On April 1, 2009, a sharply divided Supreme Court ruled 5-4 that a labor contract between an employer and a union requiring employees to arbitrate statutory claims was binding on the employees covered by the labor contract. 14 Penn Plaza, LLC v. Pyett, No. 07-581 (April 1, 2009).  

The Facts

Pyett was one of a group of night watchmen employed at a New York office building. The watchmen were represented by the Service Employees International Union (SEIU) and were covered by a labor contract that contained a provision that prohibited discrimination against employees and provided that all discrimination claims arising under a list of discrimination statutes were “subject to the grievance and arbitration procedures as the sole and exclusive remedy for violations.” The SEIU agreed to this provision in exchange for a substantial wage increase. When the employer hired additional security guards during the night watch, Pyett was assigned to a different position in the office building that allegedly was less lucrative and less desirable.  

Initially, the SEIU filed a grievance on behalf of Pyett and his co-workers alleging the employer had violated the labor contract and the age discrimination laws (ADEA). When the grievance was not resolved, the SEIU appealed it to arbitration. The SEIU then withdrew the ADEA claim, whereupon Pyett filed a charge of discrimination with the EEOC. The EEOC investigated the ADEA claim, issued a no-cause determination and a notice of right to sue. Pyett and his co-workers subsequently filed suit in the federal district court under the ADEA, claiming their transfers were based on age discrimination. The employer moved to compel arbitration based on the arbitration provision in the labor contract. Both the district court and Second Circuit denied the employer’s motion, ruling the union could not bargain away the right of individual members to a judicial forum to decide statutory claims. In particular, the Second Circuit stated, “arbitration provisions contained in a CBA [labor contract], which purport to waive employees’ rights to a federal forum with respect to statutory claims, are unenforceable.” Pyett v. Pa. Bldg. Co. et al., 498 F.3d 88, 93-94 (2nd Cir. 2007).

Court Relied on Statutory Interpretation of ADEA and NLRA

The Supreme Court reversed the Second Circuit’s decision and held that the arbitration clause was enforceable. The Court first examined the National Labor Relations Act (NLRA) to determine the scope of the employer’s and the SEIU’s bargaining obligations. The Court noted that under the NLRA, the SEIU was the exclusive bargaining agent of the plaintiffs and had the authority, vested by Congress, to enter into a labor contract that required the arbitration of claims. The Court’s majority concluded this obligation also included claims under the ADEA, and that an arbitration provision “freely negotiated” by a union under the NLRA “must be honored” like any other term “freely negotiated” by the union “unless the ADEA itself removes this particular class of grievances from the NLRA’s broad sweep.”

Turning then to the ADEA, the Court’s majority drew a distinction between a substantive right and the forum in which that right is pursued, and held that allowing an ADEA claim to proceed in arbitration rather than in court did not affect the claimant’s substantive right to be free from age discrimination. The Court found nothing in the legislative history or text of the ADEA that precluded the arbitration of age discrimination claims and noted “[T]he right to a judicial forum is not the nonwaivable ‘substantive right’ protected by the ADEA.” Indeed, in an earlier decision, Gilmer v. Interstate/Johnson Lane Corp., 500 US 20 (1991), the Court had held that an individual employee who had agreed to arbitrate his ADEA claim could be compelled to do so.

Decision Not Inconsistent With Gardner-Denver

Much of the Court’s majority’s decision addressed why its 35 year-old ruling in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974) was not controlling. In Gardner-Denver, a race discrimination case, the Court held that the claimant who sought relief through arbitration pursuant to a labor contract as to contractual prohibition against discrimination was not precluded from later seeking relief in federal court on the basis of a statutory prohibition against discrimination. The majority in 14 Penn Plaza held that the decision in Gardner-Denver did not control because it involved an arbitration provision that did not cover statutory discrimination claims. Moreover, the majority found that Gardner-Denver’s criticism of arbitration as a vehicle to adjudicate discrimination claims was no longer applicable and that Gardner-Denver “rested on a misconceived view of arbitration that this Court has since abandoned.”  

There were two dissents. The first dissent, written by Justice Stevens, reiterated his long-standing objection to the arbitration of statutory claims. The second dissent, authored by Justice Souter, claimed the majority misinterpreted Gardner-Denver. Interpreting the real issue as whether an employee, subject to a labor contract providing for arbitration for all grievances, loses their statutory right to bring a discrimination claim in federal court, the dissent would have found Gardner-Denver controlling.  

Guidance For Employers

The majority’s opinion left several significant issues unresolved because of the posture of the case. Thus, the Court refused to consider whether a provision in a labor contract requiring arbitration would be enforceable if the union blocked access to the arbitration forum.

However, the Court appears to have extended the deference to the labor arbitration process in several respects. First, the arbitration provision must clearly and unmistakably require the arbitration of statutory claims. The clause at issue in 14 Penn Plaza specifically listed claims arising under the ADEA as among those that were mandated for arbitration.

Second, the majority indicated that judicial review of arbitration awards was sufficient to ensure arbitrators comply with the law. This represents something of a change and may expand the deference accorded to arbitration awards accorded by the courts and the National Labor Relations Board.

Third, given the majority’s treatment of Gardner-Denver in situations in which the labor contract does not require arbitration of statutory claims, the courts may nevertheless give an arbitration award greater weight than has been given to such awards in the past when an employee loses in arbitration and subsequently sues for discrimination.