On April 1, 2009, an ideologically divided United States Supreme Court resolved a long-standing controversy regarding the arbitration of discrimination claims of union-represented employees. The Court’s decision in 14 Penn Plaza v. Byett resolved a split and an issue of confusion among lower courts, and the Court clarified and synchronized two of its earlier decisions concerning arbitration in the employment arena. The question presented by 14 Penn Plaza was whether a provision in a collective bargaining agreement that clearly and unmistakably required union members to arbitrate claims arising under the Age Discrimination in Employment Act was enforceable. The Supreme Court, in a 5-4 opinion written by Justice Thomas, held that “a collective bargaining agreement that clearly and unmistakably requires a union member to arbitrate ADEA claims is enforceable as a matter of federal law.” The decision may have a number of important practical implications for employers with unionized workforces.

Factual Background

The employees in 14 Penn Plaza were employed as night lobby watchmen and were members of the Service Employees International Union which, pursuant to the National Labor Relations Act, had the exclusive authority to bargain for their “rates of pay, wages, hours of employment, and other conditions of employment.” The employees were subject to a collective bargaining agreement which cited a number of federal, state, and local anti-discrimination laws, including the ADEA, and which provided that “[a]ll such claims” were subject to arbitration under the collective bargaining agreement “as the sole and exclusive remedy for violations,” and further provided that “[a]rbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

Several of the night watchmen were reassigned to less remunerative night porter and cleaner positions. The union filed grievances over the reassignment, contending, among other things, that the reassignments violated the labor agreement’s ban on age discrimination. The union requested that all of the claims raised in the grievances be arbitrated, but later withdrew the age discrimination claims from arbitration, while continuing to arbitrate the remaining claims. The night watchmen then filed a charge of discrimination with the Equal Employment Opportunity Commission, and, after the EEOC issued a right to sue notice, commenced litigation against 14 Penn Plaza. 14 Penn Plaza brought a motion to compel arbitration which was denied by the district court and the Second Circuit Court of Appeals.

The Supreme Court’s Decision and Reasoning

The Supreme Court majority based its decision in 14 Penn Plaza on an examination of the ADEA and the NLRA. The Court held that the provision of the collective bargaining agreement requiring arbitration of discrimination claims was a “condition of employment” that was subject to mandatory bargaining under the NLRA. From there the Court found that the NLRA requires that courts respect contractual bargains between employers and unions, “unless the ADEA removes this particular class of grievances from the NLRA’s broad sweep.” Finding no such language in the ADEA, the Supreme Court concluded that the collective bargaining agreement’s arbitration clause required arbitration of the unionized employees’ ADEA claims.

The Supreme Court acknowledged tension between two of its earlier arbitration-related decisions. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), the Court held that an individual employee could be compelled to arbitrate age discrimination claims, but it appeared as if a union was prohibited under Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), from agreeing in a collective bargaining agreement to arbitrate the age discrimination claims of its members. Justice Thomas stressed that Gardner-Denver and its progeny “have narrow holdings” and are of “narrow scope,” and stated that broad dicta in those cases “rested on a misconceived view of arbitration that this Court has since abandoned.” The Court’s decision in 14 Penn Plaza greatly narrowed (and may have effectively overruled) its decision in Gardner-Denver.

The 14 Penn Plaza majority praised the benefits of arbitration and stated that “[n]othing 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.” The Court stated that, “[a]s in any contractual negotiation, a union may agree to the inclusion of an arbitration provision in a collective bargaining agreement in return for other concessions from the employers. Courts generally may not interfere with this bargained-for exchange.” The Court held that it had no legal basis to strike down the collective bargaining agreement’s arbitration clause because it was “freely negotiated” and “clearly and unmistakably” required the employees to arbitrate the age discrimination claims at issue. The Court also held that an agreement to arbitrate ADEA claims is not a waiver of a substantive right, as that term is used in the ADEA, but merely shifts the forum for the resolution of ADEA claims from a court to an arbitrator. Thus, the night watchmen were required to arbitrate their ADEA claims and could not pursue those claims in court.

As Justice Souter’s dissent noted, the 14 Penn Plaza decision “explicitly reserves the question of whether a collective bargaining agreement’s waiver of a judicial forum is enforceable when a union controls access to and presentation of employee claims in arbitration,” as is often the case. The majority stated that a union’s duty of fair representation to its members and the judicial review available under the Federal Arbitration Act are effective protection against unfair or discriminatory actions by a union in pursuing grievances for alleged discrimination by an employer.

Observations, Ramifications, and Considerations

While the majority opinion focuses on ADEA claims, it strongly suggests that its holding will apply to other statutory claims of discrimination, including Title VII claims. It should also apply to state law discrimination claims, and there is a strong argument that any state law attempts to preclude such collective bargaining agreements are preempted by federal labor law.

The Court’s decision leaves to the lower courts the job of determining whether or not a collective bargaining agreement’s arbitration agreement clearly and unmistakably covers statutory claims.

Since most state and federal courts have held that various state and federal anti-discrimination statutes do not expressly prevent employees from arbitrating discrimination claims, those employers who already have a collective bargaining agreement provision that clearly and unmistakably provides for the arbitration of discrimination claims should be able to insist that those claims be arbitrated, unless the statute at issue expressly prohibits arbitration.

However, it is likely that only a few existing collective bargaining agreements will meet the 14 Penn Plaza standard. Employers with broader, more generalized arbitration provisions in collective bargaining agreements will have a hard time convincing federal or state courts that unionized employees are required to arbitrate their discrimination claims. But, when collective bargaining agreements containing arbitration provisions are up for renewal, they can be renegotiated to provide for the arbitration of discrimination claims by union members.

A union may or may not decide that it is beneficial to it to arbitrate its members’ discrimination claims. Employers should consider whether it will benefit them to require unionized employees to arbitrate their discrimination claims rather than pursue them in court: for some employers, this may be the right result, but others might correctly decide that it is not. Compulsory arbitration is, for a variety of complicated reasons, not always the best way to resolve discrimination claims. Employers should consult with labor counsel to discuss the pros and cons of compulsory arbitration versus litigation, and, if they choose to go the arbitration route, to assist them in crafting clear and unmistakable language that will pass muster under 14 Penn Plaza.

Finally, a caveat – it is unclear how broad an impact the 14 Penn Plaza decision may ultimately have because of a bill recently introduced in Congress. The Court in 14 Penn Plaza acknowledged that Congress has the power to identify claims that may not be subject to mandatory arbitration. A bill introduced in February 2009, the Arbitration Fairness Act of 2009, would, if passed, make compulsory arbitration provisions in employment agreements unenforceable. The bill does not currently apply to arbitration provisions in collective bargaining agreements, but the 14 Penn Plaza decision might inspire attempts to modify the bill to legislatively overrule the decision. For the time being, clear and unmistakable collective bargaining agreement provisions between an employer and a union to arbitrate employees’ discrimination claims are enforceable, but employers are advised to monitor legislative developments.