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Labor and Employment Law

The Impact (Influence) of the Federal Arbitration Act on Litigation over Arbitration

By Edwin S. Hopson and Mitzi D. Wyrick

The U.S. Supreme Court has made clear that the Federal Arbitration Act (FAA) expressly declares a policy favoring arbitration in disputes of all kinds, including most of those occurring in the workplace.

Background. The FAA was enacted to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements on the same footing as other contracts. It is in light of this policy that recent expansion of the FAA to include workplace disputes must be viewed.

Just how far this policy extends in the workplace has been the subject of dispute because the FAA contains a provision that appears to exempt at least some employment contracts from coverage. Specifically, the definition of "commerce" in Section 1 of the FAA provides that ". . . 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." Thus, if collective bargaining agreements and employment contracts fall within the statutory exception, the FAA would not apply to workplace disputes.

Are Workplace Disputes Arbitrable Under the FAA? The Supreme Court has never directly addressed the question of whether the FAA applies to collective bargaining agreements. In United Paperworkers International Union, AFL-CIO v. Misco, Inc., the Supreme Court recognized the importance of arbitration of labor-management disputes, stating that the statutes reflect a decided preference for private settlement of labor disputes without the intervention of government. In dicta, however, the Court suggested that the FAA does not apply to collective bargaining agreements because it does not apply to contracts of employment.

Lower courts directly addressing the question of the applicability of the FAA to collective bargaining agreements have reached different conclusions. For instance, in Local 205, United Electrical, Radio and Machine Workers of America v. General Electric Co., the court found that a collective bargaining agreement is not a contract of employment within the meaning of Section 1. The court distinguished individual transactions from collective bargaining agreements. It reasoned that a collective bargaining agreement is not a contract of employment because "no one has a job by reason of it and no obligation to any individual ordinarily comes into existence from it alone." Because the court decided a collective bargaining agreement is not a contract of employment, it enforced an arbitration clause under the FAA.

Other courts reached the opposite conclusion, finding that the FAA does not apply to collective bargaining agreements. For instance, in International Union United Furniture Workers of America v. Colonial Hardwood Flooring Co., the Fourth Circuit held that the FAA does not apply to collective bargaining agreements because "Congress was steering clear of compulsory arbitration of labor disputes."

Courts have been somewhat more unified in their determination of whether the FAA applies to contracts of employment that do not involve collective bargaining agreements. Most courts have, in fact, limited the exclusion under the FAA for contracts of employment to workers actually involved in the movement of interstate commerce or transportation, such as seamen or railroad employees, as specifically mentioned in Section 1. Courts have taken this approach because "a narrow construction of the exclusionary clause is consistent with the underlying purpose of the Act, which is to favor arbitration. . . ."

Discrimination Claims May Be Arbitrated. In Gilmer v. Interstate/Johnson Lane Corp., the Court declared that statutory claims may properly be the subject of arbitration agreements enforceable pursuant to the FAA. A judicial forum will not be required for claims of discrimination arising under statutes such as the Age Discrimination in Employment Act (ADEA). In so holding, the Court distinguished its earlier decision in Alexander v. Gardner-Denver Co., where it held that an employee was not precluded from litigating discrimination claims under Title VII in court despite the existence of an arbitration clause governing all disputes arising under a collective bargaining agreement. The Court stated that Gardner-Denver did not apply in part because it involved contractual rights under a collective bargaining agreement that were distinct from individual rights protected by Title VII. Moreover, no agreement to arbitrate statutory claims existed in Gardner-Denver. Instead, the only arbitration clause involved contractual rights under a collective bargaining agreement. Individual statutory rights, such as those under statutory discrimination laws, were found to be independent of the arbitration process in collectively bargained agreements.

Since the Gilmer decision, courts have not hesitated to find discrimination claims arbitrable, and at least one court has required that the parties arbitrate statutory discrimination claims under a collective bargaining agreement. In Austin v. Owens-Brockway Glass Container, Inc., the Fourth Circuit rejected the applicability of Alexander v. Gardner-Denver Co., and required a union member to arbitrate her claims under Title VII and the Americans with Disabilities Act (ADA). In so doing, the court limited the union member to the grievance procedures set forth in the collective bargaining agreement to determine her statutory rights.

Despite this recent expansion of the kinds of claims that are arbitrable under the FAA, some courts have attempted to craft additional limitations on arbitrability. In Prudential Insurance Co. of America v. Lai, the court refused to enforce an arbitration provision under the FAA as to a Title VII claim, finding that the broker’s Title VII claims were not arbitrable because she did not know she was signing a form that would permit arbitration of Title VII claims.

Mandatory Arbitration of Employment Disputes. Some employers have begun including mandatory arbitration clauses in individual employment contracts. In response, legislation that would render these arbitration clauses unenforceable has been adopted in some jurisdictions.

The question arises whether such statutes are preempted by federal law. Section 2 of the FAA provides that "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction... shall be valid, irrevocable, and enforceable...." Although the FAA does not contain an express preemption provision, it has been held to preempt any state law restricting or prohibiting the arbitration of claims.

In its most recent pronouncement on the subject of arbitration clauses, the Supreme Court stated that "[c]ourts may not ... invalidate arbitration agreements under state laws applicable only to arbitration provisions," confirming that arbitration provisions cannot be singled out for suspect status. Accordingly, state legislation restricting the use of arbitration clauses in employment disputes will be preempted by the FAA to the extent it may be inconsistent.

However, Congress has been considering whether to enact federal legislation limiting the ability of employers to include mandatory arbitration clauses in individual employment contracts. In addition, the Equal Employment Oppor-tunity Commission has issued a policy statement opposing the mandatory use of arbitration clauses in individual employment contracts and has stated that it may sue employers that terminate or refuse to hire individuals on the basis of a refusal to sign a mandatory arbitration agreement.

Edwin S. Hopson is a partner in the Louisville, Kentucky office of Wyatt, Tarrant & Combs, and co-chair of the firm’s labor and employment practice group. Mitzi D. Wyrick is an associate in the labor and employment practice group in the same office.

- This article is an abridged and edited version of one that originally appeared on page 359 in The Labor Lawyer, Fall 1997 (13:2).

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