14 Penn Plaza LLC v. Pyett (07-581)
Oral argument: Dec. 1, 2008
Appealed from: United States Court of Appeals, Second Circuit (Aug. 1, 2007)
EMPLOYMENT, NATIONAL LABOR RELATIONS ACT, CIVIL RIGHTS, ARBITRATION, AGE DISCRIMINATION IN EMPLOYMENT ACT, FEDERAL ARBITRATION ACT, UNION
Steven Pyett, Thomas O’Connell, and Michael Phillips (the "employees") claim that their employer, Temco Service Industries, Inc., and the company, 14 Penn Plaza, LLC, that owns the building in which they worked, discriminated against them on the basis of their age, in violation of the Age Discrimination in Employment Act of 1967 ("ADEA"). The employees are members of Service Employees International Union, Local 32BJ, which negotiated a collective bargaining agreement ("CBA") with the Realty Advisory Board on Labor Relations, Inc. ("RAB"), of which Temco and 14 Penn Plaza are members. The CBA stated that the sole and exclusive remedy for all employment discrimination claims, including those brought under the ADEA, is the union’s grievance and arbitration procedure. The issue in this case is whether a union has the power to bargain away its members’ rights to litigate employment discrimination claims. The employees argue that the answer should be no, while the employers argue the opposite. The outcome of this case will clarify whether a union has the power to waive its members' statutory right to sue their employers in federal court for certain types of discrimination in favor of a mandatory arbitration procedure.
Is an arbitration clause contained in a collective bargaining agreement, freely negotiated by a union and an employer, which clearly and unmistakably waives the union members’ right to a judicial forum for their statutory discrimination claims, enforceable?
Is an arbitration provision in a collective bargaining agreement which precludes an employee from bringing a lawsuit in court for an alleged violation of statutory anti-discrimination law enforceable?
In July 2003, Steven Pyett, Thomas O’Connell, and Michael Phillips (the “employees”) were employees of Temco Service Industries, Inc. ("Temco"), a building service and cleaning contractor. See Brief for Petitioners at 8. Temco assigned Pyett and O’Connell to serve as night watchmen and Phillips to serve as night-starter at a commercial office building belonging to 14 Penn Plaza, LLC (“14 Penn Plaza”). See Brief for Respondents at 5.
The three men, all over fifty years old, belonged to Service Employees International Union Local 32BJ ("Local 32BJ"), the exclusive bargaining representative of employees of the New York City building services industry. See Brief for Petitioners at 4. Local 32BJ had a collective bargaining agreement ("CBA") with the Realty Advisory Board on Labor Relations ("RAB"), the New York City real estate industry’s multi-employer bargaining association to which Temco and 14 Penn Plaza belonged. See id. at 4. The CBA provided that the sole and exclusive remedy for all employment discrimination claims, including those brought under the Age Discrimination in Employment Act of 1967 ("ADEA"), was the union’s grievance and arbitration procedure. See Brief for Respondents at 6.
In August 2003, 14 Penn Plaza, with the consent of Local 32BJ, employed Spartan Security to provide security personnel for the building. See Pyett v. Penn. Building Co., 498 F.3d 88, 90 (2d Cir. 2007). After retaining Spartan Security, 14 Penn Plaza reassigned the employees to “less desirable positions.” Brief for Respondents at 5. Pyett and O’Connell became night porters, while Phillips became a light duty cleaner. See id.
Local 32BJ filed a grievance alleging that 14 Penn Plaza’s reassignment of the employees and alleged denial of overtime violated the terms of the CBA, including the term prohibiting discrimination against employees on the basis of age. See Pyett v. Penn. Building Co., 498 F.3d 88, 90 (2d Cir. 2007). Local 32BJ submitted the claims to arbitration. See id. at 90–91. In February 2004, Local 32BJ withdrew the age discrimination and wrongful transfer claims, reasoning that since it had agreed to Spartan Security being brought into the building, it could not challenge the replacement of the employees. See Pyett v. Penn. Building Co., 498 F.3d at 90–91. Following this, the employees filed an age discrimination claim against Temco and 14 Penn Plaza with the Equal Employment Opportunity Commission (EEOC). See id. at 91. The EEOC found no ADEA violation, but it did issue all three employees a right to sue letter. See id. On September 23, 2004, the employees filed a lawsuit against Temco and 14 Penn Plaza in the United States for the Southern District of New York, claiming age discrimination. See Brief for Petitioners at 9.
Temco and 14 Penn Plaza moved to dismiss the action for failure to state a claim, and in the alternative, to compel arbitration under Sections 3 and 4 of the Federal Arbitration Act ("FAA"). See Brief for Respondents at 10. The district court denied both motions. See id. It based its decision to deny the motion to compel arbitration on “binding Second Circuit precedent that even a clear and unmistakable union-negotiated waiver of a right to litigate certain federal and state statutory claims in a judicial forum is unenforceable.” Brief for Petitioners at 10–11. In response, the employers filed an interlocutory appeal contesting the district court’s denial of their motion to compel arbitration. See id. The Court of Appeals for the Second Circuit affirmed the district court’s ruling, stating that the Supreme Court’s decision in Alexander v. Gardner-Denver Co. “held that a collective bargaining agreement could not waive covered workers’ rights to a judicial forum for causes of action created by Congress.” Pyett v. Penn. Building Co., 498 F.3d 88, 92 n.3 (2d Cir. 2007).
This case has great significance to private employees who are subject to union-negotiated arbitration clauses, and to all employers who would like to expand the scope of enforceable arbitration clauses in collective bargaining agreements ("CBA") to include statutory discrimination claims.
Steven Pyett, Thomas O'Connell, and Michael Phillips (the "employees") argue against the enforceability of a union-negotiated arbitration clause encompassing statutory discrimination claims. They are concerned about the conflict of interest between unions and employees. A union must represent the interests of all members, and those interests may conflict with those of an individual employee. Consequently, they argue, a union should not be able to deprive an employee of his statutory right to bring a discrimination claim in court. See Brief for Respondents at 26. This conflict of interest may be especially punctuated in situations where the union is implicated in the alleged discrimination that is the foundation of an employee’s claim. See id. at 29–30. In this case, for instance, Local 32BJ decided not to pursue the employees’ claim against 14 Penn Plaza and Temco because it had agreed to the use of the Spartan employees who replaced Pyett, O’Connell and Phillips. See Pyett v. Penn. Building Co., 498 F.3d 88, 90–91(2d Cir. 2007).
14 Penn Plaza, on the other hand, argues for the enforceability of arbitration clause encompassing statutory discrimination claims, noting that arbitration is a much more cost-effective method of dispute resolution than litigation. They state that arbitration "minimizes duplicative efforts and resolves disputes quickly, less expensively, fairly, and effectively.” Brief for Petitioners at 6–7. They assert that without such a clause, many union members "would as a practical matter need to become pro se plaintiffs to remedy any perceived discrimination, a daunting task for any individual, but especially for the large percentage of immigrant building service workers for whom English is a second language.” Id. at 6. They argue that the union-negotiated arbitration clause allows the employees avoid expensive litigation, because the union pays for an attorney. See id. at 6-7. Furthermore, they argue that employees gain “sizable wage and benefit enhancements” from giving a union power to negotiate an agreement encompassing arbitration of statutory employment claims. Id. at 6.
The National Academy of Arbitrators ("NAA"), however, challenge the employers’ argument regarding arbitration. See Brief of Amicus Curiae of the National Academy of Arbitrators in Support of Respondents. NAA argues that there are significant differences between employment arbitration, which arises under an individual contract, and labor arbitration, which arises under a collective bargaining agreement. See id. at 14–15. First, in employment arbitration, the attorney has an obligation to represent the individual employee, while in a labor arbitration, the lawyer’s professional obligation is to the union. See id. Second, arbitrators presiding over employment arbitrations are often legally trained, while arbitrators presiding over labor arbitrations frequently are not. Id. Third, employment arbitration procedures “customarily include pre-trial discovery,” while labor arbitration do not. Id. Finally, employment arbitration allows the individual employee remedies encompassing “the full range of statutory relief,” while labor arbitration only allows an individual employee only “such relief as the collective agreement contemplates.” Id. at 15–16. Thus, the NAA concludes that employment arbitration provides employees with procedural and substantive protections far superior to those available in labor arbitration. See id. at 16.
The Equal Employment Advisory Council ("EEAC"), a nationwide association of employers, however, states that the distinctions between employment and labor arbitration are not significant. See Brief Amicus Curiae of the Equal Employment Advisory Council in Support of Petitioners at 5. The EEAC states that both employment and labor arbitration provide an individual employee quicker, less costly resolution of a dispute than litigation. See id. at 13. The Chamber of Commerce argues further that policy considerations of efficiency should cause the Court to rule in favor of the employers. See Brief of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Petitioners at 6. It notes that if such arbitration agreements are not enforceable, it could make an employer's workforce management more complicated, because employees would be subject to different dispute resolution procedures depending upon whether they are represented or unrepresented. See id. at 16. Similarly, if represented employees are not subject to arbitration, it is likely that some of them will end up in court when they could have easily been resolved through time and cost efficient arbitration. See id. at 17.
The United States argues that no matter how quick and cost-effective labor arbitration may be, there are more important considerations. It stresses that arbitration is inappropriate when, as in this case, “it is both imposed and then controlled by majoritarian forces within the union that may override the employees’ individual interests and refuse to arbitrate at all.” See Brief for the United States As Amicus Curiae Supporting Respondents at 27. It argues that “federal policy in favor of arbitration is not so paternalistic as to compel it in the absence of an agreement to arbitrate by the individual himself. The decision about whether to arbitrate should be made by the parties, and not forced on them by a union.” See id. at 29–30.
Factual Interpretations of Gardner-Denver
Respondents Steven Pyett, Thomas O’Connell, and Michael Phillips (the “employees”) argue that the United States Supreme Court’s decision in Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974), controls in this case, and point to the similar factual patterns at issue as support. See Brief for Respondents at 14–15. The employees argue that Gardner-Denver holds that an individual employee can litigate a statutory antidiscrimination claim even when the employee’s union signed a collective bargaining agreement containing an arbitration provision. See id. The employees point out many similarities between Gardner-Denver and the present case. Both involve employees alleging that their employers discriminated against them in violation of a federal antidiscrimination statute, the employees were covered by a union brokered collective bargaining agreement that contained an arbitration provision, the employees did not consent to the agreement, the employees did not have control over the arbitration under the agreement, and the union arbitrated at least some of their claims. See id. Based on these factual similarities, the employees argue that Gardner-Denver clearly applies to this case, and allows the employees’ statutory antidiscrimination claim to proceed. See id.
Petitioners 14 Penn Plaza, LLC and Temco Service Industries, Inc. (the “employers”) argue that the facts of Gardner-Denver indicate that it is not particularly relevant to the present case. See Brief for Petitioners at 33–35. The employers note that in Gardner-Denver, unlike in the present case, there was no promise to arbitrate statutory discriminatory claims in the collective bargaining agreement. See id. at 34. They further argue that this important factual difference supports the conclusion that Gardner-Denver is a narrow holding: that a prior arbitration based on a contractual claim, where there was no promise to arbitrate statutory discrimination claims, does not waive an employee’s statutory right to bring a subsequent action in court. See id. at 34–35. Therefore, the employers argue, Gardner-Denver does not provide an adequate reason to bar enforcement of the arbitration provision. See id. at 36.
Questioning the Adequacy of Union Representation during Arbitration
In support of their argument that individual statutory discrimination claims cannot be waived by a collective bargaining agreement, the employees point to the fundamental tension between unions, majoritarian bodies seeking to protect the collective rights of workers, and employees, individuals seeking to enforce their personal rights. See Brief for Respondents at 20. The potential dangers for employees emanating from this tension are severe because the union is in charge of the employees’ cases and determines how much and in what way to pursue them. See id. at 18, 23. The Supreme Court recognized this danger in Gardner-Denver, when it noted that due to the fundamental tension between unions and individual employees, union led arbitration may result in the subordination of the individual employee’s rights to those of the union as a whole. See id. at 18 (citing Gardner-Denver, 415 U.S. at 58 n.19).
The employers counters that the employees’ concerns about a conflict of interests between the union and the individual employees are based on “outmoded assumptions.” Brief for Petitioners at 44. They argues that the employees misinterpret the realities of the current workforce and that unions have a great incentive to ensure claims of discrimination are fairly arbitrated because it will enhance their reputation amongst workers and “strengthen their stature as collective bargaining representatives.” Id.
The employers next argue that the duty of fair representation presents the employees with a procedure to keep unions honest in their arbitration. See Brief for Petitioner at 42. The duty of fair representation requires a union to act fairly when handling or processing an employee’s discrimination claim. See id. at n.19. If a union breaches this duty, employees can either bring suit directly against the union for the breach of the duty of fair representation, or can sue the union for breach of the collective bargaining agreement. See id. Notably, an agreement to submit statutory discrimination claims to arbitration does not waive an employee’s ability to file charges against the union for breach of the duty of fair representation. See id. at 42.
The employees rebut that a breach of the duty of fair representation is difficult to prove and requires overcoming a deferential standard of review that favors the unions. See Brief for Respondents at 38–41. They point out that since the duty of fair representation only requires that a union not act “arbitrar[il]y, discriminator[il]y, or in bad faith” towards a union member, it is easy for a union to prove it satisfied the duty. See id. at 40 (quoting Marquez v. Screen Actors Guild, Inc., 525 U.S. 33, 44 (1998)). Thus, a union may be able to get away with half-heartedly representing an employee without breaching its duty of fair representation, provided it has some rational basis for its decision. See id. Furthermore, assuming an employee succeeds in his or her duty of fair representation claim against the union, the employee only enjoys limited remedies. See id. at 39. The employee can receive damages for economic losses from the union, but cannot receive injunctive remedies that are available to the employee in a suit against his employer, such as “adjusted pay going forward, reinstatement to a prior position, or promotion to a position that would be deserved but for the discrimination.” Id.
Policy Advantages and Disadvantages Stemming from Arbitration
The employers argue that the policy considerations of speed and cost favor the use of arbitration. See Brief for Petitioners at 26–30. The employers note that arbitration is widely recognized as presenting a quicker, cheaper, and more efficient alternative to dispute resolution than litigation. See id. at 28. They point out that when litigated, many employment discrimination claims never make it to trial; whereas in arbitration, employees generally receive quick results. See id. Furthermore, the lower costs of arbitration enable employees to avoid the formidable expenses associated of litigation while still presenting their case to a neutral arbiter. See id. at 28–29. To add further credence to their argument, the employers point out that the Supreme Court, in Circuit City Stores, Inc. v. Adams wrote that the advantages of arbitration “may be of particular importance in employment litigation….” Id. (quoting Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123 (2001)).
The employees rebut that the labor arbitration process as a whole is poorly adapted to resolve statutory discrimination claims. See Brief for Respondents at 25. The employees point out that the considerations and functions of labor arbitration are geared towards solving issues concerning collective bargaining agreements rather than public law claims. See id. Furthermore, labor arbitrators often lack a legal education and are chosen as arbitrators due to their knowledge of their particular practice area. See id. at 25–26. The Supreme Court has recognized these concerns, and is wary that arbitrators who specialize in their areas of practice may not be familiar with the policy considerations underlying a federal statute. See id. at 26 (citing Barrentine v. Ark.-Best Freight Sys, Inc., 450 U.S. 728, 743 (1983)).
Arbitration and the Substantive Right to be Free from Discrimination
The employers argue that it is equitable to enforce the arbitration provision in light of the Supreme Court’s previous holdings permitting unions to waive individual statutory rights. See Brief for Petitioners at 23. The employers point to Metropolitan Edison Co. v. NLRB where the Supreme Court held that a union could bargain away its members’ right to be free of discrimination based on their union membership as long as the waiver was clear and unmistakable. See id. (citing Metropolitan Edison Co. v. NLRB, 460 U.S. 693, 708 (1983)). The employers argue that the present case presents an easier determination since the right at issue was simply restricted to arbitration rather than being completely waived. See id. at 24.
The employees counter that while a union can undoubtedly bargain away its members’ economic rights, it may not waive their individual, non-economic, statutory rights. See Brief for Respondents at 20–23. The employees support this contention by pointing to language in Barrentine v. Arkansas-Best Freight System, Inc. that differentiates individual rights from economic rights, and explains that different considerations apply when providing individual employees with “minimum substantive guarantees.” See id. at 23 (quoting Barrentine v. Ark.-Best Freight Sys, Inc., 450 U.S. at 742). Furthermore, harkening back to the earlier conflict of interest arguments, the employees warns that if a union could restrict an employee’s individual statutory rights to arbitration, “an employee’s opportunity to be compensated for a constitutional deprivation might be lost merely because it was not in the union’s interest to press his claim vigorously.” See id. at 23–24 (quoting McDonald v. City of West Branch, 466 U.S. 284, 291 (1984)).
The decision in this case will further crystallize the extent that a union can agree to limit its members access to federal courts to resolve federal antidiscrimination claims. The question at issue is whether an individual employee is precluded from bringing a lawsuit in federal court because he is a member of a union subject to a collective bargaining agreement that mandates arbitration as the sole form of dispute resolution available for employment discrimination claims. The employees argue that arbitration provision is invalid and that they are not precluded from bringing suit in federal court. The employers, however, argue that it is permissible to restrict the forum available to an individual’s statutory rights to that of arbitration. The Supreme Court’s ruling will have a significant impact on employees who are subject to union negotiated arbitration clauses, and on employers looking to expand the scope of enforceable arbitration clauses.
Edited by: Lauren Buechner
· 2005 Commercial Building Agreement between Local 32BJ Service Employees International Union, AFL-CIO and The Realty Advisory Board on Labor Relations, Inc. (Effective Oct. 31, 2004-Dec. 31, 2007)