Supreme Court: FAA Requires Cases to be Stayed Pending Arbitration and May Not Be Dismissed

This morning, a unanimous Supreme Court held that a court may not dismiss (even without prejudice) a case which is subject to mandatory arbitration under the Federal Arbitration Act.  Smith v. Spizzirri, No. 22-1218 (5-16-24).   Rather, the FAA provides that such proceedings shall be “stayed” -- or held in abeyance -- pending arbitration.   Therefore, when a party (in this case an employer) moves to compel arbitration of the underlying employment claims and stay the proceedings, it was an error for the court to compel arbitration and then dismiss the case without prejudice.  The court’s inherent authority to dismiss a case is subject to the FAA’s statutory requirement to stay the proceedings. 

Supreme Court Finds FAA Exemption Depends on the Work Performed and Not the Industry.

Last week, the unanimous Supreme Court held that a worker need not work in the transportation industry to qualify for the Federal Arbitration Act exemption for the “class of workers engaged in foreign or interstate commerce.”  Bissonette v. LePage Bakeries Start St. LLC, No. 23-51 (4-12-24).  The statutory language providing the exemption focuses on the worker and not the industry.  “A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act.”

According to the Court’s opinion, the plaintiffs filed suit alleging that they had been misclassified as independent contractors by the defendant baking company and were entitled to minimum and overtime wages.  The plaintiffs’ work included delivering and marketing the defendant’s baked goods within the state of Connecticut.  They had signed franchise/distributor agreements giving them rights to distribute the defendant’s baked goods within Connecticut.  The defendant moved to compel arbitration pursuant to arbitration clauses in their distributor agreements.  The plaintiffs argued that they were exempt from the FAA as members of “class of workers engaged in foreign or interstate commerce.” The District Court found that they were not transportation workers because their duties involved more than merely driving trucks.  The Second Circuit affirmed on the grounds that they were not employed in the transportation industry.

Section 1 of the FAA contains an exemption for certain employees:  “ . . . . nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  The Court had previously held that a “class of workers” is properly defined based on what a worker does for an employer, “not what [the employer] does generally.”  

Nor does construing §1 to cover transportation workers render “seamen” and “railroad employees” superfluous, as [the employer] contends.  . . .  That argument gets ejusdem generis exactly backwards. It is the specific terms “seamen” and “railroad employees” that limit the residual clause, not the residual clause that swallows up these narrower terms.

The Court also rejected the argument that virtually all workers are essentially engaged in internet commerce, making the exemption swallow the general rule:

a transportation worker is one who is “actively” “‘engaged in transportation’ of . . . goods across borders via the channels of foreign or interstate commerce.”  . . . .  In other words, any exempt worker “must at least play a direct and ‘necessary role in the free flow of goods’ across borders.” . . . . These requirements “undermine[] any attempt to give the provision a sweeping, open-ended construction,” instead limiting §1 to its appropriately “narrow” scope.

The Court remanded the matter back to the Court of Appeals.  Reversal did not resolve whether the plaintiffs were covered by the exemption since a question remained whether they were involved in interstate commerce. 

We express no opinion on any alternative grounds in favor of arbitration raised below, including that petitioners are not transportation workers and that petitioners are not “engaged in foreign or interstate commerce” within the meaning of §1 because they deliver baked goods only in Connecticut.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Refused to Enforce Arbitration e-form Agreement Which Employee Denied Seeing

Last week, the Sixth Circuit reversed an order to compel an employee’s FLSA claim to arbitration on the grounds that there was a factual dispute as to whether the plaintiff employee had actually seen and, thus, agreed to the arbitration agreement.  Bazemore v. Papa John’s USA, Inc., No. 22-6133 (6^th Cir. 7/20/23).  The employer utilized eforms and electronic signatures during employee orientation.    The Court found that the plaintiff’s sworn denial of having ever seen the agreement was sufficient to require a trial on the issue of whether he had ever agreed to it even if he continued to work after being presented with the agreement.  While “[a]n electronic signature can show a party’s assent,” such “signature is legally valid only when “made by the action of the person the signature purports to represent”—which is itself a question of fact.”

According to the Court’s opinion, the plaintiff brought an FLSA action claiming that the failure to reimburse him for travel expenses reduced his wages below the minimum wage.  The employer moved to compel arbitration based on an arbitration agreement which it claimed that he had electronically signed when hired.  The process involved him signing in using his assigned user id and own password, scrolling through the document and then checking boxes to indicate agreement.  Employees cannot begin work until they complete the forms.  The employee responded that he had never seen such an agreement, thus, impliedly denying that the electronic signature was his.  He indicated that this manager had been observed logging in and completing training materials for employees and sought targeted materials about the document in discovery.  There is no indication that he denied having ever seen or signed any other documents during his orientation.   The trial court enforced the arbitration agreement and disregarded the plaintiff’s “convenient lapse of memory,” but the Sixth Circuit reversed.

The Court found that the employer bore the burden of proving the existing of a binding agreement.  “If a genuine issue of material fact arises as to whether such an agreement exists, the court ‘shall proceed summarily to the trial thereof.”’  While “[a]n electronic signature can show a party’s assent,” such “signature is legally valid only when “made by the action of the person the signature purports to represent”—which is itself a question of fact.”

Here, the parties presented conflicting evidence on that point. Papa John’s pointed to an e-Form record of the arbitration agreement. That record has Bazemore’s name typed at the bottom with an electronic signature “By UserID: 467073”—which Greene says is Bazemore’s user ID. Yet Bazemore submitted a sworn declaration in which he repeatedly said that he never saw the arbitration agreement—even though, as Greene said, the e-Form would have required him to scroll through the entire agreement before signing it. We see no reason whatever that would prevent a reasonable factfinder from believing Bazemore’s testimony—which means that his testimony created a genuine issue of material fact.

The Court found that the trial court improperly put the burden of proof on the plaintiff and failed to credit his denial of ever seeing the document, finding instead that the lack of a clear denial that he had signed it was insufficient to disprove the electronic signature.

The Court rejected the employer’s alternative argument that the plaintiff’s continued employment was sufficient manifestation of assent to the terms of the arbitration agreement. 

Kentucky courts have held that the “conduct of a party is not effective as a manifestation of his assent” unless the party has “reason to know that the other party may infer from his conduct that he assents.” Furtula, 438 S.W.3d at 309. And Bazemore had no reason to think that his continued employment could indicate that he has agreed to arbitrate his claims—given that he was, at the same time, arguing in court that he never agreed to arbitration. Indeed, to hold otherwise would force Bazemore to give up either his job or his day in court.

The Court seemed unaware that courts have found that no signature is required under the Federal Arbitration Act and employers may require arbitration agreements as a term and condition of continued employment, assuming, of course, that the employee was given notice of the terms of the agreement, which the plaintiff here denied.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Court Decides FAA Exemptions for Workers in Interstate Commerce, Not Arbitrator

This morning, the Supreme Court affirmed a Federal Arbitration Act decision and held that a court – not the arbitrator --  should decide whether a §1 exemption for “contracts of employment of . . . workers engaged in foreign or interstate commerce” applied to negate FAA enforcement of the arbitration clause in the plaintiff trucker’s independent contractor agreement.   New Prime, Inc. v. Oliveira, No. 17-340 (1-15-19).   Further, the Court held that the common meaning of “worker” and “contract of employment” at the time the FAA was enacted in 1925 would control its interpretation of those terms instead of the contemporary understanding of those terms in order to protect the reasonable reliance of the public.  In 1925, “employment” was broadly understood to encompass workers and independent contractors and not just employees. 

According to the Court’s opinion, the plaintiff was hired under an “operating agreement” to work as an independent contractor truck driver for the defendant interstate trucking firm.  The operating agreement contained an arbitration clause which provided that the arbitrator should decide questions of arbitrability. The plaintiff filed a class action claiming that he and his fellow drivers had been misclassified as independent contractors and were entitled to minimum and overtime wages.   The defendant company moved to compel arbitration.  The plaintiff argued that he and his fellow drivers were exempt from FAA enforcement under §1, but the company argued that this decision should be made by the arbitrator and, if not, “contracts of employment” referred to common law and statutory employees, not independent contractors like the plaintiff and his fellow drivers.

The Court observed that the FAA only compels arbitration of disputes when the FAA applies.  Among other things, the FAA requires an “agreement in writing” between the parties and applies to disputes which arise from a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.”  The FAA also specifically exempts certain agreements from enforcement.  Section 1 of the FAA defines the terms “maritime transactions” and commerce,” and then provides:

but nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.

This exemption existed because:

Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers.  And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate.

Clearly, a court could not apply the FAA and compel arbitration before deciding for itself whether the FAA even applied:

The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

This is not a new concept. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 402 (1967).

The Court then rejected the defendant company’s argument that “contracts of employment” covered only agreements with common law and statutory employees and not to contacts of employment with workers (like the plaintiff) who might be independent contractors.   The parties agreed that the plaintiff was a worker engaged in interstate commerce and the plaintiff was willing to assume – only for this issue – that he was an independent contractor.   

In deciding whether “contracts of employment” included independent contractor agreements, the Court observed:

“[I]t’s a ‘fundamental canon of statutory construction’ that words generally should be ‘interpreted as taking their ordinary . . . meaning . . . at the time Congress enacted the statute.’” . . . After all, if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the “single, finely wrought and exhaustively considered, procedure” the Constitution commands. INS v. Chadha, 462 U. S. 919, 951 (1983).  We would risk, too, upsetting reliance interests in the settled meaning of a statute. . . .

That, we think, holds the key to the case.  To many lawyerly ears today, the term “contracts of employment” might call to mind only agreements between employers and employees (or what the common law sometimes called masters and servants).  Suggestively, at least one recently published law dictionary defines the word “employment” to mean “the relationship between master and servant.” Black’s Law Dictionary 641 (10th ed. 2014).  But this modern intuition isn’t easily squared with evidence of the term’s meaning at the time of the Act’s adoption in 1925.  At that time, a “contract of employment” usually meant nothing more than an agreement to perform work.  As a result, most people then would have understood §1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.

The Court examined prior law dictionaries and found that “contracts of employment” was not even a term of art or defined term in 1925:

It turns out, too, that the dictionaries of the era consistently afforded the word “employment” a broad construction, broader than may be often found in dictionaries today.  Back then, dictionaries tended to treat “employment” more or less as a synonym for “work.”  Nor did they distinguish between different kinds of work or workers: All work was treated as employment, whether or not the common law criteria for a master-servant relationship happened to be satisfied.

 . . . This Court’s early 20th-century cases used the phrase “contract of employment” to describe work agreements involving independent contractors.  Many state court cases did the same.  So did a variety of federal statutes. . . . We see here no evidence that a “contract of employment” necessarily signaled a formal employer-employee or master-servant relationship.

Further, the §1 of the FAA itself refers to “contracts of employment” with “workers.”  Workers, then as now, refers to a broader class of individual which includes both employees and independent contractors.

The Court rejected the defendant company’s argument that “contracts of employment” must necessarily only cover employees because the words “employment” and “employee,” while derived from a common root did not develop simultaneously and have different understandings and legal meaning with “employment” traditionally having a broader meaning than employee.  While “contracts of employment” clearly included contracts with employees, they could also include contracts with workers or independent contractors who were not employees.

The  Court refused to enforce the purpose of the FAA over the statutory mandates or to utilize the Court’s inherent authority to compel alternative dispute resolution.

Justice Ginsburg agreed with the  Court’s decision and rationale, but not surprisingly, also asserted that Congress could design legislation that should change with the times: sometimes, “[w]ords in statutes can enlarge or contract their scope as other changes, in law or in the world, require their application to new instances or make old applications anachronistic.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Unanimous Supreme Court Rejects Another Non-Statutory Exception to FAA Enforcement

Yesterday, the Supreme Court unanimously reversed  an arbitration decision that will affect non-competition litigation between employees and employers who have incorporated arbitration clauses into their agreements.  The Court ruled that the Federal Arbitration Act requires the arbitrability of a dispute to be resolved by the arbitrator even if the trial court finds the request for arbitration to be “wholly groundless” if the parties’ agreement reserved questions of arbitrability to the arbitrator.  Henry Schein, Inc. v. Archer & White Sales, Inc., No 17-1272 (1-9-19).  In that case, the parties’ contract provided for arbitration of disputes, except when the party was seeking injunctive relief.  While the contract did not specifically address the question of arbitrability, its brief two-sentence arbitration clause referred to the AAA rules, which provides that arbitrators can decide arbitrability.  The plaintiff filed suit seeking damages and injunctive relief and the defendant sought to have the entire matter referred to arbitration.  The plaintiff objected on the grounds that the defendant’s request was “wholly groundless” (because of the contract’s exception for injunction requests) so that the trial court could resolve the arbitrability question.  The trial and appellate court agreed, but the Supreme Court reversed and found that the FAA does not contain an exception for “wholly groundless” arguments as to arbitrability.  However, because the contract was silent about the question of arbitrability, the Court remanded the matter to determine if the parties’ contract reserved the question of arbitrability to be decided by the arbitrator or the trial court.

The Court rejected the defendant’s argument that Sections 3 and 4 of the FAA only require a court to stay litigation pending arbitration and to refer a matter to arbitration after an initial evaluation of arbitrability.

This Court has consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by “clear and unmistakable” evidence. First Options, 514 U. S., at 944 (alterations omitted); see also Rent-A-Center, 561 U. S., at 69, n. 1.  To be sure, before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. See 9 U. S. C. §2.  But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.

The Court also refused to impose a common law exception into the FAA to prevent a waste of the parties’ resources.   Moreover, it was doubtful that systematic resources would be spared when there was likely to be collateral litigation over arbitrability regardless of whether the arbitrator or trial court decided the issue.

Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. Rent-A-Center, 561 U. S., at 67.  Applying the Act, we have held that parties may agree to have an arbitrator decide not only the merits of a particular dispute but also “‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.”  Id., at 68–69; see also First Options, 514 U. S., at 943.  We have explained that an “agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other.”  Rent-A-Center, 561 U. S., at 70.

                 . . .

We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.  That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.

That conclusion follows not only from the text of the Act but also from precedent. We have held that a court may not “rule on the potential merits of the underlying” claim that is assigned by contract to an arbitrator, “even if it appears to the court to be frivolous.”  AT&T Technologies, Inc. v. Communications Workers, 475 U. S. 643, 649–650 (1986). A court has “‘no business weighing the merits of the grievance’” because the “‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’” Id., at 650 (quoting Steelworkers v. American Mfg. Co., 363 U. S. 564, 568 (1960)).

                 . . . .

The [wholly groundless] exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.  When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract

 Ultimately, however, the Court expressed

no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator. The Court of Appeals did not decide that issue.  Under our cases, courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”  First Options, 514 U. S., at 944 (alterations omitted).  On remand, the Court of Appeals may address that issue . . .

This decision will affect employers because many employment agreements contain non-competition and non-solicitation clauses as well as arbitration clauses that similarly carve out exceptions for when the employer seeks injunctive relief.  The reason for such carve-outs is so that the employer can obtain speedy preliminary injunctive relief when damages will be inadequate for the harm caused by the improper competition or solicitation.  However, if the employee seeks to have the entire matter referred to arbitration, resolution of the dispute could be delayed while the parties select an arbitrator, etc. to resolve the arbitrability issue.   

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney. 

Sixth Circuit Rejects Another Attack on Arbitration Agreements Involving FLSA Claims

This morning, the Sixth Circuit unsurprisingly granted the appeal of an employment services firm whose arbitration agreement was denied enforcement by the trial court in a collective FLSA action.  Gaffers v. Kelly Services, Inc., No. 16-2210 (6^th Cir. 8-15-18).  The Supreme Court’s decision earlier this year in Epic Systems rejected one of the legal arguments relied upon by the trial court: that arbitration agreements violate the NLRA when they preclude collective lawsuits.  This morning, the Sixth Circuit also reiterated that arbitration agreements are not precluded by the Fair Labor Standards Act either even though that statute also permits class action lawsuits. 

The plaintiff provided “virtual” call center support from home for the defendant employer.  He filed a lawsuit on behalf of himself and 1600 similar co-workers that he was not properly compensated under the FLSA for logging in and out of the employer’s computer network and during computer glitches.   Although he had never signed an arbitration agreement, about half of his co-workers had and the employer moved to refer those cases to individual arbitrations.  The trial court refused to enforce the arbitration agreements and the employer appealed.

The Supreme Court long ago held that the Federal Arbitration Act supported the enforcement of arbitration clauses in cases brought under the ADEA, which shares the exact same statutory enforcement  provisions with the FLSA.  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 27 (1991).  In other words, when Congress adopted the ADEA, it incorporated the FLSA’s enforcement provisions.  Therefore, it is pretty clear that the FLSA does not preclude arbitration.

The Sixth Circuit refused to deny enforcement on policy grounds because Congress is supposed to set policy, not courts.   Court’s interpret statutes, not Congressional intent.   It also rejected the argument – rejected earlier this year by the Supreme Court – that the arbitration agreement should not be enforced on grounds of illegality.   It also refused to treat the arbitration agreement as an illegal waiver under the FLSA because FAA endorsed arbitration as lawful.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.  

Unlike Central Ohio Weather, NLRB Ends 2014 With Flurry of Activity

Another NLRB initiative was resurrected on December 15 when a final regulation was published shortening the time to conduct union elections in the private sector after April 14, 2015.  Management literature has referred to this as the “ambush rule’ or “quickie election” rule because of its potential to significantly shorten the period during which election and educational communications are shared with employees by employers about the pitfalls union representation.  (Unions generally start their electioneering and education about the benefits of union representation far in advance).  While a union election generally is now held approximately 42 days after a petition is filed, the new regulation contemplates an election could be held as early as 13-22 days after a Petition (for union recognition, unit clarification or decertification) is filed.  Accordingly, unless this regulation is delayed or voided through litigation, employers will need to be better prepared before a Petition is filed because there will not be much time to respond accurately or appropriately under the new rules otherwise.   The new regulation also imposes new obligations on employers to post and distribute notices, to assemble and serve alphabetized lists of employees, and to provide unions with employees’ personal cell phone numbers and email addresses.  On other fronts, the NLRB also changed this month its rules concerning deferring unfair labor practice charges which are also the subject of arbitration or grievance settlements and how it will address union organizational efforts among faculty at religious colleges and universities.

After a Petition is filed with the NLRB (which must be done electronically and served simultaneously on the employer under the new rule), the NLRB Regional Director then serves on the parties a Notice of Hearing.  This pre-election hearing will generally be held within 8 days of service of this notice.  (Because this Notice could be served the same day as when the Petition is filed, the employer’s obligations conceptually begin almost immediately).

One of the significant new requirements in this regulation is that employers will now be required to post (and to distribute electronically if that is the employer’s custom), a Notice of Petition within 2 days of when the Regional Director serves the employer with a Notice of Hearing (which will also contain a copy of the Notice of Petition).  Violation of this rule could result in the election being set aside, even if the employer ultimately wins the election:

Within 2 business days after service of the notice of hearing, the employer shall post the Notice of Petition for Election in conspicuous places, including all places where notices to employees are customarily posted, and shall also distribute it electronically if the employer customarily communicates with its employees electronically. The Notice of Petition for Election shall indicate that no final decisions have been made yet regarding the appropriateness of the petitioned-for bargaining unit and whether an election shall be conducted. The employer shall maintain the posting until the petition is dismissed or withdrawn or the Notice of Petition for Election is replaced by the Notice of Election. The employer’s failure properly to post or distribute the Notice of Petition for Election may be grounds for setting aside the election whenever proper and timely objections are filed under the provisions of § 102.69(a). A party shall be estopped from objecting to the nonposting of notices if it is responsible for the nonposting,  . . . .

Employer will also be required to produce a written list of objections to the petitioned election (regarding, for instance, the proposed scope of the bargaining unit, the improper inclusion of supervisors, the improper exclusion of other employees, etc.) by noon the day before the pre-election hearing.    Depending on when the Regional Director serves the Notice of Petition, this Statement of Position might be due as early as seven days after the Petition is filed.   Under the new procedures in the regulation, employers may not be entitled to file post-hearing briefs following the pre-election hearing.  Indeed, the pre-election hearing may not even determine voter eligibility or supervisory status before the election.   In fact, an evidentiary hearing on the employer’s objections may not be not held until after the election.  While the NLRB’s majority thinks this will save time (especially if the employer ultimately wins the election anyway), this ambiguity will create significant problems for employers in determining supervisory status of certain employees in order to avoid unfair labor practice charges and to effectively communicate with employees during the election period.

Another new requirement in the regulation is that the employer is also required to file at the same time (i.e., the day before the pre-election hearing) a list of employees:

The Statement of Position shall include a list of the full names, work locations, shifts, and job classifications of all individuals in the proposed unit as of the payroll period preceding the filing of the petition who remain employed at the time of filing, and if the employer contends that the proposed unit is inappropriate, the employer shall separately list the full names, work locations, shifts, and job classifications of all individuals that the employer contends must be added to the proposed unit to make it an appropriate unit. The employer shall also indicate those individuals, if any, whom it believes must be excluded from the proposed unit to make it an appropriate unit. The list(s) of names shall be alphabetized (overall or by department) . . .

Having such an employee list creates an advantage for the union if it wants to dismiss the Petition and attempt to organize larger group of employees.  At present, unions only need  30% of employees to sign cards expressing interest in an election before filing a Petition, but will need a majority of the eligible employees to vote in favor of the union in order to win.    As a strategic matter, a union could identify an inappropriately small unit for its initial petition, but then dismiss the petition and organize a larger group after the employer produces the new employee list for the entire (and larger) appropriate unit.

After the pre-election hearing, the Regional Director will then issue a Directive and Notice of Election.  (Conceptually, this could be issued the same day as or even the day after the day of the pre-election hearing).  At this point, the employer must file within 2 days an Excelsior list, which has been expanded under the new regulation to include the employees’ personal email and cell phone numbers.   This alphabetized Excelsior list  must contain “the full names, work locations, shifts, job classifications, and contact information (including home addresses, available personal email addresses, and available home and personal cellular (‘‘cell’’) telephone numbers) of all eligible voters.” There are no privacy protections or opt-out provisions for employees to avoid distribution of their personal email and cell phone numbers.   On the other hand, if the employer does not collect that information, it need not obtain it just to include in the Excelsior list.   The dissenting NLRB members note that this requirement is inconsistent with the NLRB’s recent decision in Purple Communications (where the Board ruled that employers must presumptively grant email access to employees for union and other section 7 communications because personal cell phones and emails were found to be insufficient).

The Federal Register explanation for the new rule is 184 pages long and obviously contains many details which are not mentioned in this summary.   Notably, an employer will not have time to read all of those pages after receiving a Petition because it will have a lot of other work to do. 

On December 16, the NLRB adopted new standards for determining when to exercise jurisdiction over self-identified religious colleges and universities and how to determine whether faculty are managerial employees who lack rights under the NLRA in Pacific Lutheran University.

A day earlier, in Babcock & Wilcox Construction Co., 361 NLRB 132, the NLRB changed its practice of automatically deferring unfair labor practice charges to the results of labor arbitrations and grievance settlements. 
 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

A Tale of Two Courts and Two Arbitration Disputes

In the past week, both the Franklin County Court of Appeals and the Sixth Circuit Court of Appeals have issued decisions concerning the arbitration of employment-related disputes.  In the Franklin County case, the  Court held that the defendant employee could not enforce an arbitration agreement against the plaintiff dual employer which had not agreed to arbitrate disputes even though the other dual employer (which was not a party to the lawsuit) was a party to the arbitration agreement.  Fifth Third Bank v. Rowlette, 2013-Ohio-5777.    In the federal court case, the Sixth Circuit held that the trustees of an employee benefit plan could not appeal an error of law by the arbitrator in their indemnification claim against the parent employer because arbitration decisions are supposed to be final. The Court suggested that even an arbitrator’s manifest disregard of the law might be an insufficient basis to vacate an arbitration award under the FAA. Indeed, “the arbitrator is not necessarily bound by legal holdings of this court.”   Schafer v. Multiband Corp., No. 13-1316 (6^th Cir. 1-6-14).

According to the Court’s opinion in Rowlette, the defendant employee was jointly employed by the plaintiff bank and a securities firm in a “dual employment agreement.”  He sold registered securities on behalf of the securities firm to members of the public and to the bank’s customers.  The plaintiff bank referred customers to the defendant and he signed stock option agreements with the bank’s parent company which contained non-competition clauses.  He then resigned his employment and became associated with a different securities firm.  The bank and its parent company filed suit against the employee, his company and the new securities firm for, among other thing, breach of contract, unfair competition, theft, etc. 

The defendants asserted that the plaintiffs were required to arbitrate their claims under the rules of the Financial Industry Regulatory Authority (FINRA):

FINRA Rule 13200 provides that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure for Industry Disputes ("FINRA Code") if the dispute arises out of the business activities of a member or an associated person and is between or among members, members and associated persons, or associated persons.1 Under FINRA Rule 13100(o), "member" is defined as any broker or dealer admitted to membership in FINRA, and under FINRA Rule 13100(a), "associated person" is defined as a person associated with a member. Rowlette also signed a Uniform Application for Securities Industry Regulation or Transfer form ("Form U4") while employed with Fifth Third Securities, which contains a clause requiring arbitration of claims. Appellants claim that Form U4 also compels arbitration of the claims in this case.

Problem was, the plaintiffs were not members of FINRA, were not bound by FINRA rules and had never signed the U4 form or otherwise agreed to arbitrate any disputes with any of the defendants.  While the plaintiff’s other dual employer (i.e., the securities firm which shared the plaintiff bank’s name) was a FINRA member and obligated to arbitrate disputes, it was not a party to the lawsuit.

Appellants also claim that, if this case proceeds in the court below, Fifth Third Bank will be unable to prove any damages. They assert that Rowlette only did work involving securities for Fifth Third Securities and did not perform any banking transactions for Fifth Third Bank. Appellants argue that Fifth Third Securities is the real party in interest in this case and that any damages arising from Rowlette's change of employment would accrue to Fifth Third Securities, not Fifth Third Bank. However, Fifth Third Bank and Fifth Third Bancorp are distinct entities from Fifth Third Securities. The claims in appellees' complaint rely solely on the stock agreements Rowlette signed with Fifth Third Bank and Fifth Third Bancorp. Further, appellants concede that Rowlette was a dual employee of both Fifth Third Bank and Fifth Third Securities, although they argue that his employment with Fifth Third Bank was merely pro forma. Thus, it appears that appellees are asserting their own independent claims, not seeking to recover damages owing to Fifth Third Securities. Moreover, to the extent that appellees asserted claims seeking to recover damages owing to another entity, such claims could be addressed through a motion for summary judgment.

Therefore, the Court affirmed the denial of the motions to dismiss and compel arbitration.

In the Schafer case, the trustees of an ESOP sought indemnification from the parent companies for the settlement of a lawsuit alleging breach of fiduciary duties.  The arbitrator found that the indemnification agreement was void under ERISA.  The trustees then appealed the arbitrator’s decision to federal court on the grounds that the arbitrator’s legal reasoning was erroneous  under Sixth Circuit precedent.  The trial court vacated the award and the parent corporation appealed.  The Court of Appeals agreed that if a judge had made the same mistake as the arbitrator, the decision would have been reversed.   

But the arbitrator’s decision reasoned from the statute and the contract, and not in clear disregard of them, such that the arbitrator’s decision should not have been vacated by the district court because of the legal error of the arbitrator. Absent extraordinary circumstances, arbitration is supposed to resolve, with finality, legal as well as factual disputes.

Section 10 of the Federal Arbitration Act only permits arbitration decisions to be vacated in the following situations:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made

The best argument that could be made for vacating the arbitration decision was that the arbitrator exceeded his authority by manifestly disregarding the law.  The Court was not certain that this constitutes a valid basis under the FAA to vacate an arbitration award.  However, the Court side-stepped that issue because it did not think the arbitrator’s error in interpreting ERISA rose to that level.  “Because the arbitrator, notwithstanding his apparent error of law, did not manifestly disregard the law so as to warrant vacatur of the award, we need not decide whether a manifest disregard of the law legitimately forms a basis for vacatur in the first place, either as an interpretation of the fourth statutory basis for vacatur, or as a fifth, inferred, basis for vacatur.”

 

While the arbitrator may have misinterpreted ERISA, his decision was based on a plausible interpretation of the statute. 

Legal error by the arbitrator—even clear legal error—is however not by itself sufficient for vacatur of an arbitration agreement. One of the advantages of arbitration is the avoidance of the expense of appeals, and the avoidance of such costs would be undermined by permitting appeals based on clear error of law. . . . Even assuming that manifest disregard of the law is a basis for vacatur of an arbitral decision, the scope of the basis has to be very narrow. Manifest disregard of the law is not just manifest error of law. If the arbitrator expressed disagreement with the law, rather than interpretation of the law, that might suggest “disregard.” But there is little evidence of that in the arbitrator’s decision. Instead, the arbitrator relied on a very broad “plain” reading of the ERISA provision invalidating contractual provisions that relieve a fiduciary of liability, and relied on a narrow and formal meaning of the insurance exception to that provision. The arbitrator also relied on precedents that we can distinguish. Even together, however, this is not enough to show a manifest (as opposed to possible, or even likely) disregard (as opposed to questionable reading) of the law.

Moreover, the very idea that an arbitral decision is not appealable for legal error leads to the conclusion that the arbitrator is not necessarily bound by legal holdings of this court. If an arbitrator relies on a colorable meaning of the words of the statute—as the arbitrator did here—the fact that there is Sixth Circuit precedent to the contrary is not necessarily determinative.  Sixth Circuit holdings are binding in courts and on agencies whose decisions are appealable to the Sixth Circuit, ultimately because of that appealability. An arbitrator cannot reject the law, but can disagree with nonbinding precedent without disregarding the law.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: Arbitrator’s Decision Holds “However Good, Bad or Ugly”

This morning, a unanimous United States Supreme Court affirmed the denial of a motion to vacate an arbitration ruling that physicians could proceed in a class action arbitration challenging allegedly low payments by an insurance company under a fee-for-service contact that contained an arbitration clause.  Oxford Health Plans v. Sutter, No. 12-135 (6-10-13).  While this case is not an employment case, the ruling under the Federal Arbitration Act would apply equally in the employment context.   

The arbitrator ruled that the fee-for-service arbitration clause authorized class action arbitration.  Following that ruling – and while the arbitration was still pending, the Supreme Court ruled in  Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), “that an arbitrator may employ class procedures only if the parties have authorized them” in the arbitration agreement.  Asked to reconsider his ruling, the arbitrator re-affirmed that the contact authorized class action arbitrations.  Unlike the Stolt-Nielsen case where the parties had stipulated that the contract did not contemplate class arbitrations and the arbitrator there had simply imposed his view of sound public policy and exceeded his contractual authority to merely interpret the contract, the arbitrator in Sutter limited his opinion to his legal interpretation of the contract.  Even if the Sutter arbitrator committed serious errors of law or fact, that is not a basis to vacate an arbitration ruling under the FAA.   “Only if ‘the arbitrator act[s] outside the scope of his contractually delegated authority’—issuing an award that ‘simply reflect[s] [his] own notions of [economic] justice’ rather than ‘draw[ing] its essence from the con­tract’—may a court overturn his determination.  . . .  So the sole question for us is whether the arbitra­tor (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”  In other words, "[t]he arbitrator’s construction holds, however good, bad, or ugly.”  Otherwise, if courts could review the legal correctness of every arbitration decision, arbitration would cease to be a more expedient alternative to regular civil litigation.

 The  Court also indicated that it would have faced  

   a different issue if Oxford had argued below that the availability of class arbitration is a so-called “question of arbitrability.” Those questions—which “include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy”—are presumptively for courts to decide.  . . .  A court may therefore review an arbitrator’s determination of such a matter de novo absent “clear[] and unmistakabl[e]” evidence that the parties wanted an arbitrator to resolve the dispute.  . . .  Stolt-Nielsen made clear that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability. . . . . But this case gives us no opportunity to do so because Oxford agreed that the arbitrator should determine whether its con­tract with Sutter authorized class procedures.

The insurance company moved to compel arbitration after the physician filed his complaint in state court.  The court enforced the arbitration clause.  All the contract provides is that an arbitrator will decide the dispute.  Therefore, the parties cannot return to court merely because they disagree with the arbitrator.

Under §10(a)(4), the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Supreme Court: When the Contract Was Formed is Disputable and Not Arbitrable Even If It Seems Inconsistent

There's nothing like inconsistency to keep lawyers employed. On Friday, the Supreme Court issued yet another arbitration decision in which it reversed the Ninth Circuit (which uncharacteristically found the dispute to be subject to the arbitration clause). Granite Rock Co. v. International Brotherhood of Teamsters, No. 08-1214 (6/24/10). However, despite what the Court harped on last week in Rent-a-Center (that objections to the contract as a whole cannot prevent arbitration), in this case, the Court found that a dispute involving when the contract was formed had to be decided by the trial court instead of the arbitrator because the dispute was not arbitrable under the union's theory, but was arbitrable under the employer's. In other words, disputes over the formation of the arbitration clause (and the contract as a whole) may be decided by the trial court instead of the arbitrator. Moreover, the scope the arbitration clause did not include disputes over whether a contract was even formed. Finally, the Court rejected the employer's attempt to create a federal cause of action for tortious interference with contract under § 301.

According to the Court's opinion, the employer's CBA with the local union expired on April 30 and, following an impasse in negotiations, the union went on strike in June until July 2 when the members ratified a new CBA. The new CBA contained arbitration and no-strike provisions and required the employees to return to work on July 5. Prior to the ratification vote, the local's business manager requested the employer to consider a return-to-work agreement which would hold harmless any union member who was responsible for any damages incurred during the strike and picketing. The employer refused. The international union had advised the local union during negotiations and the strike and had objected to the members' returning to work without a back to work agreement protecting the members and the local union from damages caused during the strike. Thus, the international union convinced the local union to continue the strike beyond July 5, expanded the strike beyond the single facility at issue and informed the employer that it would permit the employees to return to work only after the employer agreed to the requested return-to-work agreement. On July 9, the employer filed a lawsuit in federal court under § 301 of the LMRA to enjoin the strike (as a violation of the parties' CBA) and for strike-related damages. In its defense, the union contended that the CBA had never been ratified (and, thus, could not be breached) and the trial court refused to enjoin the strike. Subsequently, 12 union members testified to the July 2 ratification vote and the employer moved for a new trial. The union then held another ratification vote on August 22 (when the members again voted to approve the new CBA) and announced the vote and the cessation of the strike on September 12 in order to render the employer's motion moot as the trial court was preparing to hear it. Although the employer's request for the injunction was now moot, the court agreed to hold a new trial on the employer's motion for strike damages. The unions then demanded arbitration of the dispute and moved the court for an order compelling arbitration. The employer then amended its complaint to add a claim against the international union for tortiously interfering with its contract by convincing the local union to breach the new CBA by extending the strike beyond July 5.

The trial court refused to recognize a new federal claim under § 301 for tortious interference and dismissed that claim. It also refused the unions' request to refer the question about when the CBA was ratified to the arbitrator. Instead, a jury concluded that the CBA was ratified on July 2 (instead of August 22) and the breach of contract claim was sent to the arbitrator to determine damages. On appeal, the Ninth Circuit affirmed dismissal of the tortious interference claim, but held that the ratification dispute should have been resolved in arbitration because any ambiguity in the scope of the arbitration clause was to be resolved in favor of arbitration and because the employer conceded the applicability of the arbitration clause by filing suit for breach of the arbitration clause in the parties' contract. The Supreme Court reversed.

The primary dispute in this case centered on whether the arbitrator or the trial court should have determined the date when the CBA was ultimately ratified: Was it July 2 or August 22? The Court held that the trial court was correct to determine the date when the CBA was ratified instead of permitting an arbitrator to do so. "[W]here, as here, the date on which an agreement was ratified determines the date the agreement was formed, and thus determines whether the agreement's provisions were enforceable during the period relevant to the parties' dispute."

The Court made little attempt to harmonize its primary analysis with the Prima Paint line of cases (as typified by last week's Rent-a-Center decision). As a general rule, the trial court determines the arbitrability of a dispute, not the arbitrator (unless, of course, the parties' clearly and unmistakably delegate the decision to the arbitrator). Once a dispute is found to be within the scope of an arbitration clause by a court, then it is referred to arbitration. To succeed in avoiding arbitration, the opposing party must challenge the validity and/or scope of the arbitration clause itself. Just last week, the Court reaffirmed that when a party raises a defense that goes to the validity of the contract as a whole, but not to the validity of only the arbitration clause, then the arbitrator decides the dispute instead of the court. That being said, the Court still rejected the Ninth Circuit's application of these rules in this case:

The second principle the Court of Appeals invoked is that this presumption of arbitrability applies even to disputes about the enforceability of the entire contract containing the arbitration clause, because at least in cases governed by the Federal Arbitration Act (FAA), 9 U. S. C. §1 et seq.,
courts must treat the arbitration clause as severable from the contract in which it appears, and thus apply the clause to all disputes within its scope "'[u]nless the [validity] challenge is to the arbitration clause itself'" or the party "disputes the formation of [the] contract." (emphasis added).

According to the Court: "These principles would neatly dispose of this case if the formation dispute here were typical. But it is not." This was supposedly because the plaintiff both conceded the formation and validity of the arbitration clause. Moreover, the Court concluded that the unions,

like the Court of Appeals, over-reads our precedents. The language and holdings on which Local and the Court of Appeals rely cannot be divorced from the first principle that underscores all of our arbitration decisions: Arbitration is strictly "a matter of consent . . . ., our precedents hold that courts should order arbitration of a dispute only where the court is satisfied that neither the formation of the parties' arbitration agreement nor (absent a valid provision specifically committing such disputes to an arbitrator) its enforceability or applicability to the dispute is in issue. Ibid. Where a party contests either or both matters, "the court" must resolve the disagreement.

To start, the Court said it was the trial court's duty to determine whether the particular dispute at issue was subject to the parties' arbitration clause. Interestingly, it states that "[t]o satisfy itself that such agreement exists, the court must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce . . . . these issues typically concern the scope of the arbitration clause and its enforceability. In addition, these issues always include whether the clause was agreed to, and may include when that agreement was formed." (emphasis added).

The Court rejected any argument that the LMRA's rules concerning the arbitration of labor disputes differs materially from the FAA's rules concerning arbitration of commercial and other disputes. "We, like the Court of Appeals, discuss precedents applying the FAA because they employ the same rules of arbitrability that govern labor cases. "[E]ven in LMRA cases, "courts" must construe arbitration clauses because "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit."

Our cases invoking the federal "policy favoring arbitration" of commercial and labor disputes apply the same framework. They recognize that, except where "the parties clearly and unmistakably provide otherwise," . . . , it is "the court's duty to interpret the agreement and to determine whether the parties intended to arbitrate grievances concerning" a particular matter, id., at 651. They then discharge this duty by: (1) applying the presumption of arbitrability only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand; and (2) adhering to the presumption and ordering arbitration only where the presumption is not rebutted.

Interestingly, this case is not materially different from any other case where one party disputes that a contract was ever formed – and by extension – an arbitration clause. One could argue that this decision will apply with equal force to future disputes under the FAA. Nonetheless, the Court concedes that not every case will require the same conclusion:

In reaching this conclusion [about the arbitrability of the formation date dispute] we need not, and do not, decide whether every dispute over a CBA's ratification date would require judicial resolution. We recognize that ratification disputes in labor cases may often qualify as "formation disputes" for contract law purposes because contract law defines formation as acceptance of an offer on specified terms, and in many labor cases ratification of a CBA is necessary to satisfy this formation requirement. See App. 349−351. But it is not the mere labeling of a dispute for contract law purposes that determines whether an issue is arbitrable. The test for arbitrability remains whether the parties consented to arbitrate the dispute in question.

In its essence, the Court refused to let the unions speak out of both sides of their mouth and be too cute by half: The unions were contending that they could not be liable for breach of the no-strike clause because the CBA was not ratified until August 22, but the unions were still seeking to compel the dispute to arbitration even though the arbitration clause likewise would not have been ratified (or enforceable) until August 22. On the other hand, if the CBA were ratified on July 2, then the unions breached the no-strike clause and the dispute would be subject to arbitration. It was this central question-- that there was no valid arbitration clause unless the CBA were ratified on July 2 -- that prompted the Court to rule in favor of the trial court's jurisdiction. When the unions attempted to fix their "cute" argument by pointing out that the CBA became effective on May 1 after it was ratified (regardless of the date), the majority rejected the argument on the grounds that it had not been raised below or to contest certiorari.

The Court's secondary analysis makes more sense: a dispute about the ratification dates did not "arise under" the CBA or fit neatly within the CBA's arbitration clause. "Section 20 of the CBA provides in relevant part that '[a]ll disputes arising under this agreement shall be resolved in accordance with the [Grievance] procedure,' which includes arbitration."

First, we do not think the question whether the CBA was validly ratified on July 2, 2004—a question that concerns the CBA's very existence—can fairly be said to "arise under" the CBA. Second, even if the "arising under" language could in isolation be construed to cover this dispute, Section 20's remaining provisions all but foreclose such a reading by describing that section's arbitration requirement as applicable to labor disagreements that are addressed in the CBA and are subject to its requirement of mandatory mediation.

The Court of Appeals erred in examining only whether the parties' dispute about the no-strike clause arose under the CBA instead of examining whether the ratification date dispute "arose under" the CBA:

The issue is whether the formation-date defense that Local raised in response to [the employer]'s no-strike suit can be characterized as "arising under" the CBA. It cannot for the reasons we have explained, namely, the CBA provision requiring arbitration of disputes "arising under" the CBA is not fairly read to include a dispute about when the CBA came into existence.

Finally, the unions argued that the employer waived its objection to arbitration when it filed suit seeking to enforce the CBA which requires the dispute to be compelled to arbitration. Although I generally do not like it when parties get too cute, this argument is at least appealing on its face. However, the Court still neatly disposed of it because it hadn't forgotten that the unions were being "too cute:"

We do not agree that by seeking an injunction against the strike so the parties could arbitrate the labor grievance that gave rise to it, [the employer] also consented to arbitrate the ratification (formation) date dispute we address above. . . . [The employer's] decision to sue for compliance with the CBA's grievance procedures on strike-related matters does not establish an agreement, "implicit" or otherwise, to arbitrate an issue (the CBA's formation date) that [the employer] did not raise, and that [the employer] has always (and rightly, . . . ) characterized as beyond the scope of the CBA's arbitration clause. The mere fact that Local raised the formation date dispute as a defense to [the employer's] suit does not make that dispute attributable to [the employer] in the waiver or estoppel sense the Court of Appeals suggested, see 546 F. 3d, at 1178, much less establish that [the employer] agreed to arbitrate it by suing to enforce the CBA as to other matters.

Justices Sotomayor and Stevens dissented from the arbitrability discussion on the grounds that when the CBA was finally executed in December, it was explicitly retroactive to May 1. (This argument had been rejected by the majority on the grounds it had not been raised before the Ninth Circuit or when challenging certiorari). It also seems a little weird to me that it would matter since the same language would typically have been present in the CBA when it was ratified – either in July or August. Any "constructive" effective date would not seem to cover the unions' defense to the breach of contract claim being asserted by the employer when that defense concerned the actual effective dates based on the actual ratification date.

The secondary holding of the Court was to reject the employer's attempt to bring a tortious interference claim under § 301. This argument was unanimously rejected by the Court. Section 301 grants the federal courts jurisdiction over difficult-to-prove breach of contract claims between employers and unions and pre-empts many (even most) state law claims. The employer sought to expand federal jurisdiction so that it could reach the international union's immoral conduct in inducing the local union to breach the CBA when it could not sue the international union for full relief under § 301 because it was not a party to the CBA. However, all of the courts of appeals have refused to expand § 301 to encompass federal tort rights. The Court was also unconvinced that alternative remedies were unavailable.

In reaching this conclusion, we emphasize that the question before us is a narrow one. It is not whether the conduct [the employer] challenges is remediable, but whether we should augment the claims already available to [The employer] by creating a new federal common-law cause of action under §301(a). That we decline to do so does not mean that we approve of IBT's alleged actions. [The employer] describes a course of conduct that does indeed seem to strike at the heart of the collective bargaining process federal labor laws were designed to protect. As the record in this case demonstrates, however, a new federal tort claim is not the only possible remedy for this conduct. [The employer]'s allegations have prompted favorable judgments not only from a federal jury, but also from the NLRB. In proceedings that predated those in which the District Court entered judgment for [the employer] on the CBA's formation date,¹⁷ the NLRB concluded that a "complete agreement" was reached on July 2, and that Local and the [ international union] violated federal labor laws by attempting to delay the CBA's ratification pending execution of a separate agreement favorable to [the international union].

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit: Employer’s Resentment of Work Employee Missed Due to Military Service Supported Imposing Wrongful Discharge Liability Under USERRA.

Earlier this month, the Sixth Circuit affirmed a bench trial verdict in a wrongful discharge case brought under USERRA by an employee who had been fired in part because of insubordination, but which the trial court found was motivated mostly by the employee’s missing work because of his national guard service. The Court, however, remanded the case for reconsideration of the $352,846 of damages imposed by the trial judge. Hance v. Norfolk Southern Railway Co., No. 07-5475 (6th Cir. 7/1/09). Although the employee’s alleged insubordination had been independently investigated and substantiated in a union arbitration, the Court believed there was sufficient evidence that the employer would not have terminated the employee for the alleged insubordination if his supervisor and manager had not both expressed resentment of the amount of work he missed because of his national guard service.

As stated by the Court:

On appeal, [the employer] argues that the district court erred in attributing antimilitary animus to [the employer]and in concluding that [the employer] failed to prove that a nondiscriminatory reason actually motivated the discharge. Regarding the attribution of anti-military animus to the company, [the employer] argues that [the plaintiff’s] immediate supervisor, lacked the authority to investigate or terminate [the plaintiff] and, therefore, that [the supervisor’s] anti-military animus cannot be imputed to the company. But in addition to evidence of [the supervisor’s] hostile attitude, testimony by union representative . . . indicated that Assistant Superintendent Bryson had also expressed concern about [the plaintiff’s] taking “too much time off for the military.” Significantly, Bryson was responsible for the decision to dismiss [the plaintiff]. This evidence of anti-military animus from a decisionmaker, combined with the close temporal relationship between [the plaintiff’s] two-week leave for military service and his discharge was legally sufficient to support the district court’s finding that [the plaintiff] was discharged in violation of USERRA.

The Court also refused to accord res judicata status to the labor arbitration which upheld the plaintiff’s discharge for insubordination. Although courts “accord broad deference” to arbitration decisions, the Court has

previously recognized as an exception to this rule that district courts are not bound by arbitration decisions in employment discrimination cases under Title VII or 42 U.S.C. § 1981. . . . “a federal court may, in the course of trying a Title VII or section 1981 action, reconsider evidence rejected by an arbitrator in previous proceedings.” Id. at 142. In the context of an employment discrimination case, deference is due to an arbitrator’s interpretation of provisions in a collective bargaining agreement or other employment contract, but Becton cautions that an arbitrator’s decision regarding “just cause” for termination is not equivalent to the inquiry and burden-shifting framework mandated by Congress in an employment discrimination case. See id. Hence, a federal court should not consider an arbitrator’s decision binding in a discrimination suit, because to do so would “unnecessarily limit[] the plaintiff’s opportunity to vindicate his statutory and constitutional rights.” Id.

In this case, the district court considered the arbitrator’s decision, the factual dispute over whether Hance’s reporting instructions were clear, and the evidence of anti-military animus by Hance’s superiors. Because the district court was not required to consider the arbitrator’s determination as conclusive, that determination could not prevent the court from holding – correctly, we conclude – that Norfolk Southern had failed to demonstrate a valid, nondiscriminatory basis for Hance’s dismissal, as measured by the standard required under section 4311(c)(1).

Insomniacs may read the decision in full at http://www.ca6.uscourts.gov/opinions.pdf/09a0224p-06.pdf

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.