Second Circuit Issues Arbitration Decision

The Second Circuit has just held squarely that union-negotiated arbitration agreements covering federal statutory claims are unenforceable.  The case is Pyett v. Pennsylvania Building Co., No. 06-3047 (2d Cir. Aug. 1, 2007).  Hat tip: Dennis Nolan.

A group of employees were transferred and denied overtime.  The employees grieved, claiming that the transfers and overtime both violated the collective bargaining agreement and were the product of age discrimination.  The union pursued the employees' contract claims through arbitration, but declined to pursue the age claims.  The employees sued on the age claims.  The employer moved to dismiss or compel arbitration based on an arbitration clause specifying that "all claims made pursuant to ... the Age Discrimination in Employment Act [and other enumerated federal and state antidiscrimination statutes] ... shall be subject to the grievance and arbitration procedure [of the cba] ... as the sole and exclusive remedy for violations."

The district court denied the motion, and the Second Circuit affirmed.

The legal issue in this case stems from the Supreme Court's repeated failure to explain the extent to which Alexander v. Gardner-Denver is still good law.  In Alexander, the Court held that an employee's arbitration of a race claim arising under the nondiscrimination clause of a collective bargaining agreement did not foreclose subsequent litigation of a statutory claim based on the same facts.  The Court denigrated arbitration as a method of resolving statutory claims, but also pointed out that a union's status as representative of a majority of members in the bargaining unit could conflict with its representation of individual employees.

In Gilmer v. Interstate/Johnson Lane Corp., the Court required an employee to arbitrate his age discrimination case.  Though the Court rejected Alexander's denigration of arbitration, the Gilmer Court expressly distinguished, rather than overruled, Alexander, on the basis that Gilmer's arbitration clause was individually-"negotiated" and not part of a collective bargaining agreement.  In Wright v. Universal Maritime, the Court was squarely presented with the issue of whether Gardner-Denver's prohibition of union-negotiated arbitration agreements covering individual statutory disputes was still good law, but the Court punted, holding only that the arbitration agreement at issue in that particular case was too general and did "not contain a clear and unmistakable waiver of the covered employees' rights to a judicial forum for federal claims of employment discrimination."

The Fourth Circuit, which seldom sees an arbitration clause it won't enforce, has since interpreted a relatively routine labor arbitration clause as constituting such a "clear and unmistakable waiver."  Safrit v. Cone Mills Corp.  The Supreme Court denied cert.  The Second Circuit, in the earlier case of Rogers v. New York University and even more clearly in the present case of Pyett, is taking the opposite approach, arguing essentially that whether or not a union-negotiated arbitration clause "clearly and unmistakably" covers statutory claims, Gardner-Denver still controls and makes such a clause unenforceable.

Dennis Nolan argues that the Second Circuit

seems to go out of its way to pick a fight with the Supreme Court.  If I read the decision correctly, the court simply refuses to acknowledge the Supreme Court's clear implication in Wright that a sufficiently precise arbitration clause in a CBA would waive an individual's statutory right to trial.

Was that the "clear implication" of Wright?  It's certainly one fair reading of Wright, especially when that decision is juxtaposed with the Court's overwhelming endorsement of arbitration in every possible context over the past two decades.  But perhaps Wright is a pregnant pause, an indication that the Court's endorsement of arbitration is finite.

For those who think the Court's pro-arbitration policy has gone too far, the Pyett case would be a good one for a grant of certiorari, for it presents squarely the Alexander policy rationale for declining enforcement of union-negotiated waivers.  In Pyett, the union had expressly declined to pursue the employees' age discrimination claims because the union had contractually consented to the employees' transfer.  If the employee's don't get a judicial forum for their age claims, they are unlikely to get any forum at all, since the union controls access to the arbitration forum established by the cba, and the union already has declined to pursue the claims.  This would seem to be inconsistent with the Court's theory in Gilmer that arbitration is merely a "substitute forum" for litigation.  Arbitration can't be a substitute forum if it effectively denies access to any forum at all.

My prediction: if the Court accepts cert in Pyett, look for it to tap the brakes by upholding Alexander and effectively overruling Safrit.  If the Court denies cert in Pyett, I would take that as an indication that it wants to look for an "easier" case in which to overrule Alexander -- i.e., a case in which there is no clear conflict between the union's representation of a majority of employees in the bargaining unit and the union's representation of an individual in a discrimination claim.

Update: Comment by Dennis Nolan: 

Your prediction is prudent ... although the fact that Wright was unanimous makes me wonder.  Surely at the time it ruled in Wright, the Court knew the implications.  If so, wouldn't it be a bit surprising for five members to back off?

On Wright itself, you suggest that the implication I found is only one way of reading the case.  If the Supreme Court had done what the 2d Circuit did in Rogers and used alternative holdings there would be another way of reading the case.  As it is, Wright has only one holding:  this clause is too vague.  That's a "negative pregnant," I believe, meaning that by relying on that basis, the Court was saying that a different clause might work.  In most of the cases so far, like Safrit and Rogers, the Court could avoid the fundamental question by saying that the clause at issue isn't clear enough.  In Pyett that doesn't look feasible.

rb