The U.S. Supreme Court Decision in 14 Penn Plaza LLC v. Pyett Enforces Arbitration For Discrimination Claims Made By Union Members

Now that the U.S. Supreme Court has made a law that prohibits union members from suing in Federal court to resolve discrimination claims, what's next? Will the right to unionize be similarly denied?

The U.S. Supreme Court Says That Union Members Cannot Sue For Discrimination Claims

Opinion analysis by Erica Goldberg



A NEW DAY DAWNING OR DARK CLOUDS ON THE HORIZON? THE POTENTIAL IMPACT OF THE PYETT CASE



Justice Thomas’s majority opinion held that nothing in either the National Labor Relations Act, (picture above shows President Franklin Delano Roosevelt signing the Act as Secretary of Labor Francis Perkins looks on) which controls collective bargaining agreements made on behalf of union members, or the ADEA forbids unions from mandating arbitration to resolve statutory discrimination claims. The majority touted the importance of allowing parties to bargain contractually for exchanges of rights and responsibilities, and it noted that courts should generally not interfere in this process. According to the majority, “[t]he decision to fashion a [collective bargaining agreement] to require arbitration of employment-discrimination claims is no different from the many other decisions made by parties in designing grievance machinery.”

Justice Thomas then confronted the thorny relevant precedent. Over three decades ago in Alexander v. Gardner-Denver Co., the Court held that unions cannot contractually waive an individual employee’s substantive guarantees against workplace discrimination. More recently, in Gilmer v. Interstate/Johnson Lane Corp., the Court held that individual employees who waive their right to a federal forum on their own behalf may be compelled to arbitrate employment discrimination claims. As a result of these two rulings, the Second Circuit below in 14 Penn Plaza ruled that, while individuals may waive the right to a judicial forum for federal discrimination claims, the same provision in a collective bargaining agreement was unenforceable.

The Court overruled the Second Circuit’s decision by distinguishing Gardner-Denver, which in the majority’s view was narrower than depicted by either the Second Circuit or the dissents. In Gardner-Denver, the Court held that despite a collective bargaining agreement requiring arbitration of all grievances, the employee was entitled to a federal forum to resolve statutory discrimination claims. However, in that case, the collective bargaining agreement contractually prohibited certain types of employment discrimination and compelled arbitration for any disagreement between the company and its employees regarding the meaning and application of the contract. Because the collective bargaining agreement did not explicitly mandate arbitration of statutory discrimination claims, but compelled arbitration of the established contractual guarantees against discrimination, the majority interpreted Gardner-Denver as involving only the doctrine of election of remedies.

Justice Thomas then elaborated upon the language in Gardner-Denver condemning collective bargaining agreements that waive an employee’s federally guaranteed substantive rights. According to Justice Thomas, the substantive right at issue is the right to a workplace free of age discrimination, not the right to litigate the age discrimination claim in a federal forum. The majority explained that earlier decisions deriding the efficacy and fairness of arbitration in resolving federal claims have been since repudiated, and that arbitration is a perfectly acceptable, if not more efficient, forum for addressing grievances related to employment discrimination.

Justice Souter’s dissent, joined by Justices Stevens, Ginsburg, and Breyer, faulted the majority for evading Gardner-Denver by ignoring its much broader holding that federal forum rights cannot be waived in union-negotiated contracts. According to Justice Souter, the fact that the agreement in Gardner-Denver did not explicitly mention statutory claims was only one of many reasons for its holding. “One need only read Gardner-Denver itself to know that it was not at all so narrowly reasoned,” reprimanded Justice Souter. The dissent also noted that, although flawed in its reasoning and approach, the majority opinion may be quite limited because it did not address whether a waiver of a judicial forum is enforceable when the union can block arbitration of employment discrimination claims.

Justice Stevens wrote a separate dissent to stress that, although the Court’s recent decisions have retreated on its former suspicion of arbitration, a Court’s newly embraced policy favoring arbitration cannot substitute for a genuine reading of the statutes and the precedent.

Links and further information

The Question:
Is an arbitration clause contained in a collective bargaining agreement, freely negotiated by a union and an employer, which clearly and unmistakably waives the union members’ right to a judicial forum for their statutory discrimination claims, enforceable?

Held:
A provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law.



14 Penn Plaza LLC v. Pyett (07-581)
A provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law
Decided April 1, 2009

Syllabus:
Full Opinion

Respondents are members of the Service Employees International Union, Local 32BJ (Union). Under the National Labor Relations Act, the Union is the exclusive bargaining representative of employees within the building-services industry in New York City, which includes building cleaners, porters, and doorpersons. The Union has exclusive authority to bargain on behalf of its members over their “rates of pay, wages, hours of employment, or other conditions of employment,” 29 U. S. C. §159(a), and engages in industry-wide collective bargaining with the Realty Advisory Board on Labor Relations, Inc. (RAB), a multiemployer bargaining association for the New York City real-estate industry. The agreement between the Union and the RAB is embodied in their Collective Bargaining Agreement for Contractors and Building Owners (CBA). The CBA requires union members to submit all claims of employment discrimination to binding arbitration under the CBA’s grievance and dispute resolution procedures.

Petitioner 14 Penn Plaza LLC is a member of the RAB. It owns and operates the New York City office building where respondents worked as night lobby watchmen and in other similar capacities. Respondents were directly employed by petitioner Temco Service Industries, Inc. (Temco), a maintenance service and cleaning contractor. After 14 Penn Plaza, with the Union’s consent, engaged a unionized security contractor affiliated with Temco to provide licensed security guards for the building, Temco reassigned respondents to jobs as porters and cleaners. Contending that these reassignments led to a loss in income, other damages, and were otherwise less desirable than their former positions, respondents asked the Union to file grievances alleging, among other things, that petitioners violated the CBA’s ban on workplace discrimination by reassigning respondents on the basis of their age in violation of Age Discrimination in Employment Act of 1967 (ADEA), 29 U. S. C. §621 et seq. The Union requested arbitration under the CBA, but after the initial hearing, withdrew the age-discrimination claims on the ground that its consent to the new security contract precluded it from objecting to respondents’ reassignments as discriminatory. Respondents then filed a complaint with the Equal Employment Opportunity Commission (EEOC) alleging that petitioners had violated their ADEA rights, and the EEOC issued each of them a right-to-sue notice. In the ensuing lawsuit, the District Court denied petitioners’ motion to compel arbitration of respondents’ age discrimination claims. The Second Circuit affirmed, holding that Alexander v. Gardner-Denver Co., 415 U. S. 36 , forbids enforcement of collective-bargaining provisions requiring arbitration of ADEA claims.

Held: A provision in a collective-bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law.

(a) Examination of the two federal statutes at issue here, the ADEA and the National Labor Relations Act (NLRA), yields a straightforward answer to the question presented. The Union and the RAB, negotiating on behalf of 14 Penn Plaza, collectively bargained in good faith and agreed that employment-related discrimination claims, including ADEA claims, would be resolved in arbitration. This freely negotiated contractual term easily qualifies as a “conditio[n] of employment” subject to mandatory bargaining under the NLRA, 29 U. S. C. §159(a). See, e.g., Litton Financial Printing Div., Litton Business Systems, Inc. v. NLRB, 501 U. S. 190 . As in any contractual negotiation, a union may agree to the inclusion of an arbitration provision in a collective-bargaining agreement in return for other concessions from the employer, and courts generally may not interfere in this bargained-for exchange. See NLRB v. Magnavox Co., 415 U. S. 322 . Thus, the CBA’s arbitration provision must be honored unless the ADEA itself removes this particular class of grievances from the NLRA’s broad sweep. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U. S. 614 . It does not. This Court has squarely held that the ADEA does not preclude arbitration of claims brought under the statute. See Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20 . Pp. 6–10. Accordingly, there is no legal basis for the Court to strike down the arbitration clause in this CBA, which was freely negotiated by the Union and the RAB, and which clearly and unmistakably requires respondents to arbitrate the age-discrimination claims at issue in this appeal. Pp. 6–10.

(b) The CBA’s arbitration provision is also fully enforceable under the Gardner-Denver line of cases. Respondents incorrectly interpret Gardner-Denver and its progeny as holding that an agreement to arbitrate ADEA claims provided for in a collective-bargaining agreement cannot waive an individual employee’s right to a judicial forum under federal antidiscrimination statutes.

(i) The facts underlying Gardner-Denver and its progeny reveal the narrow scope of the legal rule they engendered. Those cases “did not involve the issue of the enforceability of an agreement to arbitrate statutory claims,” but “the quite different issue whether arbitration of contract-based claims precluded subsequent judicial resolution of statutory claims.” Gilmer, supra, at 35. Gardner-Denver does not control the outcome where, as here, the collective-bargaining agreement’s arbitration provision expressly covers both statutory and contractual discrimination claims.

(ii) Apart from their narrow holdings, the Gardner-Denver line of cases included broad dicta highly critical of using arbitration to vindicate statutory antidiscrimination rights. That skepticism, however, rested on a misconceived view of arbitration that this Court has since abandoned. First, contrary to Gardner-Denver’s erroneous assumption, 415 U. S., at 51, the decision to resolve ADEA claims by way of arbitration instead of litigation does not waive the statutory right to be free from workplace age discrimination; it waives only the right to seek relief from a court in the first instance, see, e.g., Gilmer, supra, at 26. Second, Gardner-Denver’s mistaken suggestion that certain informal features of arbitration made it a forum “well suited to the resolution of contractual disputes,” but “a comparatively inappropriate forum for the final resolution of [employment] rights.” 415 U. S., at 56, has been corrected. See, e.g., Shearson/American Express Inc. v. McMahon, 482 U. S. 220 . Third, Gardner-Denver’s concern that, in arbitration, a union may subordinate an individual employee’s interests to the collective interests of all employees in the bargaining unit, 415 U. S., at 58, n. 19, cannot be relied on to introduce a qualification into the ADEA that is not found in its text. Until Congress amends the ADEA to meet the conflict-of-interest concern identified in the Gardner-Denver dicta, there is “no reason to color the lens through which the arbitration clause is read.” Mitsubishi, supra, at 628. In any event, the conflict-of-interest argument amounts to an unsustainable collateral attack on the NLRA, see Emporium Capwell Co. v. Western Addition Community Organization, 420 U. S. 50 , and Congress has accounted for the conflict in several ways: union members may bring a duty of fair representation claim against the union; a union can be subjected to direct liability under the ADEA if it discriminates on the basis of age; and union members may also file age-discrimination claims with the EEOC and the National Labor Relations Board.

(c) Because respondents’ arguments that the CBA does not clearly and unmistakably require them to arbitrate their ADEA claims were not raised in the lower courts, they have been forfeited. Moreover, although a substantive waiver of federally protected civil rights will not be upheld, see, e.g., Mitsubishi, supra, at 637, and n. 19, this Court is not positioned to resolve in the first instance respondents’ claim that the CBA allows the Union to prevent them from effectively vindicating their federal statutory rights in the arbitral forum, given that this question would require resolution of contested factual allegations, was not fully briefed here or below, and is not fairly encompassed within the question presented. Resolution now would be particularly inappropriate in light of the Court’s hesitation to invalidate arbitration agreements based on speculation. See, e.g., Green Tree Financial Corp.-Ala. v. Randolph, 531 U. S. 79 .Pp. 23–25.

498 F. 3d 88, reversed and remanded.

Thomas, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia, Kennedy, and Alito, JJ., joined. Stevens, J., filed a dissenting opinion. Souter, J., filed a dissenting opinion, in which Stevens, Ginsburg, and Breyer, JJ., joined.

Case below: Pyett v. Pennsylvania Building Company (2nd Cir 08/01/2007)
Official docket sheet
Certiorari granted: February 19, 2008.
Oral argument: December 1, 2008. Transcript The Solicitor General will participate in oral argument as amicus curiae supporting Respondents.

Question presented:

Is an arbitration clause contained in a collective bargaining agreement, freely negotiated by a union and an employer, which clearly and unmistakably waives the union members’ right to a judicial forum for their statutory discrimination claims, enforceable?

Certiorari Documents:

* Petition for Writ of Certiorari
* Brief of respondents in opposition
* Reply of petitioners

Briefs on the merits:

* Brief for Petitioner 14 Penn Plaza, LLC., and Temco Service Industries, Inc.
* Brief for Respondent Steven Pyett, Thomas O'Connell, and Michael Phillips
* Reply Brief for Petitioner 14 Penn Plaza, LLC., and Temco Service Industries, Inc.
* Brief for the Equal Employment Advisory Council in Support of Petitioner
* Brief for the National Academy of Arbitrators in Support of Respondent
* Brief for the Service Employees International Union, Local 32BJ in Support of Respondent
* Brief for the National Right to Work Legal Defense Foundation, Inc., in Support of Respondent
* Brief for the American Federation of Labor and Congress of Industrial Organizations and Change to Win in Support of Respondent
* Brief for the Lawyers’ Committee for Civil Rights Under Law, the American Association of People with Disabilities, the Asian American Justice Center, Legal Momentum, the Mexican American Legal Defense and Educational Fund, the National Partnership for Women & Families, and the National Women’s Law Center, in Support of Respondent
* Brief for the National Employment Lawyers Association, AARP, and American Association for Justice in Support of Respondent
* Brief for the United States as amicus curiae Supporting Respondents
* Brief of the Chamber of Commerce of the United States as Amicus Curiae in Support of Petitioners

Additional analysis:

* Cornell University Law School

Counsel:

* For Petitioners: Paul Salvatore; Proskauer Rose LLP; 1585 Broadway; New York, NY 10036; (212) 969-3000.
* For Respondent: Jeffrey L. Kreisberg; Kreisberg & Maitland LLP; 116 John Street, Suite 1120; New York, NY 10038; (212) 629-4970.

US - Oral argument on whether CBA waives employee's right to sue for violation of anti-discrimination statutes.

14 Penn Plaza LLC v. Pyett (oral argument 12/01/2008)
Decision below: Pyett v. Pennsylvania Building Company (2nd Cir 08/01/2007): http://caselaw.findlaw.com/data2/circs/2nd/063047p.pdf
Details, briefs: http://www.lawmemo.com/supreme/case/Pyett

When employees sued claiming age discrimination, the employer filed a motion to compel them to take the case to arbitration. The employees were covered by a collective bargaining agreement which prohibited age discrimination and also said "All such claims shall be subject to the grievance and arbitration procedure [in the collective bargaining agreement] as the sole and exclusive remedy for violations." The trial court denied the motion to compel arbitration, and the 2nd Circuit affirmed.

The 2nd Circuit held that "arbitration provisions contained in a [collective bargaining agreement], which purport to waive employees' rights to a federal forum with respect to statutory claims, are unenforceable." The US Supreme Court is reviewing the 2nd Circuit judgment.

Glossary of Terms Commonly Used in Labor and Employment

The Broad Foundation Gives $2.5 Million To Two Charter School Networks in NYC

To me, nothing reveals the power of money in New York City under the rule of Mayor Michael Bloomberg more than the turnaround of Eva Moskowitz. For years she, as Chair of the New York City Council Education Committee tortured the New York City Board of Education elite - Joel Klein, Kathleen Grimm, Michelle Cahill, Dennis Walcott, and others - with her aggressive questions about what they were saying and doing. See the picture below, Eva is hard at work attacking the pro-charter stance of the NYC BOE personnel.



Yet at the end of her years at City Council, while in her seat for only a week or two, Eva Moskowitz changed her story. Suddenly, the New York City Board of Education was doing a terrific job of educating New York City public school children.

Immediately after Ms. Moskowitz left the City Council, she became Principal of Harlem Success Aademy, and moved from her apartment up to Harlem to build her charter empire. It's hard to know what she really believes in.

Broad Foundation Awards $2.5 Million in New Grants to Expand Premier Public Charter Schools in New York City

Uncommon Schools and Success Charter Network to triple number of schools in next five years



FOR IMMEDIATE RELEASE
Thursday, April 9, 2009 NEW YORK – Two of New York City's highest-performing nonprofit, public charter school management organizations – Uncommon Schools and the Success Charter Network – will receive a total of $2.5 million to fund schools that provide a high quality public education for thousands more city students, The Eli and Edythe Broad Foundation announced today.

Broad Foundation Founder Eli Broad joined New York City Schools Chancellor Joel Klein, Success Charter Network Founder Eva Moskowitz, and Uncommon Schools Managing Director Brett Peiser to make the announcement after the group toured one of the Success Charter Network schools: Harlem Success Academy 2 on 140th St. and Frederick Douglass Blvd.

“In this day and age, we all need to ensure that our dollars are invested as wisely as possible,” said Eli Broad, founder of The Eli and Edythe Broad Foundation. “And the smartest investment a foundation can make is to replicate the very best public schools in a model city of reform like New York. These charter schools are proving that when public schools extend their school days, offer a challenging curriculum, and customize instruction, their students thrive, and parents demand more.”

The $2.5 million in grants will be distributed as follows:

Uncommon Schools



will receive $1.5 million over three years to support the opening of new schools in Brooklyn, New York, to provide a capital investment for school facilities, and to support home office operations. By 2014, Uncommon Schools will grow to operate 33 schools, 20 of which will be located in New York City.
Success Charter Network will receive $1 million over two years to support its existing four Harlem Success schools and to help open new schools in the New York City area. The network plans to open 40 new schools over the next 10 years.
“Charter schools like Uncommon Schools and Harlem Success Academies not only prepare their students for successful futures, they also prove that every child can learn and that public education can be excellent,” said Chancellor Klein. “With such terrific results, it's no wonder that 30,000 students are on waiting lists for charter schools across the City. I want to thank Eli Broad for this generous contribution, which will allow many more families to send their children to these great schools.”

Schools across the Uncommon network consistently outperform their neighboring district schools and rank among the top schools in their cities and states. For example:

On the 2008 New York State math and English language arts exams, Uncommon Schools' students – 99 percent of whom are Black or Latino – collectively closed the “achievement gap” in grades three through seven, out-performing the state's white students.

In addition, 96 percent of Uncommon's New York City students across four schools scored advanced or proficient on math exams, besting the overall state average by 15 percentage points and the white student average by eight percentage points.
On English language arts exams, 80 percent of Uncommon students scored advanced or proficient, exceeding both the state average the state's white student average.
Based on 2008 New York City Department of Education Progress Reports, Uncommon's Excellence Boys Charter School of Bedford Stuyvesant is the highest-ranked public elementary school in the city.



Across Harlem, where Success Charter Network schools are currently located, only 42 percent of third graders can read, a figure that drops to 31 percent by eighth grade. In contrast, Harlem Success Academy students on average performed at least one year above their grade level in reading in the 2007-2008 school year. That same year, Harlem Success kindergartners on average performed at a second grade level in mathematics.

As a result of the success of the Uncommon and Success Charter Network schools, parental demand for seats has grown steeply in recent years. Last year, some 5,000 students sought admission for just 600 spots in Harlem Success Schools. Today, over 4,000 students sit on wait lists to attend schools across the Uncommon network.

“Uncommon is thrilled to receive this support from The Broad Foundation which will enable us to meet the urgent and growing demand for high-quality public schools in the neighborhoods of Brooklyn,” said Evan Rudall, Uncommon Schools CEO. “This funding will ensure that we can best support our leaders and teachers as they prepare thousands of low-income students to succeed in school and go on to graduate from college.”

Both Uncommon Schools and Success Charter Network schools share operational and instructional elements proven to be successful in preparing low-income students for academic and college success: a highly structured learning environment, a longer school day and a longer school year, standards-based instructional models, and proven curricula that are data-driven and informed by ongoing assessments.

“Our students and their families are extremely grateful for this chance to serve even more of our neighbors, without sacrificing the educational quality that students in Harlem need and deserve,” said Moskowitz. “Every year, thousands more parents in our community want something better for their children. This new support will help us meet that demand.”

Success Charter Network, founded in 2006, is a 501(c)(3) charter management organization that seeks to prepare its students to graduate from college and succeed in life and to tangibly improve educational outcomes for all public school children. Success Charter Network aims to open schools where excellent teachers want to teach and where parents choose to enroll their children and play a greater role in their children's learning and in the larger effort to reform public education. The network's elementary schools provide students in high-need neighborhoods with a broad, rigorous curriculum in order to prevent achievement gaps from arising between low-income children and their more affluent counterparts. In addition to challenging academics such as writing, social studies, geography, arts and inquiry science five days a week, the schools offer crucial developmental activities like chess and play that focus on developing the “whole child.” For more information, please visit www.harlemsuccess.org.

Uncommon Schools is a nonprofit organization that starts and manages outstanding urban charter public schools that close the achievement gap and prepare low-income students to graduate from college. Uncommon builds “uncommonly great schools” by developing and managing regional networks that are philosophically aligned and highly accountable. Based in New York City, the organization has created a home office providing management services that allow school leaders to focus on instructional leadership. Uncommon manages eleven schools in New York City, upstate New York, and Newark, New Jersey and has two associate member schools in Boston, Massachusetts. The organization ultimately will encompass more than 30 schools, serving more than 11,000 K-12 students. Uncommon Schools

The Eli and Edythe Broad Foundation is a national venture philanthropy established by entrepreneur Eli Broad. Born in New York City, Eli Broad has provided nearly $30 million to date to support reform efforts in New York City public schools. Based in Los Angeles, The Broad Foundation's mission is to dramatically improve K-12 urban public education through better governance, management, labor relations and competition. The Broad Foundation

Contacts:

The Broad Foundation Erica Lepping elepping@broadfoundation.org 310-594-6880

Success Charter Network Jeremy Robinson-Leon jeremy@groupgordon.com 978-621-2569

Uncommon Schools Julie Shah jshah@uncommonschools.org 347-287-7812


Education Secretary Arne Duncan on public education

A-101 Chancellor's Regulations on Admissions, Re-admissions, Transfers

The U.S. Supreme Court Says That Union Members Cannot Sue For Discrimination Claims

Is mandatory arbitration the proper forum for resolution of discrimination claims for union members?

Supreme Court limits right of union workers to sue for discrimination
By John Burton, World Socialist Website, 10 April 2009
LINK

In a reactionary, pro-business ruling that reverses decades of settled law, the Supreme Court ruled 5 to 4 last week that workers lose their right to file federal discrimination lawsuits under the 1964 Civil Rights Act whenever a union collective bargaining agreement includes a mandatory arbitration clause.

Mandatory arbitration means that a party agreeable to the company rather than a federal court and jury will decide a dispute, and can do so without making findings of fact or explaining reasons for the decision. There is no right to an appeal, even where the arbitrator disregards the applicable law. Such clauses have become ubiquitous, as businesses insist on compelling arbitration to keep from being hauled in front of juries and forced to defend their actions.

With last week’s Supreme Court decision, it is now the rule that contracts negotiated by union bureaucrats trump federal laws enacted to protect against workplace discrimination.

The plaintiffs in the case, 14 Penn Plaza, LLC v. Pyett, were security guards represented by Service Employees International Union (SEIU) Local 32BJ, which had a collective bargaining agreement with a consortium of New York City commercial landlords. The contract contained a provision to force workers to arbitrate their federal discrimination claims along with alleged violations of the contract itself, such as seniority provisions and work rules.

The SEIU bureaucracy made a deal with a new contractor to replace the plaintiff security guards in the high-rise adjacent to Penn Station with lower-paid workers, which resulted in a grievance claiming violations of federal age discrimination laws as well as seniority rights. At the arbitration hearing, the SEIU withdrew the age discrimination claims because of a “conflict of interest”—namely, that the reassignments were made possible by the union’s own deal with the new contractor.

The transferred security guards then filed age discrimination suits in federal court against the landlords.

The Supreme Court dismissed the security guards’ lawsuit in a decision authored by Associate Justice Clarence Thomas, (pictured at right) joined by the three other members of the extreme right-wing bloc, Chief Justice John Roberts and Associate Justices Samuel Alito and Antonin Scalia. “Swing” Justice Anthony Kennedy, who invariably votes in favor of business interests, provided the crucial fifth vote.

As usual, the right-wing majority proceeded by working backward from its desired political conclusion to fashion its legal reasoning, in the process brushing aside any legal precedent standing in the way.

Thomas brushed aside Alexander v. Gardner Denver Co., which federal courts had been following for 35 years. In that case, a black worker filed a racial discrimination claim after his termination for “just cause” was upheld in a mandatory arbitration. The Supreme Court in 1974 rejected the employer’s argument that the worker could not pursue claims for workplace discrimination in federal court.

Associate Justice Lewis Powell, an appointee of Richard Nixon writing for a unanimous court, explained, “Parties usually choose an arbitrator because they trust his knowledge and judgment concerning the demands and norms of industrial relations. On the other hand, the resolution of statutory or constitutional issues is a primary responsibility of courts, and judicial construction has proved especially necessary with respect to [anti-discrimination laws], whose broad language frequently can be given meaning only by reference to public law concepts.”

This means that certain issues under the contract, such as those concerning seniority, are appropriate for an arbitrator, who is being asked to determine rights under the collective bargaining agreement itself. Disputes involving core civil rights, such as freedom from discrimination in the workplace, however, should be left to judges and juries.

As of last week, that is no longer the law.

Since 1974, American unions have evolved into little more than appendages of the employers. Even 35 years ago, however, the Supreme Court in Alexander recognized that “harmony of interest between the union and the individual employee cannot always be presumed,” and “the union may subordinate the interests of an individual employee” to its own interests.

As did reactionary judges during the first part of the twentieth century when striking down minimum wage and maximum work-hour regulations, Thomas in his decision exalted supposed “arm’s length” contract principles over laws enacted to protect workers’ rights. “As in any contractual negotiation, a union may agree to the inclusion of an arbitration provision in a collective bargaining agreement in return for other concessions from the employer. Courts generally may not interfere in this bargainedfor exchange,” Thomas wrote.

Thomas dismissed Alexander v. Gardner-Denver with the sophistry that the case stood only for the narrow principle that workers could not be forced to give up their right to be protected from discrimination in a collective bargaining agreement. According to Thomas, companies can still insist that workers give up their right to file lawsuits enforcing those rights.

Thomas’s argument flies in the face of the legal axiom that there can be no right without a meaningful remedy.

In a strongly worded dissent, Associate Justice John Paul Stevens, the senior member of the court’s liberal wing, denounced Thomas for his “subversion of precedent.” Associate Justices Ruth Bader Ginsburg, David Souter and Stephen Breyer also dissented.

Labor Management Relations
The Supreme Court Opens the Door to Mandatory Arbitration of Discrimination Claims for Union Members
April 2009
By:
Gavin S. Appleby
Hans Tor Christensen
Jennifer L. Mora

On April 1, 2009, a divided U.S. Supreme Court upheld the ability of an employer and a labor organization, as the employees' exclusive representative for purposes of collective bargaining, to agree that employees can be required to arbitrate their statutory employment discrimination or retaliation claims in accordance with an express requirement to do so under the terms of a bargained-for collective agreement. While the decision in 14 Penn Plaza L.L.C. v. Pyett specifically addressed age discrimination claims arising under a federal statute, the Court's decision is significant in that it now provides an opportunity for employers with unionized workforces to require that union members' discrimination and other statutory employment claims be privately arbitrated, rather than litigated in federal court. To get to that result, however, the relevant provision in the collective bargaining agreement must constitute a clear and unmistakable waiver of the right to pursue such claims in court.

Justice Thomas, writing for the majority, held that where the union and the employer have clearly and unmistakably agreed that statutory employment discrimination claims must be processed through the grievance and arbitration procedure in the parties' collective bargaining agreement, an employee will be required to file a grievance and ultimately submit the claim to a private arbitrator. Further, that employee will in most instances be barred from filing the same claims as a lawsuit in federal or state court.1 While there remain a number of unanswered questions about the 14 Penn Plaza decision, the Supreme Court clearly continues to consider arbitration a legitimate, if not preferred, method of dispute resolution.

Arbitration and Labor-Management Relations

Collective bargaining agreements set forth the terms and conditions of employment for employees in a bargaining unit where the union is the exclusive bargaining representative of those employees. Until the Supreme Court's decision in 14 Penn Plaza, it had been generally accepted that the parties could not include in those terms and conditions of employment a requirement that employees submit statutory claims of employment discrimination under federal or state employment statutes, such as Title VII and the Age Discrimination in Employment Act (ADEA), to the grievance and arbitration provisions in the applicable collective bargaining agreement.

As background, the Supreme Court's 1974 decision in Alexander v. Gardner-Denver Co.,2strongly suggested that both the prospective waiver of statutory employment claims as well as the ability to require arbitration of such claims were prohibited. Gardner-Denver seemed somewhat at odds with the Supreme Court's subsequent decision in Gilmer v. Interstate/Johnson Lane Corp.,3 in which the Court held that "an individual employee who had agreed individually to waive his right to a federal forum could be compelled to arbitrate a federal age discrimination claim." In short, an individual employee was free to agree to compulsory arbitration of age discrimination claims under Gilmer, but a labor organization was apparently prohibited under Gardner-Denver from agreeing in collective bargaining to a similar provision on behalf of the members it represents. It is against this backdrop that the Supreme Court was presented in 14 Penn Plaza with the opportunity to harmonize Gardner-Denver and Gilmer.

Factual Background



The employees at issue in 14 Penn Plaza were members of Local 32BJ of the Service Employees International Union (SEIU), which had the exclusive authority to bargain for and represent those employees regarding "rates of pay, wages, hours of employment, or other conditions of employment." The employer in the case, 14 Penn Plaza L.L.C., owned and operated an office building and was a member of the Realty Advisory Board (RAB), a multi-employer bargaining association. The collective bargaining agreement between the SEIU and RAB required union members to submit their claims for employment discrimination to binding arbitration in accordance with the grievance and arbitration procedures set forth in the applicable collective bargaining agreement. Specifically, the agreement stated:

There shall be no discrimination against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, ... or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures ... as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

14 Penn Plaza employed a variety of workers, including night watchmen. After a change in the existing subcontracting arrangement rendered the night watchmen's services unnecessary, the employees were reassigned to jobs as night porters and light-duty cleaners in other locations in the building. The employees claimed that this reassignment resulted in a loss of income and emotional distress.

The SEIU filed grievances on behalf of the employees claiming that the reassignments violated the collective bargaining agreement's prohibition against age discrimination and its seniority rules, and that the employer failed to equitably rotate overtime. Although the grievances ultimately proceeded to arbitration, the SEIU withdrew its claims of age discrimination, but it continued to arbitrate the seniority and overtime claims. In the meantime, the employees filed an administrative charge with the EEOC claiming that the reassignments violated the ADEA. The EEOC ultimately dismissed the employees' charge and provided them with a right-to-sue letter.

The employees then filed a lawsuit in federal district court alleging age discrimination under the ADEA and state law. The employer filed a motion to compel arbitration under the Federal Arbitration Act. However, the federal district court denied the motion and held that under existing precedent in the U.S. Court of Appeals for the Second Circuit, "even a clear and unmistakable union-negotiated waiver of a right to litigate certain federal and state statutory claims in a judicial forum is unenforceable."

The Second Circuit Concludes that Agreements to Arbitrate Contained in Individual Arbitration Agreements and Collective Bargaining Agreements Should Be Treated Differently

The Second Circuit refused to compel arbitration of the employees' ADEA claims based on its belief that the Supreme Court's decision in Gardner-Denver prohibited the parties to a collective bargaining agreement from "waiv[ing] covered workers' rights to a judicial forum for causes of action created by Congress." Although the Second Circuit recognized the tension between the Supreme Court's holding in Gardner-Denver and its more recent decision in Gilmer, the court attempted to reconcile the two decisions. Comparing individual rights to waive claims and arbitration provisions in a collective bargaining agreement, the court concluded that labor agreement provisions "which purport to waive employees' rights to a federal forum with respect to statutory claims, are unenforceable." In short, the Second Circuit considered individual arbitration agreements to be different from the grievance and arbitration provisions set forth in a negotiated collective bargaining agreement.

The Supreme Court Holds that Employees May Be Compelled to Utilize the Grievance and Arbitration Machinery Set Forth in a Collective Bargaining Agreement

The Supreme Court overruled the Second Circuit's analysis. The Court started with the general proposition that an agreement between an employer and a union to submit employment-related discrimination claims to arbitration qualifies as a condition of employment and is "no different from the many other decisions made by the parties in designing grievance machinery." Although the individual employees involved in the case argued that the arbitration clause was outside the permissible scope of collective bargaining because it affected "employees' individual, non-economic statutory rights," the Court rejected this contention. It instead found that the law "generally favor[s] arbitration precisely because of the economics of dispute resolution" and that, as a general matter, courts "may not interfere in this bargained-for exchange." The Court then reasoned that the collective bargaining agreement's requirement that employees arbitrate these types of disputes "must be honored unless the ADEA itself removes this particular class of grievances from the [National Labor Relations Act's] broad sweep." The Court then held that the ADEA did not contain such a prohibition.

The holding in 14 Penn Plaza is consistent with Gilmer. Once parties to a contract agree that a particular dispute must be submitted to arbitration, an employee is bound to that agreement "unless Congress itself evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue." Finding that there was nothing in the language or legislative history of the ADEA that expressly precluded arbitration, the Court concluded in Gilmer that arbitrating disputes under the ADEA would not undermine the statute's "remedial and deterrent function."4

In 14 Penn Plaza, the Court specifically stated that its earlier interpretation of the ADEA in Gilmer, which involved an individual employment agreement, "fully applies in the collective-bargaining context." As Justice Thomas explained, "[n]othing in the law suggests a distinction between the status of arbitration agreements signed by an individual employee and those agreed to by a union representative."

Further, Justice Thomas opined that Gardner-Denver was decided at a time when arbitration was perceived as insufficient for a fair and reasoned determination of federal statutory claims. Over 20 years later, however, a wide range of federal claims are commonly arbitrated, and objections centered on the abilities of arbitrators, or the nature of arbitration itself, are no longer justified. Thus, the Court held that to the extent Gardner-Denver concluded that arbitrators are not capable of fairly deciding complex federal discrimination claims, that precedent has been overturned. Nevertheless, the Court explicitly left in place the holding from Gardener-Denver that the waiver of a federal statutory employment claim that is not clear and unmistakable, will not be enforced. Thus "a collective bargaining agreement that clearly and unmistakably requires union members to arbitrate ADEA claims is enforceable as a matter of federal law." A labor agreement that is not so clear would not require compulsory arbitration.

Implications, Opportunities, and Other Issues

Generally speaking, few existing collective bargaining agreements will meet the standard required for a court to hold that employees have waived their rights to a judicial forum. In 14 Penn Plaza, the collective bargaining agreement: (1) contained an express prohibition against discrimination based on protected characteristics under federal, state, and local laws; (2) specifically named the statutes at issue; and (3) explicitly stated, "[a]ll such claims shall be subject to the grievance and arbitration procedures . . . as the sole and exclusive remedy for violations." Such a provision is relatively unusual in today's labor agreements. While most labor agreements contain antidiscrimination provisions, those provisions are not typically worded as a waiver clause. Given the specific language in the labor agreement in 14 Penn Plaza, however, the Supreme Court concluded that the SEIU and the employees it represented had met the high "clear and unmistakable" standard originally set forth in Gardner-Denver.

Technically, the Court's decision in 14 Penn Plaza is limited to claims arising under the ADEA, but ultimately it may be applied to a broad range of federal, state, and local employment statutes, provided that the text and legislative history of the applicable statutes do not expressly exclude the claims covered by the statute from compulsory arbitration. As a result, during bargaining, employers may want to consider whether they can benefit from requiring bargaining unit employees to submit their discrimination claims to arbitration and, if so, the nature and types of claims that should be covered. This is especially true for employers in jurisdictions that have been confronted with the onslaught of wage and hour class action litigation. Depending upon other laws and how they have been interpreted, restricting these types of claims to arbitration could provide protection to employers who are concerned about possible class actions.

Of course, it goes without saying that a union may not be willing to consider expanding the areas that a collective bargaining agreement's grievance and arbitration procedure covers, and hard bargaining and/or concessions may be needed to obtain this expansion. In fact, while unions have traditionally sought "antidiscrimination" language in labor agreements as part of their duty to push for employee rights, if a waiver of a jury trial is now part of the process, unions may quickly back off such a strategy.

A further, serious concern was raised by the dissent in 14 Penn Plaza ‑ where the union acts as a gatekeeper to its members' statutory employment claims, it may fail to pursue valid claims, to the detriment of the employees. While those employees may file a subsequent claim against their union for unlawful discrimination or breach of the duty of fair representation, the success of such claims is limited as unions have a meaningful amount of discretion as to which cases they choose to arbitrate.

Recommendations and Practical Considerations

With the above analysis in mind, there are numerous points for employers to consider:

1. Employers should not immediately conclude that the best strategy is to require that claims of discrimination be processed through the contractual grievance and arbitration process. For some employers, that will be the best answer; but other employers may decide that choosing to fight discrimination claims in court is a better strategy.
2. Arguments in favor of binding arbitration are factors such as cost savings (arbitration is almost always cheaper than litigation), less delay and less risk of punitive damages. Particularly in states where damages are not capped and where juries are considered more pro-employee, labor arbitration may indeed be the better option.
3. Binding arbitration, however, is not necessarily the best method for resolving these types of statutory claims. Arbitrators can be as unpredictable as juries, and the favored arbitration remedy of reinstatement can be more costly in a real sense than damages. Further, unfavorable arbitration decisions are extremely difficult to overturn. Even an arbitrator's "manifest disregard for the law" may not be a valid ground for appealing an arbitrator's ruling. By comparison, federal and state courts provide for a significantly more robust system of appeal.
4. Another factor to consider is the potential for obtaining summary judgment in discrimination cases. Some federal courts are amenable to granting summary judgment motions in such cases absent relatively clear evidence of direct or indirect discrimination. In other jurisdictions, by comparison, summary judgment is difficult to obtain.
5. Following the advent of punitive damages and jury trial rights created by the Civil Rights Act of 1991, compulsory arbitration became more common. Some employers that went in that direction, however, subsequently moved away from binding arbitration. Others continue to find that compulsory arbitration is better for them than litigation. In short, employers should not necessarily view 14 Penn Plaza as a bandwagon on which to jump. They should instead confer with experienced labor counsel and make a determination as to which road to go down. That determination will include such diverse factors as the relationship between the employer and the union, the pool of available arbitrators and their willingness to uphold reasonable employer decisions, the ability of the same arbitrators to understand the difference between a claim of discrimination and "just cause" in a discharge case, the general demeanor of judges and juries in the jurisdiction in question, and, of course, cost and employee morale. Capable labor counsel can provide an analysis of all these factors and more.
6. Finally, if an employer does decide to negotiate with a union to require compulsory arbitration of employment statutory rights, it should confer with labor counsel to create language that will likely be upheld under 14 Penn Plaza. Some courts will undoubtedly seek to restrict the Supreme Court's decision, so crafting language will be an important task. As noted earlier, congressional action could also lead to future restrictions that would have to be considered.

1 While this change is certainly significant in the labor-relations context, it likely will not prevent the Equal Employment Opportunity Commission (EEOC) or any other federal or state agency from filing a lawsuit against the employer on behalf of the employee. However, as a practical matter, that is a fairly rare event.

2 415 U.S. 36 (1974).

3 500 U.S. 20 (1991).

4 The Arbitration Fairness Act (AFA), recently introduced in Congress, would prohibit the enforcement of mandatory agreements that require employees to submit their statutory employment claims to binding arbitration. Should the 14 Penn Plaza decision inspire greater interest in the AFA, Congress could legislatively overrule the Supreme Court's 14 Penn Plaza and Gilmer decisions. Littler's DC Employment Law Update blog is tracking this legislation and other labor and employment-related developments in Washington.

Gavin S. Appleby is a Shareholder in Littler Mendelson's Atlanta office. Hans Tor Christensen is Of Counsel in Littler Mendelson's Washington, D.C. office. Jennifer L. Mora is an Associate in Littler Mendelson's Portland office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, Mr. Appleby at gappleby@littler.com, Mr. Christensen at tochristensen@littler.com, or Ms. Mora at jmora@littler.com.

ASAP is published by Littler Mendelson in order to review the latest developments in employment law. ASAP is designed to provide accurate and informative information and should not be considered legal advice.
© 2009 Littler Mendelson. All rights reserved.

Employment Arbitration

An estimated 15% to 25% of employers nationally have adopted mandatory employment arbitration procedures. This means that more than 30 million employees (1 out of every 4 non-union workers) must sign a clause in their employment contract that gives up their right to go to court and, instead, permits an arbitration firm (of the employer’s choosing) to resolve any future disputes they have with their employer. Binding mandatory arbitration clauses allow employers to effectively remove themselves from the enforcement of employment rights laws. This should alarm every worker in the U.S.

The use of mandatory arbitration of employment claims has risen rapidly since the early 1990s – after Congress made jury trials and money damages available under Title VII (in 1991), the passage of the Americans with Disabilities Act in 1992, and the number of discrimination charges filed skyrocketed. 1991 was also the year in which the Supreme Court upheld imposition of mandatory arbitration of an age discrimination claim.

Here’s how mandatory arbitration has affected Fonza Luke of Alabama:

Fonza Luke, a mother of four and a grandmother, started working as a licensed nurse practitioner for Baptist Health Systems (BHS) at its Medical Center in 1971. In November 1997, Fonza was told she must sign the new “Dispute Resolution Program,” which meant employees would have to go into arbitration if they had legal claims. Fonza did not want to forfeit her rights, so despite being told twice that she would be fired if she did not sign the agreement, she refused to sign it. Three years later, the hospital fired Fonza due to “insubordination” after almost 30 years of working for BHS with only the highest performance ratings. As a 59-year-old African-American woman, Fonza believed she was fired due to her race and age, so she filed claims with the U.S. Equal Employment Opportunity Commission and then in federal court. Even though she never signed anything, BHS asked the federal court to dismiss her case to arbitration. The federal court said that BHS could force her to arbitrate because she kept working in her job after they showed her its arbitration agreement. When she appealed the federal court’s decision, the appeals court ordered her into arbitration, where she lost completely. According to her lawyer, it was impossible for Fonza to get an arbitrator that was fair and unbiased, much less pro-employee. As a result, her claims of discrimination and retaliation were denied, and she got no relief whatsoever.

Illinois Appellate Court Says That An Employee of a Staffing Company Can Sue the Company’s Customer for Retaliatory Discharge

Borrowed Employee Has Retaliatory Discharge Claim

In a case of first impression, the Illinois Appellate Court determined that an employee of a staffing company could sue the company’s customer for retaliatory discharge.
Carrie Hester filed a complaint alleging that she had been assigned to work at Gilster-Mary Lee Corp. (“Gilster”) by her employer, Manpower, Inc. and that Gilster was her “de facto employer.”

Hester’s complaint included allegations that on September 13, 2006, under threat of subpoena, Hester gave testimony in the workers’ compensation case of another Gilster employee. The next day, Gilster informed Hester that it would not be using her services any longer and that if she wanted other employment she would have to return to Manpower, Inc.

Gilster filed a motion to dismiss Hester’s complaint, arguing that Hester’s actual employer was Manpower and that Gilster had not fired Hester. The trial court entered an order granting the motion to dismiss. Hester appealed.

The issue was whether there is a cause of action for retaliatory discharge for a borrowed employee whose employment with the borrowing employer is terminated for testifying in a coworkers’ worker’s compensation claim.

The rights and remedies of the Workers’ Compensation Act apply to borrowed employees. 820 ILCS 305/1(a)(4). A borrowing employer is primarily liable for payment of a borrowed employee’s workers’ compensation claim.
Additionally, borrowing employers can claim the protections of the Act. Nevertheless, Gilster argued that it should not be held accountable for terminating Hester’s employment.

According to the appellate court, the public policy considerations which led to recognition of an action for retaliatory discharge in Kelsay v. Motorola, Inc., 74 Ill.2d 172 (1978), apply equally to a claim by a borrowed employee against a borrowing employer. Therefore, an action for retaliatory discharge is available to a borrowed employee.

Gilster argued that Hester’s allegation that Manpower was her “employer” and Gilster was her “de facto employer” was an admission that defeated her claim. However, Hester alleged that Gilster set her daily hours, work schedule, hourly wage, job assignments, and her workplace, that no one from Manpower supervised her work in any way, and that she worked side-by-side with regular Gilster employees.

According to the court of appeals, the public policy of providing efficient and expeditious remedies for injured employees would be seriously undermined if borrowing employers such as Gilster were permitted to abuse their power by discharging their borrowed employees in retaliation for exercising their rights under the Act. When faced with that dilemma, many workers like Hester would simply choose not to exercise their rights in order to retain their employment.
Finally, the court had to decide whether Hester had alleged that her discharge was in retaliation for participation in a protected activity. The court found that Hester stated a cause of action for retaliatory discharge because there is a clear public policy favoring the prompt and efficient resolution of workers’ compensation cases.

The case was remanded for further proceedings. Hester v. Gilster-Mary Lee Corp., 386 Ill. App. 3d 1104, 326 Ill. Dec. 372, 899 N.E.2d 589, (5th Dist. 2008).

Mayoral Control: In The End, It Became a Voting Rights Issue

In New York City parents are furious with Mayor Michael Bloomberg and public school chancellor Joel Klein for destroying channels of communication to and from New York City's Board of Education elite. We are seeing the true rise of the public education-political-complex which resembles President Eisenhower's "military-industrial-complex" in many ways. Read the article below published in 2006.

Detroit Leaning
Mayor Villaraigosa has been touting a straightforward plan to take over the county's public schools,
By Ryder Palmere, City Beat
LINK

In recent weeks, Los Angeles Mayor Antonio Villaraigosa (pictured below) has a made a show of traveling to Chicago and New York to talk to mayors Richard Daley and Michael Bloomberg, respectively, about how to follow their lead and shift control of L.A.'s public schools to his office. In both instances, he talked to two powerful operators in classic, strong-mayor systems, where the mayor is able to appoint and manipulate the school board, and the city council, to achieve his ends.



The situation in L.A. may be much more complicated - even to the point of confusion. The City of L.A. has a relatively weak mayoral system, where the city council has significant budgetary and appointment power, and, from the plans presented thus far, it doesn't seem that Villaraigosa would end up with as much authority as his counterparts in Chicago or New York. They may not, then, be the most accurate comparisons for what might happen in Los Angeles.

Even in those cities, however, school advocates report that mayoral takeover has yielded mixed results. In New York City, the country's largest public school district, the jury is still out. Bloomberg claims that test scores across the district jumped instantly with his involvement - and then campaigned on the issue - but most school watchers say it's too early to make that claim. In Chicago, where Daly first grabbed control of the school system in 1995, takeover has given the mayor power to undertake dramatic, high-profile makeovers on inner-city schools, but overall test scores remain low and most school facilities remain in underfunded or even dilapidated condition.

To that end, it seems more pertinent (and perhaps more realistic) to look at a city whose mayoral powers, and takeover bid, were relatively weak. Like Detroit.

In 1998, Republican Michigan Governor John Engler sized up the city schools' plummeting test scores and rocketing dropout rates and asked then-Mayor Dennis Archer to take control. He and his Deputy Mayor Freman Hendrix were against the idea. Their concern was that it would create more division within the governing structure, amplifying the existing problems. But Republicans controlled the state legislature and pushed through the takeover, which took effect in March 1999.

Many legislators questioned the move from the outset. In early 1999, state Senator Burton Leland, a Detroit Democrat, was quoted as saying, "What gives this chamber and the governor the right to remove an elected body? The present school board was elected by a million people in Detroit, and you're going to throw them out?"

Hendrix saw the takeover as a recipe for disaster. After the structure was put in place, the first concern of those backing it was how to make it stick. "I remember saying 'You'll never make it permanent,'" he says. "The best thing that anybody can hope for is to run as fast ´´ as you can and make as many academic and capital improvements as you can. Because after five years, Detroit is going to vote, and when they do, they're going to vote to return to a fully-empowered school board."

That is what precisely happened. The mayor appointed a new board, which then selected Dr. Kenneth Burnley to serve as CEO of public schools and assume powers originally designated to the superintendent and the board. He then set budgets, made policy decisions, and negotiated contracts within the public school system. The mayor's appointed board thus had control of the CEO, but voters did not, and many were immediately at odds with the system. Lacking a forceful control of city council, the mayor was unable to take strong measures to rebuild infrastructure or change policy outside the school system to support the effort - and didn't have the money to do that, anyway. The best they could hope for was better financial management of the district.

Assuming Villaraigosa could find money and work his magic in the community, the Detroit system is still less compromised than that proposed by Villaraigosa on March 20. His plan would retain a greatly-weakened, but still elected, school board, and the mayor would appoint the superintendent and oversee budgets. This would pit the superintendent against the board, setting up a potential power struggle.

In Detroit, concerned parents immediately worried that the demand for a mayoral takeover didn't come from the families who would be directly affected. It came largely from the business community.

"Oftentimes," says Freman Hendrix, "kids and parents get lost in public school agendas. Nobody gives a shit about the kids. That ends up being the secondary concern. The priority is the vendors, the contractors, the politicians, the school teachers, and the unions. It's the people making money."

A study by the Michigan Educational Report, published by the nonpartisan research and policy group, Mackinac Center for Public Policy, identified that two of the primary problems spurring the takeover were: 1) rapidly declining enrollment and graduation rates, and 2) plummeting test scores. The December 15, 2005 report stated: "the test score gap between Detroit and the rest of the state has diminished, but remains large, and sought-after improvements in financial management have failed to materialize."

Even with two separate national studies to assess accurate graduation rate estimations (by the Manhattan and Urban Institutes), flawed and outright missing data made it impossible to determine the effectiveness of the takeover with any certainty.

Detroit Public Schools, prior to the takeover, reported an on-time graduation rate of 30 percent. The following year, they reported an astounding 88 percent. The Detroit Free Press reported that irregularities in district numbers were largely to blame for this giant leap. One cause of the rate increase was due to the fact that students who fail to graduate to the next grade are not included in the graduation rate calculation.

When the takeover began, student enrollment was at 179,103. By early 2005, it had dropped to an estimated 140,000, and is expected to decline another 10,000 in the current school year. According to the Michigan Education Report, reading scores went up from 36.3 percent to 57.4 percent during the takeover. Math scores, however, plummeted.

"In the first year of the takeover," says Tom Shull, senior editor for the Mackinac Center, "they did manage to get done the majority of the quick fixes. They did things like fix roofs that were leaking. It was the operational stuff that had been neglected."

According to a financial report released by MGT of America, Inc., a consulting firm, the district's fiscal discipline has deteriorated since 1999.

Quixotically, though, the district did get easier to manage. "It was easier to look through the books," says Shull. "It was easier to audit, easier to track the bond money, which was a big issue. We had a billion-dollar bond issue that essentially sat unspent for a number of years until the takeover."

Largely absent, however, was a definitive process that the appointed board would use to relieve the district of its problems. According to the Michigan Education Report, "even many of the bill's backers admitted that it was a speculative endeavor."

And one that apparently didn't yield many results. Finally, in a city with an elevated sense of voter empowerment born of the civil rights era, the people were pissed. On November 8, 2005, Detroit voters chose to quit the experiment on mayoral control and returned power to an elected school board, which resumed control in January.

"In the end, it became a voting rights issue," says David Adamany, who served as interim CEO before Dr. Burnley was appointed. "The voting rights issue usurped anything else in a largely African-American city." The residents of Detroit ultimately felt as though the takeover was something done to them, not for them. "The more people have a say in terms of what they think ought to happen, they'll be more cooperative and feel a part of things. Even though I involved a lot of people in Detroit, they felt it wasn't something for them."

Published: 04/13/2006

NYC COMPTROLLER THOMPSON EXPOSES “RUNAWAY CONTRACTS” AT THE DEPT. OF EDUCATION

Comptroller probe finds 1-in-5 contracts balloon past costs, including one that jumped by 6,700 percent



New York City Comptroller William C. Thompson, Jr. speaks to reporters on April 1, 2009 about his investigation exposing how the Department of Education has routinely let hundreds of contract costs balloon well past their expected costs. Standing with Thompson is Deputy Comptroller John Graham.

View letter
View Attachment 1
View Attachment 2
View testimony
View video

New York City Comptroller William C. Thompson, Jr. today charged that the Department of Education has routinely let hundreds of contract costs balloon well past their expected costs – including one that jumped by 6,700 percent.

“It’s simply a case of runaway contracts,” Thompson said. “It’s reprehensible that the Department of Education plays by its own rules and goes on some insane spending spree. And who pays? Taxpayers, parents, children, all of us.”



Thompson aimed his harsh criticism in a harshly worded letter to Schools Chancellor Joel Klein for not containing the swollen contract costs. Thompson then submitted testimony spelling out his fiery findings to the New York City Council Committees on Education and Contracts.

“The Department of Education continues to maintain a long-held and ill-considered opinion that its contracts and other purchases do not require the same stringent safeguards as those of other local and state agencies,” Thompson said. “As a result, taxpayer money continues to be squandered through an opaque process that does not take advantage of the competitive marketplace. This is unacceptable.”

What did Thompson find?

* One out of every five – or 20 percent – of the Department’s contracts that ended in the last two fiscal years inevitably cost well over the estimated amount by 25 percent or more.

* That rate already continues to climb. So far, in the current fiscal year, 27% of the Department’s requirement contracts have swollen costs topping 125% - and there’s still three months left until the fiscal year ends.

* One contract, with the Xerox Corporation, was supposed to cost at most $1 million – but the Department spent close to $68 million – a 6,759 percent jump in costs. Another, with Ideal Restaurant Supply, jumped from $15,000 to more than $852,000 – a 5,530 percent jump.

* During those two fiscal years combined, the Department issued 372 requirement contracts, originally estimated to cost $325,236,416 but which inevitably exceeded those estimates by 25% or more. The final tab wound up at more than $1 billion.

* Additionally, many recipients of the contracts - 127 of them – got the lucrative work without any competition because the Department didn’t put the work out to bid. Those 127 contracts were supposed to cost $195 million at most. But the Department spent $525 million on them.



“The Department’s purchases exceed contract amounts by such a large margin that it raises fundamental questions about the integrity of the Department’s entire contracting process,” Thompson said. “These actions display a clear pattern of mismanagement when it comes to expenditures, and the Chancellor and the Mayor must fix this situation and rein in these costs.”

The Comptroller over the last seven years has repeatedly exposed fiscal incompetence and a lack of accountability and transparency in budgeting and contracting at the Department of Education. Key among his concerns has been a disturbing pattern of so-called no-bid contracts, which are executed without competition.

“The Department must create and follow an open and formal procurement practice and demonstrate that it will spend the public’s money in an accountable manner,” Thompson said. “I call on the Department to take immediate action to ensure that the scarce public dollars entrusted to it are used prudently. Doing so will benefit not just our schoolchildren and our school system, but our city as well.”

ED. BIGS' $700M LESSON IN MATH
By YOAV GONEN, EDUCATION REPORTER, NY POST
LINK

April 2, 2009 --
Department of Education contracts for goods and services have exceeded their cost estimates by nearly $700 million over the past two years, City Comptroller Bill Thompson charged yesterday.

These included a single $1 million contract with Xerox to lease copiers that ended up costing the DOE nearly $68 million.

Similarly, a contract for cafeteria equipment ballooned from roughly $15,000 to $850,000, and a software deal jumped from $135,000 to $5.5 million by the time it was done, the mayoral candidate said.

"It's reprehensible that the Department of Education plays by its own rules and goes on some insane spending spree," said Thompson, one of many officials at a City Council hearing who ripped what he called the department's lack of transparency.

Thompson attributed the "runaway" costs to the fact that one of every five department contracts that concluded in fiscal years 2007 and 2008 overran its original estimate by at least 25 percent.

He said that so far this fiscal year that figure had inched upward to 27 percent, taking money away vital education services.

"DOE's failure to accurately determine its expenditures prevents it from negotiating the best prices for goods and services, and is contrary to sound business practices," he wrote in a letter to Schools Chancellor Joel Klein.

Education officials disputed the figures that Thompson provided for several of the contracts.

They said the Xerox contract was originally registered for $20 million in 2002 and that it was later extended twice -- for a total of $31 million.

Even when initial estimates were off, education officials insisted, the expenses were all within the DOE's budget.

"What [the overrun] shows is that there are a lot of contracts that people thought were providing good services and they used more of it," said DOE Chief Operating Office Photeine Anagnostopoulos.

City Council members also admonished education officials for their over-reliance on no-bid contracts, for not using more local minority- or women-owned businesses as vendors, and for not making all contract meetings public.

yoav.gonen@nypost.com

Thompson's testimony

April 5, 2009
Hon. William C. Thompson, Jr.
Comptroller of the City of New York
1 Centre Street
New York, NY 10007



Dear Comptroller Thompson:

I am writing in response to your April 1 letter regarding the Department of Education’s use of requirements contracts. Unfortunately, your office’s analysis is marred by distortions and misrepresentations. Based on the numbers in your materials, your office failed to conduct a careful reading of the contracts and to verify basic contract information—even citing as a “particularly stunning example” of DOE “mismanagement” a contract that was entered into while you were President of the Board of Education.

I direct you to the following examples of incorrect or misleading allegations in the contracts highlighted in your letter:

§ Xerox Corporation:

The figure you give for the contract’s original amount, $1 million, is incorrect. The Xerox contract was actually registered for $31 million. We originally registered the contract for $20 million in 2002, and later extended it twice, once by $10 million and a second time by $1 million. It appears that you cite the amount of this last extension as if it were the entire registration amount. The accurate estimate is still less than the amount actually expended, but as we explain below this fact in itself is neither problematic nor atypical in a requirements contract.

For the record, a review of the original Xerox contract documents shows that the original estimate was reached through a standard process. Procurement for the Xerox and T&G Industries contracts began before the start of mayoral control (the contracts went into effect on August 1, 2002). The Board of Education provided vendors bidding on this RFP (including T&G Industries) with a comprehensive inventory of the Department’s copy machines; the number and types of machines guided the unit pricing proposed by the vendors, ultimately resulting in a contract estimate.

§ T&G Industries:

The figure you give for the contract’s original amount, $1 million, was actually registered for $31 million. Like the Xerox contract, it was originally registered at $20 million and twice extended, once by $10 million and again by $1 million. It appears that, as with the Xerox contract, you cited the amount of the last extension as if it were the entire registration amount.

§ Hewlett-Packard:

The Hewlett-Packard contract is a state contract that provides Microsoft software licenses for schools and central offices. The state, not the DOE, selected the vendor and set the rates. In other words, the DOE estimate could not have had an effect on pricing. With regard to the estimate, it should be noted that we had little basis for estimating vendor expenditures when the contract began in 2005—this was the first time we procured software licenses centrally; previously, schools paid for them on their own. A replacement contract is with your office now and has a two-year estimate of $12 million, which is in line with the roughly $6 million annual expenditures against the former contract listed in your chart.

§ Meizner:

This contract with a software reseller was first competitively bid in June 1999—when you were President of the Board of Education and prior to this administration. With renewals, the contact lasted for 10 years. At the time the contract was initially estimated, it was the agency’s practice to provide estimates based on annual spending rather than on the full term of the contract. The $135,000 estimate that appears in your table represents the expected spend for one year; the actual estimate for the entire contract is 10 times that amount, or $1.35 million. It is also worth noting that when the Department negotiated the last renewal—for three years starting in 2007—we reached terms that ensured us a minimum 20% discount off publisher’s list prices.

§ Creative Media:

This contract was bid originally in 2002. At that time, as noted above, the agency’s practice was to provide estimates for annual rather than for the full-term contract amounts. The annual estimate was $589,000, which is the number that appears in your chart. We registered each renewal (provided for in the base contract) for additional amounts that your office appears to have missed. The sum of the subsequent renewals, i.e., the contract’s actual “original amount,” is about $3 million.

Your letter also raises questions about 127 “entities” that obtained contracts with the Department with “little or no competition” on which we spent $525 million. We examined the list you compiled and found that 85 percent of the expenditures listed went to state-approved providers of services to pre-school children with disabilities. As with contracts for Supplementary Education Services, which also appear on your list and about which you have criticized us in the past, we are required by law to contract with any state-approved provider. Because the state alone has the authority to review and approve programs and sites and to set rates, the Board of Education while you were Board President sensibly determined that the city did not need to perform its customary procurement process before contracting with any state-approved provider. We arrive at these contracts after the State Education Department sets tuition rates and vendors estimate costs for their services based on the size of the student register they are contracting to provide services for. This population has been growing, so it is not uncommon that registers have gone up during the five-year duration of these contracts.

In general, your analysis mischaracterizes the Department’s requirements contracting process. Requirements contracts are structured on a per unit price basis, meaning that schools and departments only pay for the units they purchase at the unit price fixed in the contract. In some of the examples your office listed, schools decided they wanted to purchase more services and goods than we originally estimated. These expenditures are not examples of cost overruns and do not add costs to taxpayers; they simply reflect increased demand, which the schools pay for out of their budgets.

You make two further charges that I wish to respond to. First, you contend that the DOE fails to negotiate the best prices in cases where expenditures exceed estimates. In fact, we analyze and estimate the potential volume that could be associated with each contract and provide our best estimate to potential vendors. The estimates sometimes fall below actual expenditures, especially in times of dramatic budget changes; since 2002, the Department’s budget has increased by $8 billion. In the early years of such growth, it may be difficult to estimate the volume of potential purchases. There could be a few contracts—among the thousands the Department signs each year—where our best estimates proved to be low relative to the price we could have negotiated on a volume discount. But we are not aware of any suboptimal pricing, and you have not presented evidence to suggest otherwise. Additionally, given the size of our district and the competitive nature of our bidding process, we believe we already receive vendors’ lowest possible prices even on the contracts where a volume discount could have applied.

Finally, your suggestion that low estimates on contracts provide “an inaccurate picture” of our expenditures appears to misapprehend the way our budget works. The DOE does not use contract estimates, which are set in varying years, as indicators of planned expenditures. School budgets and the overall DOE budget are the comprehensive financial documents that provide a “picture” of planned expenditures for a given year. These budgets change each year depending on the amount of funding the Department receives from the city, state, and federal governments. No district, including New York City, continuously revises contract estimates based on year-to-year budget fluctuations. As budgets shift, schools and Department offices adjust spending against requirements contracts accordingly. To determine how much money the Department plans to spend on pre-kindergarten services for the current year, one should consult this year’s budget rather than the estimate made when the contract was signed, which could have been several years earlier.

These mischaracterizations and distortions add little to public understanding of DOE procurement issues. Our offices have worked closely together in the past. I hope that practice continues into the future, and that you will contact us to verify contract and purchasing information to ensure the public is properly informed.

Sincerely,

Joel I. Klein
Chancellor

Who did the math? Joel Klein and William Thompson can't figure out budget spat
BY KATHLEEN LUCADAMO, DAILY NEWS STAFF WRITER
Saturday, November 8th 2008,
LINK

It just doesn't add up.

City Controller William Thompson got into a war of addition with Schools Chancellor Joel Klein this week, accusing him of inflating figures on education budget savings.

But Klein's rebuttal letter - which charged the controller's findings are "riddled with errors" - contained a major miscalculation.

READ: THOMPSON'S LETTER TO KLEIN

"If someone uses 100,000 gallons of gas at a price of $3.50 and then cuts back to 900,000 gallons, that is a real savings even if the cost of gas goes up to $4," Klein wrote, figuring the price rises to $360,000, not $400,000.

The only problem is, by Klein's numbers, the price would actually go up to $3.6million.

"Perhaps we should rush a calculator over to the chancellor's office," quipped controller spokesman Jeff Simmons.

READ: KLEIN'S LETTER TO THOMPSON

Klein's office blamed the mistake on poor proofreading, admitting the figure should have been 90,000 gallons of gas instead of 900,000.

The two offices have had a longstanding feud over reported education savings. Thompson has called for the agency to open all its books.

His latest charge is the Education Department still can't demonstrate how it saved $250 million in bureaucratic bloat five years ago.

At best, the agency saved $140 million, Thompson says. The Independent Budget Office pegged the savings at $221 million.

Klein's office also claimed it trimmed $290 million off the administration last year, but the controller's review of those numbers finds only $160 million worth of savings.

"We are very concerned about this," said Deputy Chancellor Kathleen Grimm. "We are anxious to meet with his staff to rectify this."

The chancellor, who received the letter Thursday and faxed an immediate reply, said Thompson misunderstood the numbers and doesn't account for inflation. Thompson isn't buying it.

"Exaggerated claims undermine the department's credibility and the withdrawal of critical information - such as the cessation of school-based expenditure reports - limits transparency and accountability," Thompson said.

klucadamo@nydailynews.com

Of course we all remember the no-bid contracts' scandal:

The "No Bid" Mess Once Again Raises It's Ugly Head

and,

City Controller William Thompson steamed at overtime costs