Feds Taking Steps to Amend Federal Arbitration Act and Overturn Penn Plaza Decision

FEDS TAKING STEPS TO AMEND FEDERAL ARBITRATION ACT AND OVERTURN PENN PLAZA DECISION

If the Arbitration Fairness Act of 2009 (AFA) (S. 931) (H.R. 1020) passes it will overturn the controversial decision rendered in April 2009 by the U.S. Supreme Court in 14 Penn Plaza v. Pyett (“Penn Plaza”).  See this and other legal updates at www. amaguinlaw.com

Specifically, the Act, introduced in February 2009, would amend the Federal Arbitration Act (FAA) to prohibit mandatory arbitration of employment claims unless provided under the terms of a collective bargaining agreement. The Act would make mandatory arbitration clauses in employment, consumer, and franchise agreements unenforceable.

In addition, contrary to the Court’s recent decision in Penn Plaza, employees would not be permitted to waive the right to take constitutional or statutory claims to court.

On April 1, 2009, the Court decided Penn Plaza.  Pyett was a member of the Service Employees International Union, Local 32BJ (“Union”), which has the exclusive authority to bargain with employers on behalf of employees in the building services industry in New York City.

The Union entered into a collective bargaining agreement (“CBA”) with the Retail Advisory Board on Labor Relations, a multiemployer bargaining association for New York City's real estate industry.  The CBA required union members to submit all claims of employment discrimination—including age discrimination—to binding arbitration.

Pyett sued in federal court for age discrimination after his employer reassigned him to a different job.  In response, the employer filed a motion seeking to compel arbitration of the matter pursuant to the CBA.  As was typically the case prior to the Penn Plaza decision, under precedent set by Alexander v. Gardner-Denver, 415 U.S. 36 (1974) (“Gardner-Denver”), the lower court denied the employer’s motion on the ground that a CBA provision cannot waive an individual employee's right to a judicial forum on a federal age discrimination claim.

Ultimately, in a 5-4 decision the Court held that a provision in a CBA that clearly and unmistakably requires union members to arbitrate their federal age discrimination claims is enforceable against the individual employees.  The Court found that the CBA provision requiring arbitration of discrimination claims was clearly a "condition of employment" that was subject to mandatory bargaining under Section 159(a) of the National Labor Relations Act (“NLRA”).  The Court also found that the arbitration provision has to be honored unless the ADEA removed claims from "the NLRA's broad sweep," an argument rejected by the Court.

The Court rejected the applicability of Gardner-Denver in that the CBA in that case did not cover statutory claims and nevertheless the prevailing view that arbitration should not be used to vindicate statutory rights no longer has merit.

In introducing the bill, Senator Russ Feingold made clear that while arbitration has “advantages” it also “can be used as a weapon by the stronger party against the weaker party.”  Senator Feingold also stated the opinion that arbitration provisions should be utilized only when both parties knowingly agree to arbitrate after the dispute has arisen.

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