Alaska Employment Law

Introduction

The United States Supreme Court issued a new opinion today, in which it confirmed that arbitration provisions in a collective bargaining agreement that waive the right to prosecute federal claims in court are enforceable so long as the waiver is clear and unmistakable. The case is 14 Penn Plaza LLC v. Pyett. This summary briefly reviews the opinion and its significance.

The Case

Are arbitration provisions in a collective bargaining agreement that waive the right to prosecute federal statutory rights in court enforceable? “No,” answered the Second Circuit. It held that such clauses are unenforceable. In Alexander v. Gardner-Denver (a 1974 case), the United States Supreme Court held that arbitration provisions in a collective bargaining agreement could not be enforced. However, the Court handed down Gilmer v. Interstate/Johnson Lane in 1991, a case holding that arbitration provisions in private employment contracts were enforceable.

The distinction between Gardner-Denver and Gilmer was perceived as being based on the fact that employees covered by a collective bargaining agreement have less of an ability to control negotiated provisions, whereas an employee executing his or her own employment contract does not face that same problem.

Seven years later, in Wright v. Universal Maritime Service, the Court further muddied the waters by concluding that an arbitration in a collective bargaining agreement was not enforceable, but only because it did not clearly and unmistakably constitute a waiver of the right to file suit in court. Implied in Wright was the reasoning that arbitration provisions in a collective bargaining agreement might be enforced under a Gilmer type analysis. The Court stopped short, however, of overruling Gardner-Denver. This case, therefore, presented the issues as to whether or not Gardner-Denver remained good law and whether or not any arbitration provision in a collective bargaining agreement could be enforced. The Second Circuit placed its bet that Gardner-Denver remained good law. It lost.

The United States Supreme Court reversed by a 5-4 vote, with Justice Thomas writing for the majority, joined by Chief Justice Roberts, and Justices Scalia, Kennedy, and Alito. The majority observed that no legal distinction should be recognized as between an arbitration provision in an individual employment contract and a similar provision in a collective bargaining agreement. The Employer and Union “freely negotiated” the arbitration provision in question. The provision clearly and unmistakably required arbitration of federal statutory rights. It therefore followed that the provision was enforceable. Justice Thomas went further to clarify that Gardner-Denver had been misinterpreted. According to Justice Thomas, Gardner-Denver did not hold that arbitration provisions in a collective bargaining agreement could not be enforced. Instead, the case simply dealt with a wrongful discharge claim and the issue was whether or not arbitration of contract-based claims would preclude subsequent judicial resolution of statutory claims based on the same underlying facts. Justice Thomas characterized contrary statements in Gardner-Denver as being nothing more than “broad dicta” that had been misconstrued or misinterpreted by lower courts and commentators.

Justice Stevens dissented. He explained that he interpreted Gardner-Denver as holding what it meant to hold, that arbitration provisions in collective bargaining agreements purporting to waive the right to file suit in court to prosecute federal statutory rights were not enforceable. Justice Stevens instructed that several policy-related concerns were at the foundation of this holding, including the fact that federal statutory rights protected individual rights, federal agencies had parallel rights to secure relief under the statutes, and that there was a potential conflict as between a Union negotiating on behalf of collective rights and individual union members seeking to protect their individual rights.

Justice Souter authored a separate dissent, joined by Justices Stevens, Ginsburg, and Breyer. Justice Souter also disagreed with the majority’s characterization of the Court’s holding in Gardner-Denver. He noted that lower courts and Congress had interpreted Gardner-Denver as precluding arbitration provisions in collective bargaining agreements that waived right to file suit in court to prosecute federal statutory claims. Justice Souter also emphasized the policy-related issues that, in his opinion, supported such a rule.

In my annual Term preview, I predicted:

In 14 Penn Plaza, I think the Court will reverse. The march of time reflects a clear trend to uphold arbitration provisions. Wright effectively overruled Gardner-Denver even if it did not do so expressly. If Gardner-Denver remained viable, there really would never have been any need for an opinion in Wright. Instead, the Court would have simply reversed in a brief per curiam opinion. The fact that the Court set a new standard (the “clear and unmistakable” waiver standard) implies the result here—that arbitration provisions in collective bargaining agreements are theoretically enforceable.

The Court’s opinion validated this prediction, although Justice Thomas’ analysis of Gardner-Denver is difficult to reconcile with that opinion’s apparent holding. Nevertheless, the result here confirms that arbitration provisions in collective bargaining agreements are enforceable so long as they adhere to the standards set forth in Wright.

Employers and practitioners in the 9th Circuit should bear in mind that there are several 9th Circuit opinions striking down arbitration provisions as being procedurally or substantively unconscionable under contract-based theories. Judge Pregerson has been an especially vigorous judicial opponent to the liberal use of such provisions. See, e.g., Ingle v. Circuit City Stores, 328 F.3d 1165, 1175-76 (9th Cir. 2003). Consequently, employers and practitioners should not assume that a clear and unmistakable waiver of the right to file suit in court will necessarily be enforced if challenged in the 9th Circuit. Instead, employers and practitioners should ensure that any such provisions survive analysis under contract formation principles; that is, that the provisions are procedurally and substantively conscionable.