U.S. Supreme Court Rules that Grievance and Arbitration in Collective Bargaining Agreement is Exclusive Remedy for Employment Discrimination Claims

On April 1, 2009, the U.S. Supreme Court upheld (5-4) the legal enforceability of collective bargaining agreement ("CBA") provisions that declare that a CBA's grievance and arbitration system is the bargaining unit member's exclusive remedy for statutory discrimination claims.  As a result, bargaining unit members covered by such CBAs are legally barred from asserting age, race, sex, and similar discrimination claims in court.  14 Penn Plaza LLC v. Pyett, 2009 U.S. LEXIS 2497 (April 1, 2009).

In 14 Penn Plaza, employees who were represented by a union and worked under a collective bargaining agreement filed grievances challenging their transfer from security guard positions to positions as night porters and light cleaners.  They claimed that these were transfers to less desirable positions, and that the transfers were due to their age.  After an initial arbitration hearing on their age discrimination grievances, the union withdrew the grievances because the union itself had agreed with the employer's decision to bring in a contractor for the security guard work, which had caused the transfers.  The rest of the grievances were denied in arbitration.  While the arbitration was ongoing, the employees filed age discrimination charges and then age discrimination lawsuits in court. 

The employer filed a motion to compel arbitration of these claims because the applicable CBA specifically stated that these kinds of discrimination claims were subject to the grievance and arbitration procedure.  That motion was denied by the district court, and that decision was affirmed by the appeals court.  The appeals court held that the employees could bring individual discrimination claims in court, despite the language of the CBA, as such language was unenforceable.

The majority of the Supreme Court disagreed with the lower court decisions and reversed.  It held that the language in the CBA specifically referenced the Age Discrimination in Employment Act and the state and city anti-discrimination laws and stated, "All such claims shall be subject to the grievance and arbitration procedures as the sole and exclusive remedy for violations."  The Court held that the employer and the union negotiated this provision, as it did many others that were in the CBA, and that they should be held to it.  It also distinguished previous Supreme Court decisions on this issue on the narrow grounds upon which those decisions were actually decided and by pointing out that the courts are now in favor of arbitration whereas previously there was a hostility toward it.  Finally, the Court observed that the duty of fair representation addresses any employee concerns that a union might not prosecute a discrimination claim as vigorously as would the employee who claimed to have been discriminated against.

This decision marks a change from past court cases, holding that an employee's grievance and arbitration remedies under a CBA are independent of the employee's agency and judicial remedies.  The 14 Penn Plaza decision rests on the breadth of the CBA language involved and the traditional law labor rule that a certified union has authority to act as the exclusive bargaining agent of covered employees.

The full implications of 14 Penn Plaza cannot be predicted, but the case raises a number of possibilities for both union and non-union employers, including the following:

• Unions typically will not agree to CBA provisions making grievance and arbitration the exclusive remedy for a bargaining unit member experiencing discrimination. This is because discrimination claims will often pit one bargaining unit member against another — imagine a sexual harassment case where one employee claims a hostile work environment has been created by another — and because the union generally has the "duty of fair representation" to both the accuser and the accused. Indeed, bargaining unit members may assert so-called "duty of fair representation" ("DFR") claims against the union, claiming that their legal rights and defenses have not been advocated properly by the union.
  
  
• In light of the "duty of fair representation," what will be the role of unions in these cases? Must the union be a party in the case, or can it sit on the sidelines? Moreover, what will the duty of fair representation require a union to do? For example, did the union in 14 Penn Plaza commit a DFR breach when the union withdrew the grievances? In a fellow employee sexual harassment case, will a union commit a DFR breach by "taking sides" in the dispute? Conversely, will a union commit a DFR breach by not "taking sides" and attempting to remain neutral?
  
  
• It appears that the broad, comprehensive grievance and arbitration provision involved in 14 Penn Plaza is a mandatory subject of bargaining under the National Labor Relations Act. Therefore, if an employer insisted on such a provision in CBA negotiations and if negotiations reached an impasse as a result, the employer would not commit a "failure to bargain" unfair labor practice under Section 8(a)(5) of the NLRA.
  
  
• The greatest value of 14 Penn Plaza to employers may be at the bargaining table, where unions may be willing to make substantial concessions in order to avoid a CBA provision that would create the DFR problems outlined above.
  
  
• If the Employee Free Choice Act were to be enacted (see "Employee Free Choice Act Report" section below), an interest arbitrator would have the authority to set the terms of a first collective bargaining agreement between a union and an employer, if the parties cannot reach agreement after 90 days of bargaining and 30 days of mediation. Naturally we speculate about the types of terms these outside arbitrators would impose. It is our general belief that arbitrators would not impose the type of CBA provision that would make the CBA's grievance and arbitration system the exclusive forum for an employee's statutory discrimination claims, for at least two reasons. Such CBA provisions are not the norm, and we expect that interest arbitrators would typically order terms common to the industry involved.
  
  
• If EFCA is enacted, and if an interest arbitrator ordered a broad CBA provision making the grievance and arbitration system the exclusive forum for an employee's discrimination claims, would the order be legally effective? That is very doubtful, as the fundamental premise of 14 Penn Plaza is that the CBA provision involved marked a "clear and unmistakable" waiver of the bargaining unit members' rights to sue to court, by their exclusive bargaining representative, i.e., the union. Under EFCA, the interest arbitrator setting the terms of a CBA will not be a bargaining representative of the employees whose litigation rights would be at stake.
  
  
• Most employees with discrimination claims and their lawyers want to have as many options available as possible, and if forced to pick among available options, would not favor grievance and arbitration systems. One reason is that court litigation affords substantially greater discovery opportunities than grievance and arbitration under CBAs. Also, arbitrators under CBAs are not accustomed to deciding discrimination claims and awarding the types of damages sought in discrimination cases.
  
  
• A non-union employer facing a union campaign may use 14 Penn Plaza to their advantage, with themes such as: "In collective bargaining, unions make concessions in exchange for things they think are more important. Your interests may be sold out for some other issue the union considers more important. For example, a union may bargain for CBA provisions that deny you the option of pursuing your legal claims in court; instead, limiting you to pursuing your claims in the grievance system that the union itself controls." "Unions not only create, they foul up EEO claims. In the Penn Plaza case, the union agreed to the outsourcing of other work, which lead to the demotion of the employees who had performed the work, and the termination of other workers. When workers claimed age discrimination, the union could hardly argue for the workers that it happened because of their age without taking some of the blame itself. The union's solution was to drop the workers' discrimination claim from the grievance process."
  
  
• A non-union employer seeking to obtain pre-dispute arbitration agreements with individual employees may use 14 Penn Plaza to their advantage, with themes such as: "The Supreme Court has again said arbitration makes sense for employment disputes"; "Everybody does this, even union companies"; and "This is a benefit that unions demand; you get it without paying union dues and without the risk that a union will have conflicts in presenting your case."

Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.

© 2009 Sherman & Howard L.L.C.                                                April 9, 2009