Agreements to Arbitrate Employment Disputes: Pending Legislation and Judicial Developments May Radically Alter the Landscape


Employment & Labor Law Alert

February 19, 2009

Significant changes in the ability of employers to require employees to arbitrate discrimination claims and other employment-related claims may be in the offing, both in terms of individual employer-employee arbitration arrangements and with regard to arbitration under a collective bargaining agreement (“CBA”). As far as individual employer-employee arrangements are concerned, the proposed “Arbitration Fairness Act of 2009” would, if enacted virtually eliminate the ability of employers to require its employees to submit employment-related claims to binding arbitration. For employees covered by a CBA, a case pending in the United States Supreme Court, Pyett v. Pennsylvania Bldg. Co., 498 F.3d 88 (2d Cir. 2007), cert. granted, 128 S.Ct. 1223 (2008), could clarify, and may well change, the ability of employees to pursue statutory claims outside the mechanisms provided by the CBA.

Currently, outside the context of a CBA, employers are generally free to require their employees to submit employment-related claims to binding arbitration, including discrimination claims based on statutory rights. Thus, for example, an employee asserting a claim under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et. seq. (“the ADEA”) can be required to arbitrate if the claim is covered by an otherwise valid arbitration agreement. On the other hand, under the arbitration provisions of a CBA, an arbitrator’s disposition of claims alleging employer discrimination is binding on the parties only insofar as the employee’s contractual rights are concerned – not whatever statutory rights the employee may have. Thus, for example, an employee covered by the arbitration provisions of a CBA who is not satisfied with the results of the arbitration of his claim of age discrimination is free to pursue an ADEA claim in court. As will be discussed below, however, the current state of law may well change.

The Proposed “Arbitration Fairness Act”
Proposed legislation being considered by Congress, if enacted, will dramatically change the legal landscape for employers who require their employees to arbitrate employment-related claims or who are considering adopting an arbitration policy. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the United States Supreme Court held that under the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“the FAA”) an employer can require an individual employee, as a condition of employment, to arbitrate an employment-related claim based on a federal statute. In Gilmer, the statute at issue was the ADEA but subsequent Supreme Court and lower court decisions have made it clear that the ruling in Gilmer applies regardless of the federal or state statutorily-based claim involved.

Now pending in Congress, however, is the proposed “Arbitration Fairness Act of 2009,” which, if enacted, will amend the FAA in relevant part as follows:

“(b) No predispute arbitration agreement shall be valid or enforceable if it requires arbitration of —
(1) an employment, consumer, or franchise dispute; or
(2) a dispute arising under any statute intended to protect civil rights.

(c) An issue as to whether this chapter applies to an arbitration agreement shall be determined by Federal law. Except as otherwise provided in this chapter, the validity or enforceability of an agreement to arbitrate shall be determined by the court, rather than the arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement.

(d) Nothing in this chapter shall apply to any arbitration provision in a collective bargaining agreement.”

See H.R. 1020, introduced in the House of Representatives on February 12, 2009. An almost identical version of this bill had been previously introduced in both the Senate and House of Representatives.

Among the reasons H.R. 1020 cites for its justification are: (1) employees and consumers “have little or no meaningful option whether to submit their claims to arbitration” and often are not even aware that they have given up their rights to have their claims decided by a court or jury, (2) private arbitration companies are under pressure to devise systems that favor those companies that provide them with business, and (3) arbitration undermines the development of public law for civil rights and consumer rights, because there is no meaningful judicial review of arbitrators’ decisions, as “arbitrators enjoy near complete freedom to ignore the law and even their own rules,” and (4) “too many courts leave upheld even egregiously unfair mandatory arbitration clauses in deference to a supposed Federal policy favoring arbitration over the constitutional rights of individuals.”

The accuracy of the proposed legislation’s depiction of the current arbitration climate and of the supposed defects in the arbitration process, is to say the least debatable. But what is perhaps most striking about the proposed legislation is its “throw the baby out with the bathwater” approach in the face of what surely will be a significant impact on the resources of the judicial system if the legislation is enacted. Virtually all employment disputes of whatever nature will be covered by the proposed legislation, and thus all predispute agreements to arbitrate employment disputes (other than CBA arbitration provisions) will be unenforceable. It seems clear that the proposed legislation , if enacted, will produce a tremendous drain on judicial resources, in terms of capacity, time and money, given the resulting inevitable upsurge in court-filed employment cases (not to mention the consumer cases and franchise cases covered by the legislation).

CBA Arbitration Under Supreme Court Review
In Pyett, the plaintiffs, union members, alleged they were given undesirable transfers because of their age. The CBA that covered their employment provided in relevant part:

There shall be no discrimination against any present or future employee by reason of . . . age . . . including, but not limited to, claims made pursuant to . . . the Age Discrimination in Employment Act . . . . All such claims shall be subject to the grievance and arbitration procedure . . . [of the CBA] as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

498 F.3d at 90. The plaintiffs filed a charge of age discrimination pursuant tot the ADEA with the Equal Employment Commission (“EEOC”), which thereafter issued a “right to sue letter.” Plaintiffs then brought an ADEA claim against their employer in federal court. The Second Circuit affirmed the district court’s denial of the employer’s motion to dismiss the claim, which motion was based on the above-quoted arbitration clause in the CBA. The Second Circuit relied on two Supreme Court decisions involving CBA arbitrations, Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), and Wright v. Universal Maritime Service Corp., 525 U.S. 70 (1998).

In Alexander, a case decided prior to Gilmer, the plaintiff asserted he was terminated because of race discrimination. While his claim was pending before a CBA arbitrator, he filed a charge of discrimination with the EEOC under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., and ultimately brought suit in federal court after the arbitrator ruled that his employer had just cause to terminate him. The Supreme Court held that the plaintiff’s right to submit his claim to arbitration was a contractual right, but neither the arbitration provisions of the CBA nor plaintiff’s actual submission of his claim to arbitration constituted a waiver of plaintiff’s statutory right to litigate his Title VII claim in court.

In Wright, decided after Gilmer, the plaintiff completely bypassed the arbitration requirements of the CBA and filed a charge of discrimination with the EEOC under the Americans With Disabilities Act, 42 U.S.C. § 12101 et seq. After receiving a right to sue letter from the EEOC, he brought suit in federal court. The Supreme Court noted the “tension” between its decisions in Alexander and Gilmer but distinguished the latter case as not involving an arbitration provision in a CBA and thus permitted the employee to proceed with his ADA claim as mandated by Alexander. The court noted that the arbitration provision at issue did not set forth a “clear and unmistakable” waiver of statutory claims but carefully noted it was not deciding whether it would enforce such a waiver.

Pyett was argued before the Supreme Court on December 1, 2008. In granting certiorari in Pyett, the Supreme Court may now be prepared to decide whether “clear and unmistakable” waivers of statutory rights to a judicial forum in CBA arbitration provisions will be enforceable. If the Court upholds such waivers, it will then have to decide whether the waiver in the arbitration provisions at issue in Pyett is “clear and unmistakable” and, presumably, will provide general requirements for such waivers for purposes of CBA arbitration provisions.

The enactment of the Arbitration Fairness Act will overturn Gilmer by invalidating all predispute arbitration agreements between employers and employees outside the con text of a CBA. Employers who currently require such agreements from their employees or who are contemplating doing so should make their opposition to the legislation known to their representatives in Congress or to any trade associations, bar associations or other groups who may be willing to weigh in on the issue.

In contrast to employers operating with individual employment arrangements, employers operating under a CBA may have some good news coming their way if the Supreme Court holds in Pyett that “clear and unmistakable” waivers of statutory claims in CBA arbitration provision are enforceable. If the Court so holds, these employers should carefully review their arbitration agreements to determine what changes in their agreements, if any, are needed to meet the requirements of a “clear and unmistakable” waiver as pronounced by the Court.

We will, of course, keep our readers apprised of future developments on both the legislative an judicial fronts.