William B. Gould Iv, Kissing Cousins?: the Federal Arbitration Act and Modern Labor Arbitration

Publication year2006


William B. Gould IV**


Even in the twenty-first century, with its enormous medical innovations and breakthroughs and the promise of those to come, most of us have come to think of eighty years as a lifetime which one is fortunate to achieve. While there are certainly bedrock values that follow any individual throughout the course of a lifetime, most people change and grow in a variety of ways as they adapt to new and sometimes unexpected problems and events over such a period of time.

"The time of life is short," says William Shakespeare in one of his plays.1I would add by way of addendum: yet the opportunity for growth unending. In this Article, I discuss the ways in which the law and practice of labor arbitration have remained constant over the past eighty years since the passage of the Federal Arbitration Act of 1925, some of the unanticipated forks in the road, and the direction in which I would like to see the road go in the coming years and decades.

The Federal Arbitration Act of 1925 was signed into law by President Calvin Coolidge in an entirely different era. Indeed, the Act's purpose, as the Supreme Court noted just a few years ago, "was 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 upon the same footing as other contracts."2This statute, focused as it was upon commercial agreements and arrangements and designed to both confront and diminish judicial hostility toward arbitration, has experienced substantial transformation. Most significantly, it has come to have a major impact upon the employment relationship that may rival the impact of both the National Labor Relations Act of 1935 and the civil rights statutes of the 1960s. One of the paradoxes here is that the Federal Arbitration Act was shaped at a time of overt, explicit, and now illegal discrimination on the basis of race, religion, sex, union activity, and other forms of conduct. Yet now, the Act has become a major employment statute with an impact not only upon the individual contract of employment in and out of the discrimination context, as is obvious, but also potentially, the collective bargaining agreement itself.

Another paradox is connected with the 1925 law as well. At one time the Court, addressing disputes which arose under a collective bargaining agreement negotiated between labor and management, placed substantial emphasis upon what it perceived to be sharp differences between the commercial and labor arbitration realms in devising rules for the latter in the so-called Steelworkers Trilogy of 1960 cases.3The need for arbitral expertise, promoted ever so assiduously more than forty-five years ago, was predicated upon the view that the collective bargaining agreement was a peculiar contract, different in kind from the commercial relationship and thus more in need of third party neutrals, because of the unforeseen contingencies and gaps in the agreements' written terms-the "law of the shop" filled with unwritten customs and practices about which the arbitrators knew infinitely more than the judiciary. However, as indicated by a trilogy of cases in the 1980s that concerned commercial arbitration clauses, the Court no longer perceives fundamental differences between commercial and employment arbitration agreements, and generally declines to interfere with either.4

I use these terms, employment and labor, to distinguish between the growing area of litigation involving individual contracts on the one hand, and labor, the body of law that involves labor unions and comprehensive collective bargaining agreements negotiated with employers on the other. It is my thesis that a new and important system of jurisprudence, which involves an intertwining of public and private systems of adjudication and a hybrid of labor and commercial approaches to the arbitral handling of agreements can evolve in the first part of this century: a merger of both informal and formal processes which had begun when I started as a labor arbitrator forty years ago at what is now the half-way mark of the Act.

On balance, I welcome this development, but I do so tentatively. I confess preliminarily that I have a deep sense of unease about some aspects of these new arrangements insofar as they involve employer-promulgated plans; my discomfort stems from a concern that I have when exclusive authority is given to any entity or institution. This concern echoes Lord Acton's well-known maxim about the corruption that absolute power produces.5This was my concern in 1983-84 when I co-chaired the California State Bar Ad Hoc Committee on wrongful discharge and helped produce a report that advocated arbitration as a statutory right with a just cause standard, similar to that which existed in union-negotiated collective bargaining agreements.6In broad terms,

Collective Agreement, 57 MICH. L. REV. 635 (1959); Saul Kramer, In the Wake of Lincoln Mills, 9 LAB. L.J. the theme of that report, subsequently adopted by others such as the drafters of the Model Uniform Termination Act7and the Dunlop Commission,8was that the quid pro quo would be proposed limitation in damages to what were then traditional labor law damages and remedies. The idea was that the average employee would be able to have access to either counsel or some other form of representation. The report erroneously thought that unions might come into the fray and use the representation process as a tool to organize the unorganized and the assumption was that such employees were disproportionately excluded from the well-publicized punitive and compensatory damages for emotional harm and suffering which were becoming seemingly commonplace in the 1980s in common law wrongful discharge actions, particularly in my state of California and, to a lesser extent, in other jurisdictions.9It was also thought that small claims nuisance settlements, which have become a kind of de facto severance pay settlement, could be discouraged and more properly resolved on the merits if a new system was put in place.

But that idea of statutory regulation10died aborning because the critical players-corporations and trial lawyers-were singularly uninterested. Corporations were not interested because they felt their exposure to liability was greater under such a system, even though damages were limited, because workers could use it more easily and frequently (that was really the idea!). Trial lawyers were even more vociferously in opposition because damages were limited; no punitive damages or, generally speaking, compensatory damages for emotional harm and the like would be granted, meaning smaller attorneys fees as well as the potential for lay representation free of expenses for counsel.

Both of these groups got very rude surprises in the years that followed. The Supreme Court of California, in Foley v. Interactive Data Corp., excluded most tort actions from the wrongful discharge arena, making dismissal cases contract actions as a practical matter in California,11a result consistent with that which emerged in most jurisdictions.12Employers responded by incorporating at will provisions in application forms and sometimes into company handbooks.13Thus, these contract actions began to dry up. I have often thought that the trial lawyers might have had a different view of the 1984 report if they had anticipated Foley and its progeny as well as the corporate response.

The corporations got a rather unexpected surprise as well. This came about by virtue of the Civil Rights Act of 1991, which amended Title VII of the Civil Rights Act of 1964 in direct response to a series of Supreme Court decisions in

1989,14as well as to Justice Clarence Thomas's confirmation hearings which revealed the lack of effective remedies for sexual harassment violations of antidiscrimination law.15At Justice Thomas's confirmation hearings, Senators Arlen Specter and Orrin Hatch rather ponderously and persistently queried Anita Hill as to why she had not filed sexual harassment charges with the Equal Employment Opportunity Commission if Justice Thomas had in fact committed the alleged misconduct. The obvious legal response was that there was no remedy beyond a traditional National Labor Relations Board cease and desist order, which is now so widely and properly discredited and held in low regard. Thus, as relevant to the law of employment arbitration, the 1991 amendments to the Civil Rights Act incorporated provisions for both punitive and compensatory damages beyond the previously available back pay as a deterrent for this and other forms of wrongdoing. These changes had the effect of producing more jury trials, the very specter of which had caused employers such concern in wrongful dismissal cases before they were able to both litigate and contract their way out of them. Employers had long feared juries because of perceptions about their unpredictability.

The employers concurred with William Gilbert's lyrics in Trial by Jury: "Monster, dread our damages. We're the jury! Dread our fury!"16The jury's willingness to take into account corporate deep pockets in fashioning a damage award was well chronicled; this characteristic is presumably less frequently associated with supposedly more rational individuals like judges, administrative agencies, and arbitrators.

Another important and significant aspect of the total picture was the incessant declining union membership coverage in the United States. This trend deprived more employees, as a percentage of the workforce, of "just cause" provisions and negotiated collective bargaining agreements, leaving them dependent upon wrongful dismissal claims in the wake of both the rise of at will contracts and the Civil Rights Act of 1991.

Finally and most importantly, the Supreme Court gave the signal in its landmark Gilmer...

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