In 2018, Governor Cuomo signed a State Budget bill that included various provisions addressing sexual harassment in the workplace. Among those provisions was a prohibition on including in any written contract a clause requiring the submission of sexual harassment claims to arbitration, except where inconsistent with federal law. On June 26, 2019, the U.S. District Court for the Southern District of New York held, in Latif v. Morgan Stanley & Co. LLC, that this New York law prohibiting mandatory arbitration of sexual harassment claims is inconsistent with the Federal Arbitration Act and is therefore invalid.
As the end of the Supreme Court term in June approaches, Court-watchers watch their Twitter and news feeds on Mondays and Thursdays with bated breath. And this past Monday, the news did not disappoint. In a close 5-4 decision in Epic Systems Corp. v. Lewis, the Court ruled that the Federal Arbitration Act unequivocally provides parties the ability to enter into arbitration agreements requiring individual arbitration proceedings, such that employees waive their ability to bring or join a class action. Likewise, the Court rejected the employees’ argument that Section 7 of the National Labor Relations Act prohibits employees from waiving such class action rights.
The following article was published in Employment Law 360 on September 15, 2015. Turn down the lights and roll the film on the recent district court decision to vacate the four game suspension of New England Patriots' quarterback Tom Brady. The much ballyhooed proceeding known as "Deflategate" holds valuable lessons for all labor practitioners, regardless of whether they cheer for or against the Patriots. The Deflategate Litigation This disciplinary proceeding arose out of allegations that during the first half of the AFC Championship game on January 18, 2015, the New England Patriots used footballs that did not meet the minimum air pressure inflation standards under NFL rules. The League conducted an investigation, led by outside counsel, Ted Wells of Paul, Weiss, Rifkind, Wharton & Garrison LLP. As a result of the investigation, Tom Brady was found to have been “generally aware” of the actions of other Patriots’ employees in the deflation of footballs and to have failed to cooperate with the investigation. For his misconduct, Mr. Brady was suspended without pay for four games. The National Football League Players Association appealed Mr. Brady’s suspension. Under the parties’ collective bargaining agreement, NFL Commissioner Roger Goodell served as the arbitrator. After the arbitration hearing, Commissioner Goodell denied the appeal and sustained the four game suspension. In an action in the U.S. District Court in New York, the NFL sought to confirm the arbitration award and the Players Association sought to vacate it. On September 3, 2015, District Court Judge Richard Berman denied the motion to confirm, granted the motion to vacate, and vacated the four game suspension. The NFL has subsequently appealed. It is not the intention of this article to analyze the court's decision under the Federal Arbitration Act and the jurisprudence generally limiting judicial review of labor arbitration awards, nor to evaluate the merits of the case for and against Mr. Brady’s suspension. Rather, we will “break down the film” of the proceeding and the court’s decision, as every good coaching staff does on Monday morning, and identify four critical lessons for labor practitioners to incorporate into their game plans. Four Critical Lessons Learned 1. Everyone on the Team Needs the Playbook. One of the principal reasons that the district court vacated the arbitration award was the court’s conclusion that Mr. Brady did not have notice of the prohibited conduct and the potential discipline. The concept of notice is fundamental to effective management of employees. In the discipline context, the first question that is regularly asked in any review (arbitral, administrative or judicial) is whether the employee had adequate notice of the work rule or performance standard at issue and the possible consequences of the failure to meet the expectation of the rule or standard. Establishing and disseminating clear work rules and performance expectations from the first day a player laces up his cleats is on page one of the HR playbook. The Deflategate proceeding highlights three common sub-issues on this topic. First, the issue of notice should be analyzed from the player/employee’s point of view. An employer that provides a handbook to its employees, but also maintains a separate policy manual with distribution limited to management staff, may have difficulty enforcing discipline against employees for violations of policies in the management manual. We turn to Deflategate for an example. Each year, the NFL issues to all players the “League Policies for Players,” which not surprisingly contains a rule regarding uniform and equipment violations. The NFL also maintains a “Competitive Integrity Policy,” but that policy is only issued to team chief executives, presidents, general managers and head coaches. At the appeal hearing, NFL Executive Vice President Troy Vincent, the author of Mr. Brady’s suspension letter, acknowledged that the investigative report was based on, and the policy against tampering with footballs was contained in, the Competitive Integrity Policy. The Players Association argued forcefully that the Competitive Integrity Policy, which was not issued to Mr. Brady, could not properly provide a basis for discipline and the district court agreed. Second, the nature of the alleged misconduct here – tampering with equipment in a championship game and obstruction of an investigation – raises the question: are there circumstances in which no pre-existing rule is necessary because the conduct is so obviously impermissible that proof of wrongdoing can support discipline even in the absence of a specific rule? Of course, the answer is yes, but the application of this principle can be difficult. In Mr. Brady’s case, the application of the patently obvious misconduct principle was complicated by several factors. For example, as to tampering, the investigation only concluded “[Mr. Brady was] at least generally aware of the actions of the Patriots’ employees involved in the deflation of the footballs and that it was unlikely that their actions were done without [his] knowledge.” The League relied on this conclusion when issuing the initial suspension, but the Judge was underwhelmed, asserting “I am not sure I understand what in the world that means, that phrase [generally aware of the inappropriate activities of other Patriot employees].” So we must recognize that reliance on the obvious misconduct principle requires proof of such misconduct. And, in the absence of clear proof, there is a risk that, on review, the discipline could be overturned because of ambiguities in the application of such principles. Third, the requirement of notice extends not only to the conduct at issue, but the likely consequence or discipline as well. Some work rules lend themselves to precise discipline. A point system for attendance violations with a progressive discipline structure based on points accrued is a classic example. Similarly, Article 42 of the NFL’s CBA contains an extensive list of infractions and maximum penalties that a team may impose on its players. Other employers opt for a more open-ended description of the potential discipline for any violation (e.g., “up to and including termination of employment”). In those settings, the level of discipline tends to be established over time and with experience. Arbitrators and reviewing courts look for comparators to judge whether the employee was on notice of the potential consequences and whether the discipline imposed was consistent with prior, similar situations. Again, two aspects of the NFL’s rules and disciplinary practices were problematic for the district court. The rule in the Players’ Policies relating to equipment and uniform violations stated: “First offenses will result in fines.” There was also evidence that obstruction of league investigations was an offense that warranted a fine. In fact, in one recent arbitration, former Commissioner Paul Tagliabue, serving as the Commissioner’s designated arbitrator, stated in his award that the NFL’s practice was to fine but not suspend players for such misconduct. In 40 years with the League, there was no record of any player being suspended for obstructing an investigation. 2. Consistent Treatment of All Players Matters. This last point on notice reinforces another lesson: the importance of consistent treatment for similar misconduct. Both the Players Association and the NFL identified prior disciplinary actions and arbitration decisions to support their respective positions on the appropriateness of a four game suspension. Judge Berman was persuaded by the Players Association’s precedent that a fine, and not a suspension, was the appropriate discipline for the asserted violations. Former Commissioner Tagliabue’s arbitration award citing 40 years of such history was compelling to the court. So what can a new commissioner, coach, CEO or HR Vice President do to make a change -- to enforce more rigorous discipline, change priorities or enhance performance standards? Clearly, on a prospective basis, work rules and performance standards can be modified to reflect new priorities and initiatives. Often, collective bargaining agreements provide management with the right to establish reasonable rules with proper notice to the union and employees. In the absence of a contractual right, such rule changes would be a subject for negotiations. When faced with a particular incident, and the opportunity to set a new precedent, the new decision maker may seek to make a subtle change based on nuanced circumstances that differentiate the present case from prior incidents. There is also a school of thought that endorses making a substantial change to the status quo, for example a significant suspension for conduct that previously gave rise to a fine, recognizing that the action may be challenged in arbitration or on judicial review. Even if it is overturned or reduced on review, the new management has remained true to its espoused principles. It is also possible that such a significant change in precedent is the opening position in an anticipated negotiated resolution, which may well include a new, more rigorous standard for future cases in exchange for a compromised penalty in the present case. Certainly, Judge Berman in the weeks before his decision, created opportunities for such a negotiated resolution of Mr. Brady's suspension, but to no avail. 3. Calling an Audible During an Employment Proceeding Can Leave the Team Exposed. One of the uncommon elements of the player discipline procedure under the NFL’s CBA is the provision that allows the Commissioner to serve as the final and binding arbiter of discipline disputes. Typically in a discipline arbitration, the parties select a neutral arbitrator and the employer bears the burden of proving “just cause” for the discipline based on the facts the employer had obtained through its investigation prior to imposing the discipline. By contrast, in the NFL’s discipline appeal procedure, following the initial assessment of discipline, there is an evidentiary hearing, after which the Commissioner (or his selected designee) renders a final decision based on a preponderance of the evidence – new and old – under a standard described in the CBA as discipline “for conduct detrimental to the integrity of, or public confidence in, the game of professional football.” As a result, the specific rationale for the discipline may change based on the evidence presented at the appeal hearing. Such was the case with Mr. Brady’s suspension. The Commissioner relied heavily on the evidence, newly revealed at the appeal hearing, that Mr. Brady had “destroyed” his cell phone on or about the day he was interviewed by Investigator Wells and as a consequence the 10,000 text messages on that phone were no longer available. This information was not contained in the investigative report and was not known at the time of the initial discipline. The Commissioner found this information “very troubling” and concluded: “there was an affirmative effort by Mr. Brady to conceal potentially relevant evidence and to undermine the investigation” and that he “willfully obstructed the investigation.” The Commissioner also re-assessed Mr. Brady’s culpability for the tampering of the footballs by the equipment staff, based on the hearing evidence and his assessment of credibility. He found that Mr. Brady “knew about, approved of, consented to, and provided inducements and rewards in support of” a scheme to tamper with the footballs, which constituted conduct detrimental to the integrity of the game. These changes in the rationale for Mr. Brady’s suspension, although sanctioned by the NFL’s CBA, were ruled incomplete by Judge Berman. The District Court recognized that the Commissioner’s finding of Mr. Brady’s culpability for tampering went “far beyond” the finding of “general awareness” of others’ misconduct contained in the investigative report and the initial suspension letter. In addressing the Commissioner’s rationale, Judge Berman held that reliance on the “broad CBA ‘conduct detrimental’ policy – as opposed to specific Player Policies regarding equipment violations – to impose discipline on Brady is legally misplaced” (emphasis supplied). In other words, the broad authority negotiated in the CBA for the Commissioner to discipline players for conduct detrimental to the game is now, as a matter of law, reduced to sanctioning players for violations of specific player policies. This holding of the Deflategate decision, if it stands, may prove particularly problematic for the NFL. While not directly on point, these facts should remind employers that presenting alternative, more robust explanations for their employment decisions in arbitration, or administrative or judicial proceedings can be risky. As the Seventh Circuit has explained in the employment discrimination context: "If at the time of the adverse employment decision the decision maker gave one reason, but at the time of trial gave another reason which was unsupported by the documentary evidence the jury could reasonably conclude that the new reason was a pretextual after-the-fact justification." Perfetti v. First Nat'l Bank of Chicago, 950 F.2d 449, 456 (7th Cir. 1991), cert. denied, 505 U.S. 1205 (1992). 4. Teams Can Be Penalized for Unnecessary Roughness. One final observation arises in part from a specific holding in Judge Berman’s decision and in part from its tone. To support the suspension, Commissioner Goodell had largely looked past the precedents involving equipment tampering and obstruction of investigations, and instead had clearly and forcefully relied on the discipline imposed for a violation of the performance enhancing drug policy. He described a steroid use violation as the “closest parallel” to Mr. Brady’s misconduct, both warranting a four game unpaid suspension – 25% of the regular season. It plainly appears that Commissioner Goodell was making a statement to Mr. Brady and the League about the seriousness of the misconduct, which he described as an effort “to secure an improper competitive advantage” and “to cover up the underlying violation.” It bears noting, in evaluating the appropriateness of the discipline, that there were no allegations of prior misconduct by Mr. Brady, he was the starting quarterback on the Super Bowl winning franchise, and has been described in the public press as the “Golden Boy” and, by some, as one of the 5 best quarterbacks in League history. Judge Berman flatly rejected the Commissioner’s comparison. He described the negotiated steroid use policy as “sui generis” and opined that he could not “perceive” any comparability between steroid use and Mr. Brady’s conduct. He quoted Commissioner Tagliabue’s arbitration decision again to the effect that a sharp change in discipline can be arbitrary and an impediment to, rather than an instrument of, change. He also noted that Mr. Brady’s performance in the Championship game improved in the second half after the footballs were properly inflated. While the legal issues on appeal will address whether or not Judge Berman overstepped his authority in limiting the Commissioner’s discretion to issue discipline under the CBA, the clear lesson for employers is that a wide array of circumstances matter in the evaluation of employment decisions. An employer that acts without fair consideration of all relevant factors is like a team running a naked bootleg, both do so knowing there are significant risks. The Deflategate decision presents a strong cautionary tale for employers. Managers who conduct workplace investigations and make employment decisions must be well-trained and thoughtful in effectuating their game plans. They need to understand and evaluate the short run and potential long run implications before they speak or write the first time about those decisions. Employers must also recognize that even the best game plans cannot always anticipate the reaction of arbitrators, judges and juries – the ball can take an unexpected bounce.
In D.R. Horton, Inc., the National Labor Relations Board ("NLRB") held that a mandatory arbitration agreement between an employer and an employee that included a class action waiver was unlawful under Section 8(a)(1) of the National Labor Relations Act ("NLRA") because it prohibited the employee from engaging in concerted activity with other employees. The NLRB's D.R. Horton ruling, which was the subject of a prior blog post, dealt a significant blow to employers who sought to manage their litigation risk by requiring employees to sign mandatory arbitration agreements and class action waivers as a condition of employment. The Second Circuit Court of Appeals, in a separate case decided on August 9, 2013, expressly declined to follow the NLRB's D.R. Horton ruling and held that a class action waiver in an arbitration agreement was enforceable under the Fair Labor Standards Act ("FLSA"). Recently, the Fifth Circuit Court of Appeals rejected the NLRB's D.R. Horton ruling, holding that class action waivers contained in mandatory arbitration agreements do not violate the NLRA and are enforceable under the Federal Arbitration Act ("FAA"). The Fifth Circuit began its analysis by noting that the FAA requires arbitration agreements to be enforced according to their terms, with two exceptions: (1) an arbitration agreement may be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract" (commonly referred to as the FAA's "saving clause"); and (2) application of the FAA may be precluded by another statute's contrary congressional command. The Court concluded that neither of these exceptions applied to preclude the enforceability of the class action waiver contained in the mandatory arbitration agreement. The Court stated that the saving clause "is not a basis for invalidating the waiver of class procedures in the arbitration agreement." The Court then examined whether the NLRA contained a congressional command to override the provisions of the FAA, and found that it did not. The Court found that the "NLRA does not explicitly provide for such a collective action, much less the procedures such an action would employ," and concluded that "there is no basis on which to find that the text of the NLRA supports a congressional command to override the FAA." The Court also looked to the legislative history of the NLRA for evidence of a congressional command to override the FAA, and found no such evidence. Finally, the Court determined that no congressional command to override the FAA could be inferred from the underlying purpose of the NLRA. Accordingly, the Court held that the class action waiver in the mandatory arbitration agreement was valid and enforceable under the FAA. The Fifth Circuit recognized that every other Circuit Court of Appeals that considered the issue (including the Second Circuit, as noted above) either suggested or expressly stated that they would not defer to the NLRB's rationale, and held class action waivers in arbitration agreements to be enforceable. The Court stated that it did not want to create a split among the Circuit Courts by enforcing the NLRB's D.R. Horton decision. Although the Court refused to enforce the NLRB's ruling that the class action waiver violated the NLRA, the Court agreed with the NLRB that the mandatory arbitration agreement violated the NLRA to the extent that it would lead an employee to believe that the filing of unfair labor practice charges was prohibited. The employer argued that this was not the intent of the mandatory arbitration agreement, and that employees remained free to file unfair labor practice charges with the NLRB. However, the Court nevertheless enforced the portion of the NLRB's order requiring the employer to clarify the language of the mandatory arbitration agreement to permit the filing of unfair labor practice charges. It remains to be seen whether the NLRB will ask the U.S. Supreme Court to review the Fifth Circuit's decision. In the meantime, employers should consider whether arbitration agreements with employees containing class action waivers might be a useful tool to limit the risk and cost associated with employment-related litigation.
A recent decision issued by the Appellate Division, Second Department, in Matter of Board of Education of Hauppauge Union Free School District v. Hogan, provides a valuable reminder to school districts and other public employers that an arbitrator’s interlocutory ruling in a disciplinary proceeding against an employee may not really be an interlocutory ruling at all, and in some circumstances, may be subject to immediate judicial review. The decision makes clear, at least under the circumstances of that case, that a court has authority to review an “interlocutory award” which dismisses a misconduct charge in a disciplinary proceeding commenced pursuant to Education Law Section 3020-a. In justifying its review, the Court distinguished between an arbitrator’s interlocutory ruling on a procedural matter, which is generally not reviewable, and the dismissal of a misconduct charge, which it deemed to be “a final determination subject to review under CPLR 7511.” In 2006, Hogan (the individual who was the subject of the disciplinary proceeding) submitted an application to the school district seeking employment as a physical education teacher. In 2010, more than three years after he submitted the application, the school district preferred charges against him alleging that Hogan had knowingly failed to disclose on his application that he had resigned from a previous probationary teaching position after being confronted with allegations that he had engaged in corporal punishment and being advised that he would not receive tenure. The first disciplinary charge, which formed the subject matter of the litigation, alleged misconduct in the knowing presentation for filing of a false and incomplete application. The school district alleged that such conduct was in violation of Penal Law Section 175.30 -- Offering a False Instrument for Filing in the Second Degree. Hogan filed a pre-hearing motion to dismiss the first charge, maintaining that it was time barred by the three-year limitations period contained in Education Law Section 3020-a. The arbitrator granted the motion and dismissed the charge, finding that the school district had not pled sufficient facts to establish that Hogan had violated the Penal Law, and thus, could not invoke the exception to the three-year limitations period applicable when the charged misconduct constitutes a crime. The school district immediately commenced a proceeding in New York State Supreme Court pursuant to CPLR Article 75 and Education Law Section 3020-a, seeking to vacate the arbitrator’s decision to dismiss the disciplinary charge as arbitrary and capricious. Hogan argued that the arbitrator's decision was an "interlocutory award" that was not subject to immediate appeal. The Supreme Court rejected Hogan's argument, granted the petition, and restored the disciplinary charge. The Second Department affirmed. It held that the disciplinary charge at issue was the only one preferred which constituted misconduct, and if dismissed, would prevent the school district from “adducing evidence in support of the alleged misconduct at the hearing.” As such, the arbitrator’s award was deemed to be final and reviewable. In addition to finding the arbitrator's decision reviewable, the Court affirmed reinstatement of the disciplinary charge. It noted that an arbitrator’s determination is subject to greater judicial scrutiny when the obligation to arbitrate arises by statute, and that an award in a compulsory arbitration such as an Education Law Section 3020-a hearing must have evidentiary support. The Court held that the arbitrator’s determination was arbitrary and capricious, and that the facts alleged by the school district, if proven, would constitute the crime of offering a false instrument for filing in the second degree.
In a recent decision of statewide applicability to public employers with unionized members of the Police and Fire Retirement System (“PFRS”), the New York Court of Appeals (“Court”) addressed the issue of whether the City of Yonkers’ refusal to pay or reimburse new employees for their statutorily-required Tier V pension contributions was arbitrable. In City of Yonkers v. Yonkers Fire Fighters, the Court affirmed the decision of the Appellate Division, Second Department (which had reversed the lower court’s decision), and held that the dispute was not arbitrable, thereby affirming a permanent stay of arbitration. The case will likely have positive implications for similarly-situated public employers across the state. The City of Yonkers ("City") was represented by Bond, Schoeneck & King in the litigation.
The dispute arose in connection with the 2009 enactment of Article 22 of New York’s Retirement and Social Security Law (“Tier V”). Among other changes, Tier V provides that those who join the PFRS on or after January 10, 2010 must contribute 3% of their salary towards the retirement plan in which they are enrolled.
Prior to the enactment of Tier V, the City and the Yonkers Fire Fighters (the “Union”) were parties to a collective bargaining agreement (“CBA”) which expired on June 30, 2009. Like many other firefighter and police collective bargaining agreements throughout the state, the CBA required the City to provide a “non-contributory” pension/retirement plan to its firefighters.
In late 2009, the City hired several firefighters who, because of a “gap” in the law, had the option of joining the PFRS as either members of Tier III or Tier V – both contributory (3%) tiers. In an attempt to apply the terms of the expired CBA to relieve its Tier V members of the statutorily-required 3% member contribution, the Union filed a grievance and sought arbitration based upon the contractual obligation to provide a non-contributory plan.
The Union relied upon an exception (Retirement and Social Security Law, Article 22, Section 8) in the Tier V statute which provides that members of the PFRS need not join the contributory Tier V if there is an alternative (non-contributory) retirement plan available to them under a CBA “that is in effect on the effective date of Tier V.” This provision gives new members of the PFRS a means by which they could avoid Tier V and its 3% contributions and join an existing non-contributory plan. The Union sought to use the “Triborough” provisions of the Taylor Law, which require that the terms of an expired agreement continue until a new agreement is reached, to extend this exception to its members hired in late 2009 on the theory that its CBA, which expired on June 30, 2009, was nonetheless still “in effect.”
Finding that the Union’s reliance on “Triborough” applying to the statutory Section 8 exception was misguided and not the Legislature’s intent, the Court found that the CBA in question expired on June 30, 2009 and, therefore, was not “in effect” on January 10, 2010, the effective date of Tier V. The Court adopted a position taken by the City and determined that the Legislature intended to honor only agreements providing for non-contributory status that had not expired at the time the statute became effective.
The Union also grieved, and attempted to arbitrate, an alternative argument that even if its new members could not join Tier V as non-contributing members, then, under the CBA, the City should pay (or potentially reimburse) its new members’ 3% pension contributions. The Court, however, found that the arbitration sought by the Union was barred as an impermissible negotiation of pension benefits. The Court accepted the City’s argument that Section 201(4) of the Civil Service Law and Section 470 of the Retirement and Social Security Law prohibit the arbitration of this dispute. While New York generally favors arbitration, an issue is not proper for arbitration when the subject matter of the dispute violates statutory law, as was the case here. Among other things, Sections 201(4) and 470 state that the benefits provided by a public retirement plan are prohibited subjects of collective bargaining. In this case, arbitration of the relevant dispute would be improper, as these statutes clearly bar the negotiation of benefits provided by a public retirement system such as the PFRS 3% contribution.
Finally, the Court rejected the Union’s remaining contention that the Section 8 exception runs afoul of the Contract Clause of the United States Constitution, which prohibits the retroactive impairment of contracts after their inception.
This 4-2 decision of the Court could impact any public employer that employs police and/or firefighter members of Tier V, and who has a collective bargaining agreement that addresses non-contributory retirement plans. However, because of the many complex legal issues involved, it is recommended that these matters, as well as those involving questions surrounding the applicability of this decision to Tier V, be reviewed with labor counsel.
In a recent decision that will likely have positive implications for similarly-situated public employers across New York State, the Appellate Division for the Second Department reversed a lower court ruling and held that the City of Yonkers' refusal to reimburse new employees for their statutorily-required Tier V retirement plan contributions was not arbitrable. The appellate court also issued a permanent stay of arbitration. The City of Yonkers ("City") was represented by Bond, Schoeneck & King in the litigation.
The dispute arose in connection with the 2009 enactment of Article 22 of New York's Retirement and Social Security Law ("Tier V"). Among other changes, Tier V provides that those who join the Police and Fire Retirement System ("PFRS") on or after January 10, 2010 must "contribute 3% of their salary towards the . . . retirement [plan] in which they are enrolled." Prior to the enactment of Tier V, the City and the Yonkers Fire Fighters ("Union") were parties to a collective bargaining agreement which expired on June 30, 2009. Like many other firefighter contracts in the state, the contract required the City to provide a "non-contributory" retirement plan to its firefighters.
In late 2009, the City hired several firefighters who, because of a "gap" in the law, had the option of joining the PFRS as either members of Tier III or Tier V -- both contributory (3%) tiers. In an attempt to apply the terms of the expired contract to relieve its Tier V members of the statutorily-required 3% member contribution, the Union filed a grievance and sought arbitration based upon the contractual obligation to provide a non-contributory requirement plan. The Union relied on an exception in the law creating Tier V, which provides that members of the PFRS need not join the contributory Tier V if there is an alternative retirement plan available to them under a collective bargaining agreement that "is in effect on the effective date" of Tier V. The appellate court found that the Union's reliance on this exception was misguided, because the collective bargaining agreement at issue had expired on June 30, 2009 and, therefore, was not "in effect" as of January 10, 2010, the effective date of Tier V.
The Union also asserted in its grievance that even if their new members were not eligible to join the non-contributory plan, the City was nevertheless obligated under the collective bargaining agreement to pay the new members' 3% contributions. The appellate court found that this claim was not arbitrable because Civil Service Law Section 201(4) and Retirement and Social Security Law Section 470 prohibit the negotiation of changes to benefits or fund payments related to a public retirement system.
As of the date of this blog post, the New York Court of Appeals is considering a motion filed by the Union for leave to appeal the decision. Regardless of whether our state's highest court chooses to hear the case or not, this issue is sure to surface again. Governor Cuomo's recent deal with the Legislature to establish a Tier VI in the various state retirement systems includes, among other things, a sliding-scale of increased employee contributions based upon annual salary (beginning at 3% and topping out at 6%). Thus, in some ways, the already high -- and very costly -- stakes have doubled.
New York's highest court recently ruled that a provision in the collective bargaining agreement between the Village of Johnson City and its firefighters' union which states that the Village will not "lay-off any member of the bargaining unit during the term of this contract" is not explicit enough to prevent the Village from abolishing the positions of six firefighters and terminating their employment.
Under New York law, a "job security" provision in a public sector collective bargaining agreement violates public policy and is unenforceable unless, among other requirements, it explicitly prohibits the public employer from abolishing positions even due to budgetary constraints and the collective bargaining agreement that contains the provision is reasonable in duration. The public policy rationale for this stringent requirement is that public employers should not be hamstrung in their efforts to eliminate positions for economic reasons unless they have clearly promised to maintain employment levels for some reasonable period of time.
In the Village of Johnson City case, the Court of Appeals determined that the provision in the collective bargaining agreement prohibiting layoffs did not explicitly prohibit the Village from abolishing firefighter positions out of budgetary necessity. Accordingly, the Court of Appeals upheld the layoffs of the six firefighters and denied the union's application to compel the Village to submit to the arbitration process.
Arbitration agreements are a common tool that employers use to manage EEO and wage/hour litigation risk. Those agreements often include a provision that an employee who wishes to submit an employment-related claim to arbitration may do so only on behalf of himself or herself, and may not do so as part of a class or collective action. On January 3, 2012, Member Becker's last day on the National Labor Relations Board ("NLRB"), Members Becker and Pearce dealt a blow to employers seeking to create or expand arbitration agreements that employees are required to sign as a condition of employment. In D.R. Horton, Inc., the NLRB held that mandatory arbitration agreements that include a class action waiver are unlawful under the National Labor Relations Act ("NLRA").
In D.R. Horton, Inc., the employer (a home builder with operations in more than 20 states) instituted a corporate-wide policy that required new and current employees, as a condition of employment, to sign an arbitration agreement. The agreement required all disputes arising from each employee's employment to be resolved by an arbitrator, rather than in a judicial forum. The agreement further provided that the arbitrator had no authority to consolidate the claims of other employees, to hear any class or collective action, or to award relief to a class or group of employees.
The charging party, Michael Cuda, was a superintendent with the home building company. Cuda's attorney notified the company that his firm represented Cuda and a nationwide class of similarly situated employees. He asserted that the company was misclassifying the superintendents as exempt under the Fair Labor Standards Act ("FLSA") and gave notice that he intended to initiate an arbitration proceeding on behalf of the class of superintendents. The company responded that such a collective action was prohibited under the arbitration agreement that Cuda and other employees signed.
Cuda then filed an unfair labor practice charge with the NLRB, alleging, among other things, that the arbitration agreement violated Section 8(a)(1) of the NLRA as it prohibited employees from engaging in concerted activity for their mutual aid and protection.
The NLRB agreed with Cuda that the arbitration agreement violated Section 8(a)(1) of the NLRA. The NLRB held that employees have the right to attempt to improve their working conditions through judicial, administrative, and arbitral proceedings. The NLRB further held that employees' collective efforts to pursue rights or improve working conditions are "at the core of what Congress intended to protect" in Section 7 of the NLRA. The Board concluded that, because the arbitration agreement at issue prohibited employees from pursuing class or collective actions in either an arbitral or judicial forum, it violated Section 8(a)(1) of the NLRA.
The company argued that a decision holding its arbitration agreement to be unlawful would conflict with the provisions of the Federal Arbitration Act ("FAA") and the Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion. However, the NLRB rejected these arguments.
The FAA was enacted to prevent courts from treating arbitration agreements less favorably than other private contracts. The NLRB reasoned that its decision was not in conflict with the FAA because it was treating the arbitration agreement no worse than any other private agreement. The NLRB stated that it would have reached the same conclusion had the agreement not mentioned arbitration, but required employees to pursue only individual claims -- rather than collective claims -- in a judicial or other type of forum.
In AT&T Mobility, a class action was brought against AT&T by a group of customers who alleged that AT&T's offer of a "free" telephone to anyone who signed up for its service was fraudulent to the extent that AT&T still charged new subscribers sales tax on the retail value of the "free" telephone. AT&T demanded that each plaintiff's claim be submitted to individual arbitration because its arbitration agreement with its customers barred class actions. The plaintiffs argued that such a class action waiver was unconscionable under California law. The Supreme Court rejected the plaintiffs' argument, and held that the class action waiver contained in the arbitration agreement was enforceable. The NLRB distinguished the Supreme Court's AT&T Mobility decision, principally on the basis that the arbitration agreement at issue in that case involved customers of AT&T rather than employees, and therefore, the issue of whether the arbitration agreement violated the NLRA was not presented.
The D.R. Horton case will likely be appealed to a U.S. Circuit Court of Appeals, and may eventually be heard by the Supreme Court. However, in the meantime, employers looking to create or expand an arbitration agreement that employees must sign as a condition of employment should be cautious not to prohibit employees from pursuing class or collective actions in an arbitral forum.
Over the past couple of decades, there has been much debate over whether arbitration agreements can be used to prevent employees from asserting discrimination and other employment-related claims in court. Lost in this debate, however, is a simpler and perhaps more reliable means of managing an employer’s risk: a jury waiver. A jury waiver is nothing more than a contractual provision in which an employee waives his or her right to a trial by jury in a legal proceeding brought against his or her employer. Such a provision is most commonly found in an employment agreement that is entered into when an employee is hired, but the agreement can be entered into at other times, such as when the employee obtains a raise or promotion.
Many employers assume that a jury waiver cannot be enforceable. We are, after all, trained from an early age to believe that we have a constitutional right to a trial by jury. In large part, that belief is accurate. The right to a jury trial is embodied in both the United States and New York Constitutions. And yet, the case law is generally clear that a jury waiver, if properly written and entered into, can have the effect of surrendering an employee’s right to a jury trial.
The more pressing question, then, is not whether a jury waiver is valid, but whether employers should take advantage of this opportunity. Similarly, is a jury waiver preferable to arbitration? Both jury waivers and arbitration agreements help avoid the danger and unpredictability of a jury trial, but there are some distinct advantages to jury waivers. Maybe the most obvious advantage is that, by keeping the process in the judicial system, a jury waiver allows the employer to exercise all of its formal, procedural rights, including the right to conduct discovery; the right to file a motion asking for the dismissal of the case; and the right to pursue a meaningful appeal. Anyone who has been through litigation knows that these tools can be powerful weapons for a defendant.
Detractors of jury waivers may respond by arguing that arbitration is cheaper and less time-consuming. In many instances, they are correct. However, most lawyers would agree that arbitration has become more protracted and expensive in recent years. Although it may still be a cheaper alternative to judicial litigation, that advantage is not as clear-cut as it was in the past. This is in no small part due to the fact that arbitration agreements are often challenged in court. In fact, the litigation over the enforceability of an arbitration agreement can be so costly and time-consuming that it often defeats the purpose of arbitration altogether.
Regardless, those employers who are considering the use of jury waivers must be aware of the best manner in which to frame such a waiver in order to enhance its chances of being held enforceable. The courts have made it clear that a jury waiver must be “knowing and voluntary” in order to be enforceable. As such, a waiver is more likely to withstand challenge if it contains specific references to the statutes for which a jury demand is being waived (e.g., Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, etc.). On the other hand, if the waiver is buried in a lengthy, complex contract or is being forced upon an unsophisticated employee who is unlikely to appreciate the waiver’s implications, a court will be less inclined to find that the waiver is truly “knowing and voluntary.” An employer should therefore ensure that the agreement is carefully drafted to make clear the nature and scope of the jury waiver.
Ultimately, although often ignored as a possibility, jury waivers are a viable option for many employers. The state and federal courts have upheld their validity. Accordingly, despite all of the attention given to arbitration agreements, many employers would be well-advised to carefully consider the advantages of a jury waiver instead.
Earlier this year, the United States Supreme Court held that a provision in a collective bargaining agreement that requires workers to grieve and arbitrate claims based on anti-discrimination statutes, and thereby waive their rights to sue such claims in court, is enforceable, if it clearly and unmistakably requires union members to arbitrate such claims. 14 Penn Plaza LLC v. Pyett. Critical to the court's holding was the fact that the arbitration clause before it explicitly covered statutory discrimination claims and required the arbitrator to apply the relevant statutory and case law in resolving such claims
The Court's decision creates an opportunity for unionized employers to evaluate whether mandatory arbitration of discriminating claims is a prudent strategy given the conditions facing their businesses. This is not a simple analysis. It requires evaluation of the potential cost and time savings from arbitration, the advantages and disadvantages of having an arbitrator as opposed to a jury decide the case, and the vastly different standards of review on appeal from the two types of decisions.
If an employer decides that it is more advantageous to use a system of mandatory arbitration, it is likely that the employer will have to negotiate changes to the arbitration clause in its current collective bargaining agreement. Many labor agreements have routine non-discrimination clauses and provide for arbitration of all disputes arising under the agreement. Such clauses are not likely to satisfy the Supreme Court's clear and unmistakable standard for mandatory arbitration of discrimination claims. The agreement in 14 Penn Plaza which was sufficient: prohibited discrimination under specifically named statutes; explicitly stated that the grievance and arbitration process was the sole and exclusive method for resolving such claims; and authorized and directed the arbitrator to apply statutory law in resolving discrimination claims.
Obtaining union agreement to such a clause is likely to be more difficult going forward. Prior to the 14 Penn Plaza decision, unions risked very little in agreeing to such clauses because federal courts had interpreted a much earlier Supreme Court decision, Alexander v. Gardner-Denver Co., as making such clauses ineffective as waivers of the rights of individual union members. Now unions will face substantial burdens if they agree to clear and unmistakable provisions. Unions are not likely to have at their disposal much experience or expertise in the area of litigating statutory discrimination claims. Even if they have that expertise, they may be unwilling to incur the substantial risk of and expense associated with defending breach of the duty of fair representation claims which could be brought by union members who are dissatisfied with the way the union handled their discrimination claims.
Before attempting to negotiate a clear and unmistakable mandatory arbitration provision, employers should also consider that the 14 Penn Plaza decision faces a potential challenge in Congress where the Arbitration Fairness Act is pending. That bill would prohibit enforcement of pre-dispute agreements that mandate arbitration of statutory employment claims, including discrimination claims under the civil rights law. While the House version of the bill exempts collective bargaining agreements, the more recent Senate version would apply to them as well and would overrule 14 Penn Plaza.