Arbitration of Statutory Discrimination: Ramifications of Penn Plaza for Employers
Our last newsletter included an insert on the Supreme Court’s decision in 14 Penn Plaza LLC vs. Pyett, 129 S. Ct. 1456 (April 1, 2009), the case in which the Court held that a unionized employee cannot bring a suit in court for discrimination under the Age Discrimination in Employment Act (“ADEA”) where his collective bargaining agreement prohibits discrimination under that Act and provides that the contract grievance/arbitration procedure is “the sole and exclusive remedy for violations.” This decision poses a number of issues that the labor/management community will need to discuss and resolve.
We suspect that the Court may not have given full consideration to the practical implications of its decision. For example, in comparison to a court lawsuit, labor arbitration is a quick and simple process. Some have argued that labor arbitration procedure is simply not designed for statutory discrimination claims and that the typical union arbitration advocate – lawyer or union representative – lacks the experience and qualifications with the kind of issues that arise in statutory discrimination cases.
Many companies require that non-union employees sign pre-hire contracts in which the employee agrees to arbitrate all employment-related disputes, including claims of statutory discrimination. Such agreements effectively waive the employee’s right to sue in court for statutory claims like employment discrimination. Most federal courts approve this kind of waiver but only if the contractual arbitration procedure includes the same remedies that are available under the statute, allows for discovery and (according to most courts) does not burden the employee with the full costs of arbitration. Even with these provisions, employers usually prefer arbitration to court litigation because arbitration is cheaper and quicker and, perhaps more importantly, because it avoids the risk of a runaway jury verdict imposing inflated damages for pain and suffering or “willful” misconduct. In order to obtain the benefits of arbitrating statutory discrimination claims, many employers will likely seek modification of their labor agreements to specify that statutory discrimination is prohibited under the contract and that the contract grievance procedure provides the exclusive remedy for the unionized employees.
But, as much as the employer may want to arbitrate statutory discrimination claims, the union may reach just the opposite conclusion. We believe that a collective bargaining agreement which requires arbitration of statutory discrimination claims will be enforced in court only if that agreement provides for the statutory remedies, like damages for pain and suffering, and the basic statutory procedures, like pre-trial discovery. But if court-type procedures are required in arbitration, the cost of arbitration will increase significantly, and it is doubtful that unions will want to incur those costs. Moreover, labor arbitrators are inexperienced in statutory discrimination issues and procedures, and the union officials who represent employees in arbitration have even less experience. As a result, the union might need to use lawyers in place of union representatives in arbitrations, which will increase the costs of arbitrating even more.
Unions also are asking what happens to the employee discrimination grievance if the union decides not to pursue it. Unions clearly have the right to reject or decline to pursue a grievance and, if they do, the employee has a tough burden to prevail in court because he must prove that the union’s decision not to pursue his grievance violated its duty of fair representation (“DFR”) and that the grievance was meritorious. That is exactly what the unions are concerned about — stripping the employee of his legal right to sue in court, rejecting his contract grievance and then having to incur the costs and burdens of defending DFR lawsuits in court.
We suspect that the practical consequence of the Court’s decision is that many unions will make their own proposals to exclude statutory discrimination cases from the scope of the contract grievance procedure. If the union’s proposal is accepted, discrimination cases that previously were arbitrated will end up in court, thereby exposing the employer to the very risks that arbitration was intended to mitigate. In sum, we think that the Penn Plaza decision may harm more than help employer interests. One practical partial solution might be a grievance procedure that permits discrimination grievances but excludes those grievances from the arbitration process. This will give the employer the chance to use the grievance procedure to settle discrimination claims even if the arbitration procedure is unavailable.
In any event, there are ramifications to the Penn Plaza decision that have yet to unravel.
