Employment Arbitration

• A substitute for litigation– Labor arbitration a substitute for industrial conflict

• Federal Arbitration Act of 1925 – “[a] written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract”

– Interpretation – arbitration contracts are enforceable and valid unless the matter to be arbitrated has been excluded from arbitration by law (statutory or common)

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Employment Arbitration (cont.)• Two important Supreme Court cases

– Gilmer v. Interstate/Johnson Lane Corp. (1991)• An employee who signed an agreement to arbitrate “any

dispute, claim or controversy” arising out of employment required to arbitrate a claim of age discrimination (all brokers required to sign NASD arbitration agreement before hiring)

– Agreement to arbitrate voluntary» Unequal bargaining power not relevant» Fraud or coercsion not involved

– No evidence that arbitration panel would have been biased or incompetent to consider the ADEA claim

– Nothing in ADEA text or legislative history considering the statutory claim through voluntary arbitration

» ADEA mentions mediation, and conciliation as ways to resolve the dispute

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Employment Arbitration (cont.)• Circuit City Stores v. Adams (2001)

– FAA enforceability applies to most contracts of employment

• Federal Arbitration Act exclusion from coverage of “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” is limited to only such transportation workers

• Court relies on statutory construction rule of ejusdem generis: “[w]here general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.”

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Alexander v. Gardner-Denver416 U.S. 36 (1974)

• Voluntary filing of a grievance under a CBK alleging discrimination does not foreclose employee from filing suit under Title VII

• ee must meet jurisdictional requirements– CBA does not waive an employee’s statutory rights– arbitration and EEOC/courts different forums with

different authority• arb - interpret CBK• EEOC - enforce Title VII

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Waiver of Statutory Rights?(cont.)

• Wright v. Universal Maritime Service Corp, U.S.Supreme Court, 1998– Is there a conflict between

• Gardner-Denver (ee covered by a CBA may go to court on statutory claim regardless of outcome of grievance procedure)

• Gilmer (ee may waive statutory right to file if ee agrees to submit dispute to arb)

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Wright (continued)• Incorporation of statutory law in CBK does not alter

fact that this a statutory claim, not a claim under CBK• Presumption of arbitrability only extends to those

issues which can be decided better by arbitrators than by courts - issues under CBK, not a federal statute

• Waiver of statutory rights must be “clear and unmistakable; must be “explicitly stated” in CBK– Court unwilling to infer a Gilmer-like individual waiver of

statutory rights from a collective agreement• No explicit incorporation in agreement of ADA, as

there was with OSHA

Relationship Between External Law and CBA

• “The dispute in the present case, however, ultimately concerns not the application or interpretation of any CBA, but the meaning of a federal statute. The cause of action Wright asserts arises not out of contract, but out of the ADA, and is distinct from any right conferred by the collective-bargaining agreement. . . . To be sure, respondents argue that Wright is not qualified for his position as the CBA requires, but even if that were true he would still (emphasis in original) prevail if the refusal to hire violated the ADA.”

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14 Penn Plaza LLC v. Pyett, U.S. Supreme Court,

105 FEP Cases 1441, 186 LRRM 2065, April 1, 2009

• Employee covered by a collective bargaining agreement that requires all discrimination claims to be submitted to the grievance and arbitration procedure as the sole and exclusive remedy does not have the right to file a federal anti-discrimination claim through EEOC and courts; e.g., the agreement to arbitrate statutory claims is enforceable

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Penn Plaza CBA Language• “§30 NO DISCRIMINATION. There shall be no discrimination

against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, … or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.”

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Penn Plaza Rationale• ADEA does not prohibit union from bargaining

in good faith for a CBA provision that requires all employment discrimination claims to be remedied through grievance procedure and arbitration– Courts may not nullify a CBA provision unless it is

clearly illegal– No ADEA prohibition on judicial waivers of right to

sue under ADEA• Individual employee may agree to a judicial waiver, per Gilmer• Collective bargaining representative may agree to a judicial

waiver for represented employees

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Penn Plaza Rationale (cont.)• Gardner-Denver

– addressed question of whether an arbitration provision could preclude an employee from pursuing a subsequent statutory claim

• No requirement in CBA that discrimination claims must be submitted to grievance and arbitration procedure

– did not address question of whether CBA that requires arbitration of such claims enforceable

• Penn Plaza does not involve a waiver of statutory right to remedy ADEA claims, only a change in forum

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Penn Plaza Rationale (cont.)

• Courts over the past three decades have become increasingly comfortable with arbitration as a means of resolving statutory disputes

• Possibility that individual interests of employee will be subordinated to collective union interests irrelevant– Not part of statutory structure– NLRA had majority rule as governing principle

• Union actions limited by – Union duty of fair representation– Union liability under ADEA for discrimination

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Penn Plaza Dissents• Stevens: No reason to overrule precedent

– No changes in governing statute– Court views on superiority of judiciary to address discrimination

claims still relevant (Gardner Denver)– Union has no authority to waive a judicial forum for a represented

employee (Wright)• Individual employee may waive own right (Gilmer)

• Souter: Precedent should not be overruled– Majoritarian nature of CB unsuited to enforcing individual rights– All courts of appeals have supported principle that CBA cannot

waive individual federal rights

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Arbitration Proceedings

• In Penn Plaza, Union did not take cases to arbitration but permitted employees to take cases to arbitration– Suppose union filed grievance but lawfully

refused to take case and lawfully refused to permit employees authority to arbitrate case?

– Suppose employer has refused to arbitrate because it claimed only union could take case under CBA?

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Concerns About Employment Arbitration

• Fairness of procedures due to unilateral employer adoption

• Cost distribution– If employer pays, will it influence arbitrator?– If parties split fee, does employee have sufficient

resources?

• “Repeat player” problem

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Incidence of Employment Arbitration (Colvin, 2007)

• Estimate of incidence– 14% -25% of firms– A higher percentage of employees

• Determinants of arbitration adoption by employers– Firm experience with litigation– Perception of litigation environment in industry– Perception of litigation environment in state (California)– Perception that juries award more damages than an

arbitrator• lay vs. professional

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Outcomes of Employment Arbitration (Colvin, 2007)

• Employee “win rates” in 1990’s based on AAA cases, non-statutory claims– 61-68% with cases alleging breach of employment

contract• Usually highly paid executives and managers• Usually negotiated arbitration procedures

– 21- 39% in cases involving alleged breach of employer policies/personnel manual

• Usually mid-level employees• Usually employer-adopted arbitration procedures

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Outcomes of Employment Arbitration (Colvin, 2007)

• Approximate employee “win rates” on statutory claims – usually discrimination– Courts – 36-44%– Arbitration – 26.2%

• Approximate employee “win rates” on common law claims (implied contract, good faith and fair dealing, public policy)– Courts -57%– Arbitration - 51%

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Outcomes of Employment Arbitration (Colvin, 2007)

• Damages/Remedies– ’97-01

• Mean of $108,694 for the securities industry arb cases • Mean of $ 126,682 for discrim cases in S.D. NY

– 99—00 Civil Rights Claims• 8 civil rights arbitration awards

– under negotiated agreements: median and mean award of $ 32,500– Employer-promulgated agreements : median award of $ 56,096 and a

mean award of $ 259,795• 408 federal court employment discrimination trials: the median

award was $ 150,500 and the mean award was $ 336,291 • 68 state court employment discrimination trials from ‘96-01,

median award of $) and a mean award of $ 478,488 • 136 employment discrimination case verdicts from 1998 and 1999

in California: a median award of $ 200,000

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Outcomes of Employment Arbitration (Colvin, 2007)

• Repeat Player Issue– 203 AAA employment arbitration awards from ‘93 to ‘95,

• employers who participated in multiple arbitration cases associated with employee 23.3% ee win rate

• employers who participated in only one arbitration the employee win rate was 67.0%

– 836 employment arbitration awards from ‘03-’06• Employee win rate of 11.3% of 124 cases involving a repeat employer-

arbitrator pair• Employee win rate of 21.2% of 712 cases not involving a repeat

employer-arbitrator pair– Possible explanations

• Repeat play effect• Employer experience with arbitration process• Filtering at pre-arbitral steps

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Arbitrator Data (Block, 2009)

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LABOR AND EMPLOYMENT ARBITRATION CASES,NAA MEMBERS AND NON-NAA ARBITRATORS,

January 1, 2003 - December 31, 2007

 No. Respon-

dentsMean No. Labor

Arbitrations

Mean No. Employment Arbitrations

Mean Pct. Employment Arbitrations

NAA Members 173 216.3 5.6 2.52%Non-NAA Members 21 6.67 16.33 71.0%         

NAA Members with a J.D. 111 221.7 7.3 2.90%

NAA Members who are Full-Time 108 279.9 7.5 2.25%

NAA Members with a J.D. and Full-Time 106 230.25 7.73 3.00%

Arbitrator Data (Block, 2009)

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REASONS EMPLOYMENT ARBITRATION NOT HEARD, JANUARY 1, 2003-

DECEMBER 31, 2007, NAA ARBITRATORSREASONS Frequency Percent

No Time 15 16.3%Concerns About

Employment Arbitration 16 17.4%

Not on List 43 46.7%List Not Offered

Case 6 6.5%

No Desire Hear Cases 9 9.8%

Not Qualified 3 3.3%Total 92 100%

Arbitrator Data (Block, 2009)

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TABLE 9

TYPE OF EMPLOYMENT ARBITRATION CASE BY PERCENTAGES, ARBITRATORS WITH AT LEAST 10 EMPLOYMENT ARBITRATION CASES

JANUARY 1, 2003- DECEMBER 31, 2007

 Percent Alleging

Employment Contract Violation

Percent Alleging Violation of Law

Percent Alleging Violation of a Company

Policy

Valid 20 21 19

Missing 1 0 2

MEAN 65.0% 56.2% 59.3%