Owners May Choose Arbitration, Avoid Litigation Over Labor Disputes

A recent U.S. Supreme Court ruling in 14 Penn Plaza LLC v. Pyett is good news for owners who, under their tenants' leases, must hire unionized employees to work in their buildings. Many owners fear the consequences of employee claims brought by the union on employees' behalf. But now, owners using unionized employees can enforce the alternative dispute resolution or arbitration provisions in their collective bargaining agreement (CBA) rather than have an employment issue—such as a discrimination claim—resolved through protracted litigation.

Pyett Impacts Future Labor Disputes

Pyett involved three night security employees in a large New York City office building in summer 2003. They found themselves in new positions after the owner retained a new security subcontractor for some of the duties previously handled by the incumbent contractor, their employer. The new company, a non-union entity, was affiliated with the incumbent contractor, a unionized business. As part of the new arrangement, the employer reassigned the employees to different nonsecurity positions as night porters and light-duty cleaners.

The workers, all over 50 years old and with decades of seniority, found that their new jobs were more physically demanding and less financially rewarding. Unhappy, they looked to the union to address their grievances. The three employees affected by the change were subject to a multi-employer collective bargaining agreement (CBA) negotiated by Local 32BJ of the Service Employees International Union (SEIU) with the real estate industry in New York City.

A grievance was filed under the CBA, alleging that it had been violated by an improper transfer and reassignment arising from the new subcontract, resulting in a loss of pay and overtime. Additionally, the grievance alleged that the workers were the victims of age discrimination.

Soon after arbitration began, though, the union had second thoughts and told the employees that their transfer and discrimination claims would not be advanced by the union because the union had approved the new arrangement. Instead, only the overtime issues would be pursued by the union.

The employees sued the owner in court, alleging age discrimination under federal, state, and city law. Eventually, the labor arbitrator rejected the CBA issues pressed by the union regarding the overtime. The owner then moved to dismiss the employee's lawsuit, or alternatively, compel arbitration. In moving to compel, the owner contended that the CBA's arbitration provision provided the exclusive means to address and correct the individual discrimination claims presented by the workers, and that the employer had provided substantial monetary benefits for the unionized workforce in the negotiations leading to the provision.

Supreme Court's Ruling Benefits Owners

When making its decision on the motion to compel, the U.S. Supreme Court divided along ideological lines. It stated that a union contract forfeiting members' right to bring workplace discrimination claims in court is enforceable. Justice Clarence Thomas wrote for the 5-4 majority and stated, “We hold that a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate Age Discrimination in Employment Act claims is enforceable as a matter of federal law.”

As a result of the ruling, owners may avoid spending a fortune fighting a discrimination claim made by a union employee. Before this ruling, although arbitration was always an option in such disputes, it was never required, nor was it the sole choice. Prior to Pyett, courts were permitting the individual to demand arbitration and denying that same right to the employer who had negotiated for it under the collective bargaining agreement. So the employee had a choice, but the employer had none. And every time one of these labor issues arose, whether it was a bogus issue or not, employers were stuck in a complex federal lawsuit in front of a jury.

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