Duane Morris Takeaway: It is a truism that arbitration is a matter of consent, and consent is embodied in contract law principles. In a recent ruling entitled Querette v. Chromalloy Gas Turbine, LLC, Judge Philp Halpern of the U.S. District Court for the Southern District of New York brought those abstract principles into the light of day while forging an interpretation of a collective bargaining agreement containing an arbitration clause and harmonizing seemingly contradictory clauses. In finding in favor of a defendant seeking to arbitrate a dispute with its employees, the Court provided a roadmap of sort that is well worth a read for corporate counsel.
Requiring arbitration of workplace disputes unquestionably has become one of the most important legal tools for employers over the past several years. This is in large part due to developments in the law that encourage courts to enforce arbitration clauses that waive the right of employees to bring class actions. Because class action lawsuits are inevitably costly to defend and can out stretch over several years, employers – especially those with large headcounts – have come to rely on arbitration agreements containing class waivers to rein in litigation expenses.
For this reason, the careful drafting of arbitration agreements is very important. Agreements must be drafted in a way that avoids ambiguity and conflicting clauses. If an agreement is ambiguous, a court is more likely to construe it against the drafter, which often means denying motions to compel arbitration and allowing class claims to proceed in court. And if an agreement contains conflicting or contradictory clauses it is easier for a party to argue that it cannot be enforced. In such a case, the court must work to try and harmonize the conflicting clauses. Contract law assumes each clause was included for a reason, so courts attempt to avoid interpretations that would render a clause meaningless.
The Ruling In Querette v. Chromalloy Gas Turbine, LLC
These basic principles of contract interpretation played out in interesting ways in a recent case decided by District Court Judge Philip M. Halpern of the Southern District of New York. In Querette v. Chromalloy Gas Turbine, LLC, No. 22 Civ. 00356 (S.D.N.Y. Jan. 10, 2023), the Court was asked to compel arbitration of a class action filed under New York Labor Law §191(1)(a) that requires employers to pay their employees on a weekly basis. Relying on contract law principles, the Court sided with the defendant and ordered the plaintiff’s claim to be arbitrated.
The agreement at issue was the product of collective bargaining. Article 14 of the collective bargaining agreement (“CBA”) sets forth a multi-step grievance procedure that members of the union who have a dispute with the employer must follow. That process culminates in arbitration before the American Arbitration Association (“AAA”) to resolve the dispute. Id. at 2.
Section 14.F. of the CBA states that “Any and all grievances and all issues arising from and relating thereto, including the interpretation and application of this section shall be governed by, construed in accordance with and processed pursuant to AAA’s then existing rules governing labor disputes, which rules are fully incorporated herein.” Id. Section 14.G. of the CBA then provides that the grievance process is the sole mechanism for resolving disputes between employees and the employer, with two exceptions. That section states, in relevant part, “Except for resort to the agencies and/or courts charged with the enforcement of the laws enumerated in Article I herein, and except with further resort to the National Labor Relations Board, it is the intention of the parties that employees will look exclusively to this Agreement for the resolution of all disputes under this Agreement.” Id. at 2-3. Article I identifies several federal and state discrimination and family leave laws, but does not include state or federal wage and hour laws.
Section 14.I contains the second carve-out, ensuring a “Right of Representation and/or Counsel for Parties Only,” which preserves the right of union members to be “individually represented by private counsel as to any alleged right, only that any such alleged right must be pursued in a forum other than under this Article.” Id. at 3. In other words, Section 14.I appears on its face to carve out from the arbitration requirement any case brought by an employee who has retained private counsel. Reading the clause that way contradicts the mandate that all disputes between an employee and the employer must be subject to the grievance process spelled out in the CBA.
The plaintiffs contended that Section 14.I applied to their claim because they had retained private counsel to pursue their class action wage claim, so it could not be compelled to arbitration under the express and unequivocal language in that clause. The Court did not agree, and reached its conclusion by way of the very basic principles of contract interpretation explained above; reading a contract in a way that avoids ambiguity and conflicting clauses.
Basis Of The Court’s Opinion
First, the Court was required to determine whether it or an AAA arbitrator had the authority to determine if the dispute was arbitrable in the first place. The AAA rules provide that arbitrability is for an arbitrator to decide. However, the Court noted correctly that the U.S. Supreme Court has held that courts must not assume that the parties agreed to assign arbitrability to an arbitrator unless there is “clear and unmistakable evidence” of the parties’ intent to delegate that issue to an arbitrator. The court applied Second Circuit case law precedent holding that incorporation of the AAA rules alone does not per se show an intent to delegate arbitrability; rather “context matters.” Id. at 6. The context that mattered to Judge Halpern was the fact that the CBA was not so broad as to claim to cover each and every dispute between an employee and the defendant. He reasoned that the carve out for discrimination and family leave claims, along with the private counsel carve out itself, created ambiguity as to the parties’ intent to delegate arbitrability decisions to an arbitrator. And ambiguity means there is not clear and unmistakable evidence of the intent to delegate. Thus, the Court concluded it must decide arbitrability.
Second, the Court found that the private counsel carve-out did not exempt the plaintiff’s claims from the CBA’s arbitration requirement. Id. at 8. Applying the rule that contract interpretation must not render clauses contradictory to one another, the Court read the agreement in a way that gave meaning to both the requirement to arbitrate disputes and the private counsel carve out. The Judge opined that if the plaintiffs could hire private counsel as a way to evade the CBA’s arbitration requirement in every type of case, not just the discrimination and family leave act claims enumerated in Article I of the CBA, that would render the grievance procedure culminating in arbitration meaningless.
Because the CBA was the product of extensive and careful negotiation, the Court concluded that could not be the intent of the parties. Limiting the private counsel carve out to only discrimination and family leave cases allowed both clauses to have meaning. Id. at 8-9. In this way, the Court harmonized seemingly contradictory clauses in the CBA, and ordered the plaintiff’s wage law claim to arbitration.
Implications For Employers
It is not clear from the decision whether the arbitration itself can proceed on a class-wide basis, as there is no discussion of whether any class waiver exists in the CBA. Nonetheless, the Court’s order represents a master class in how to properly apply contract interpretation principles and enforce all clauses in arbitration agreements.