claims must be "conscionable" and not be so one-sided against the employee as to be against public policy. In Armendariz v. Foundation Health Psychcare Services Inc. (2000) 24 Cal.4th 83, 102, the California Supreme Court set forth the minimum safeguards to ensure conscionability of arbitration clauses, including provisions for: (1) a neutral arbitrator; (2) more than minimal discovery; (3) a written decision by the arbitrator; (4) all of the types of relief that would otherwise be available in court; and (5) the clause does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum. Because these safeguards are essential to ensure the integrity of the arbitration process, arbitration clauses must contain these safeguards to be enforceable in California. We provided a more detailed discussion of the Armendariz safeguards, and a review of subsequent cases interpreting these safeguards, in our May 1, 2008 edition of The Personnel File.

While requiring these minimum safeguards of conscionability, the California Supreme Court did not altogether prohibit clauses mandating arbitration of discrimination claims under the California Fair Employment and Housing Act ("FEHA"). To the contrary, the California Supreme Court recognized that Congress did not intend to prohibit mandatory arbitration agreements that encompass federal and state discrimination claims, including claims under FEHA. Similar to federal discrimination claims under Title VII and ADEA, California discrimination claims under FEHA may be resolved through arbitration, and an employer and employee may agree to mandatory arbitration as the exclusive mechanism for resolving these claims. Armendariz, 24 Cal.4th at 96.

Accordingly, in light of the Pyett decision, California arbitration clauses may be more strongly enforced. Of course, arbitration clauses must still contain the Armendariz safeguards. Aside from that, Armendariz remains consistent with the Pyett decision upholding clear and unmistakable clauses requiring arbitration of statutory discrimination claims containing these two key features: (1) the clause explicitly specifies the federal and state statutory discrimination claims required for arbitration, such as claims under Title VII, ADEA, and FEHA; and (2) the clause does not waive an employee's substantive right against discrimination, but rather selects arbitration as the mechanism for resolving discrimination claims. The California Supreme Court clearly stated in Armendariz, "We find nothing in the language or the legislative history of FEHA that suggests it was intended to prohibit arbitration," and "assuming an adequate arbitral forum, we agree with the [U.S.] Supreme Court that by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." (Id. at 98.)

Conclusion

Although the exact impact of the Pyett decision on California arbitration clauses in employment agreements and/or employee handbooks remains uncertain, current California case law regarding the enforceability of arbitration clauses is consistent with the U.S. Supreme Court's holding in Pyett. The California courts are now left to decide how and to what extent Pyett's holding for federal arbitration clauses will be followed for interpreting California arbitration clauses. As updates are soon foreseeable in this area of the law, employers are advised to continue seeking professional legal counsel to review the enforceability of their arbitration clauses.

This article was written by Elizabeth Avedikian, an attorney with the labor and employment law firm of Liebert Cassidy Whitmore (LCW). Ms. Avedikian is an Associate in the Fresno office and can be reached at (559) 256-7800 or eavedikian@lcwlegal.com. For more information regarding the discussion above or on our firm please visit our website at www.lcwlegal.com, or contact one of our offices below.

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