Pyett and Arbitration Under a Collective Bargaining Agreement

On the heels of Paul's post below on the Third Circuit's Rohm & Haas case, I thought I'd share my argument for how the Court should decide the currently pending case of 14 Penn Plaza v. Pyett.  I think the Court should decide narrowly that union waivers of a statutory right to sue should be enforceable only if the union and employer provide employees with an adequate forum for resolving their statutory rights.  In Pyett, there was no such forum, so I think the Court should uphold the Second Circuit decision below.

14 Penn Plaza v. Pyett raises the issue of whether an arbitration clause, contained in a collective bargaining agreement but covering statutory issues as well as contract issues, is enforceable as to those statutory issues.   In Alexander v. Gardner-Denver, the Supreme Court held that arbitrating a contract claim does not preclude litigating a statutory claim on the same facts.  The Court said some very negative things about the arbitration of statutory employment claims, one of which was that unions couldn't be trusted to enforce the statutory rights of minority employees.  Another was that statutory claims generally were not suitable for arbitration.

There's been a lot of water under the arbitral bridge since Gardner-Denver.  Beginning in the 1980s, the Supreme Court approved arbitration of statutory claims under RICO, then under securities law, and in the 1991 Gilmer case, the ADEA.   The circuits long have been divided over what, if anything, is left of Gardner-Denver -- i.e., can a union, by including statutory claims as arbitrable under the collective bargaining agreement, waive its members' right to file a separate statutory claim?  We thought the Court was going to answer this question in the 1998 Wright case, but instead the Court just said that such waivers, if permissible at all, must be "clear and unmistakable."

In Pyett, the waiver is clear and unmistakable.

There are at least three arguments for enforcing the waiver. First, the Supreme Court looks upon arbitration far more favorably today than it did when Gardner-Denver was decided. Second, the Federal Arbitration Act was not argued as a basis for waiver in Gardner-Denver, but it will be in Pyett. The Supreme Court, for the last twenty years and only a few weeks ago in Hall Street, has emphasized that the FAA “substantiat[es] a national policy favoring arbitration,” and has consistently interpreted the statute to achieve that result. Third, unions today arguably are far more attuned to the rights of minority employees than unions were when Gardner-Denver was decided. Given the twin demographic trends of declining union density and an increasingly diverse workforce, unions cannot afford to run roughshod over minority members.

But the Second Circuit in Pyett was unconvinced, and for good reason. Unions inherently are majoritarian, and they often have interests that conflict with the interests of individual members. It is not at all difficult to imagine a union declining to pursue the discrimination claim of a handful of employees in return for a work rule or a raise that benefits all employees in the bargaining unit. Unions can make this decision unilaterally, because they have unfettered discretion over whether to pursue or drop grievances, subject only to the remote possibility of an employee bringing a DFR suit.

This is precisely what seems to have happened in Pyett, at least according to the Second Circuit’s description of events. The union refused to pursue in arbitration the age discrimination claims brought by the plaintiffs.

For more than twenty years now, the Supreme Court has recited like a mantra that arbitration is not a waiver of substantive rights, but merely a substitute forum. But if the Supreme Court in Pyett overrules the Second Circuit, the arbitration clause will function not as a substitute forum, but as a waiver of any forum whatever. The Union waived the plaintiff’s right to litigate by signing the arbitration clause, then waived the plaintiff’s right to arbitrate by declining to arbitrate the case.

I think the Court should hold that a union-negotiated waiver will be effective only if the arbitration agreement provides employees with an adequate forum for resolving their statutory rights.  No forum, no waiver.  Unions could provide this forum in a variety of ways, such as by guaranteeing that that all statutory claims will go to an arbitrator, or by giving employees the right to pursue arbitration under the collective bargaining agreement at their own expense.

In Pyett, there is no substitute forum. On this ground alone, the Supreme Court should affirm the Second Circuit, and leave for another day the issue of whether a union may waive its employees’ right to litigate their statutory employment claims. Punt shanks Wright.

rb