Supreme Court Changes Legal Landscape On Scope Of Arbitration

Since the Supreme Court’s 1974 decision in Alexander v. Gardner-Denver Co., it has been believed that a collective bargaining agreement could not force employees to waive the right to proceed in court in lawsuits under federal statutes. Though the following 35 years of Supreme Court decisions on arbitration increasingly gave broader scope to arbitration clauses, the Court had stopped short of allowing the compulsory arbitration of a statutory claim.

In a 5-4 decision on April 1, 2009, the Supreme Court effectively overturned all of the prior rules in the area. The Court held that under some circumstances, a collective bargaining agreement could force employees with claims under the Age Discrimination in Employment Act (ADEA) into arbitration under a labor contract.

The collective bargaining agreement in 14 Penn Plaza, LLC v. Pyett had a standard non-discrimination clause. The clause also added fairly unusual language that specified that the non-discrimination clause applied to “Title VII of the Civil Rights Act, the Americans With Disabilities Act, the Age Discrimination in Employment Act, and [New York state statutes on discrimination].” The non-discrimination clause ended with language that “all such claims shall be subject to the grievance and arbitration procedure as the sole and exclusive remedy for violations.”

The employees’ labor organization, the Service Employees International Union (SEIU), filed grievances on behalf of a number of employees claiming age discrimination. When SEIU eventually withdrew its claims of age discrimination, the employees filed a lawsuit in federal court alleging a violation of the ADEA. When a federal court of appeals refused to grant the employer’s request to compel arbitration of the ADEA claims, the employer appealed to the Supreme Court.

In an opinion written by Justice Clarence Thomas, the Court found that the law “generally favors arbitration precisely because of the economics of dispute resolution.” Ultimately, the Court found that the contract’s arbitration requirement “must be honored unless the ADEA itself removes this particular class of grievances from the National Labor Relations Act’s broad sweep.” Since the ADEA, like all other federal discrimination laws, does not contain such a clause removing grievances from arbitration, the Court found that the age discrimination claims were subject to arbitration.

The Court’s decision in 14 Penn Plaza signals a new debate over the appropriate forum for discrimination claims. Without question, some employers will seek modifications of collective bargaining agreements to try to funnel discrimination claims through the grievance procedures in contracts. Not only do grievance procedures have shortened time frames for filing of claims, but arbitration is generally perceived by employers to be a friendlier forum for discrimination claims than jury trials.

Also fairly predictable is that Congress will consider adding to the ADEA and other federal employment statutes bans on compulsory arbitration. Whether such legislation will pass in a year that already sees Congress considering a heavy employment law calendar is another question.

The Supreme Court’s decision in 14 Penn Plaza leaves two questions unanswered. First, it is uncertain whether the Court would allow the compulsory arbitration of federal statutory claims if the arbitration system did not have the full range of rights and remedies existing through the litigation process. For example, arbitrators are generally loathe to award punitive damages, while several federal employment statutes do allow for punitive damages. It is unknown whether the Court would allow an employer to force arbitration in such a circumstance where the remedy available in federal court would not be available in arbitration.

Also uncertain is whether the Court’s opinion applies to claims under the Fair Labor Standards Act. The Court cited with seeming approval one of its 1961 decisions, Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728 (1961), which strongly implies that compulsory arbitration of FLSA claims is not permitted.

14 Penn Plaza LLC v. Pyett, 2009 WL 838159 (2009).

This article appears in the May 2009 issue