LEGAL TRENDS

Texas Supreme Court Reaffirms Controversial Workers’ Compensation Decision

By John S. Gray

The Texas Supreme Court recently issued its long-awaited opinion on rehearing in Entergy Gulf States Inc. v. Summers, ___ S.W.3d ___, 2009 WL 884906, 52 Tex. Sup. Ct. J. 511, (Tex. 2009) and a companion opinion HCBeck, Ltd. V. Rice, ___ S.W.3d ___, 2009 WL 886160, 52 Tex. Sup. Ct. J. 555 (Tex. 2009).  These opinions are important for following practical and political reasons: 

• First, in Entergy, the court upheld a premises owner’s right to claim “employer status” and therefore the Texas Workers’ Compensation Act (the “Act”) exclusive remedy defense when it acts as a qualified “general contractor” by meeting the Act’s definition and by providing workers’ compensation insurance to sub-contractor’s working on their premises. 
• Second, while the Entergy court’s statutory interpretation analysis is not particularly complex, its original decision was controversial, receiving a great deal of criticism by the plaintiffs’ bar and by several amicus curiae briefs filed in the rehearing.  In this decision, the judges address, rebut and deflect some of that criticism. 
• Finally, in HCBeck the court held that every contractor and subcontractor “provides” worker’s compensation insurance under the Act – and thus deemed to be a “statutory employer” – as long as the underlying contracts obligate them (1) to enroll in the owner-paid and controlled insurance plan and (2) to individually obtain and fund the requisite insurance to cover the employees if the owner terminates its plan.1

Briefly, Entergy holds that a premises owner can protect itself from negligence claims brought by contractor employees by (1) acting as its own general contractor, (2) providing for workers compensation coverage for the employees in the contract, and (3) by paying the premiums as a part of the contract price.  The majority reaches this conclusion by noting that the statutory language does not preclude this result and that it furthers the long-held public policy goal of encouraging the coverage of workers.  The HCBeck court took this concept a step further, holding that each company in the chain of control between the premises owner and the injured employee’s employer is capable being deemed to have “provided” the requisite insurance in order to take advantage of the exclusive remedy defense. 

The Entergy court stated that it granted rehearing to address “several supplemental arguments made by respondents and a number of amici” asking the court to look beyond the statutory text.  While the court stated that it is not necessary or wise to depart from the statutes’ terms, it nevertheless noted the extrinsic evidence (e.g., the legislative history of “failed” bills, deleted language, and old court cases) did not support a different interpretation.  The court also went out of its way to address complaints that the current Act does not provide adequate remedies for injured employees and that employees should have remedies apart from the Act’s benefits.  Both the majority opinion and concurring opinions noted that those concerns are more properly addressed by the legislature, not the judiciary.  Invocating the concept of separation of powers, Justice Willett invited the legislature to amend the Act to “reinsert an upstream-contract provision if it believes [the court’s] interpretation is wooden legalism that honors the letter of the law if not its spirit, thus letting premises owners slip through an unintended loophole.”

This decision – unless the legislature accepts the court’s invitation to change the law – will significantly impact how business is done with contractors in Texas.  Carefully drafted contracts may protect industries from liabilities associated with premises defects.  HBA attorneys that regularly draft such contracts should study these cases carefully to see if there are ways new contracts can be drafted and old contracts restructured to take advantage of this result.  Although two bills were filed in the most recent legislative session to abrogate the effect of this case, neither bill was passed by both houses.

John S. Gray is a partner in Gardere Wynne Sewell’s environmental practice group, where he co-chairs the firm’s Climate Change Task Force. He is an associate editor for The Houston Lawyer.

Endnote

1. HCBeck, 52 Tex. Sup. Ct. J. at 558 (noting that Tex. Lab. Code § 406.123(a) “does not require a general contractor to actually obtain the insurance, or even pay for it directly.  The Act only requires that there be a written agreement to provide workers’ compensation insurance coverage.”).  The court stated that “[a] general workplace insurance plan that binds a general contractor to provide workers’ compensation insurance for its subcontractors and its subcontractors’ employees achieves the Legislature’s objective to ensure that the subcontractors’ employees receive the benefit of workers’ compensation insurance.”  Id. at 555.

Supreme Court Upholds Ability to Agree to Mandatory Arbitration of Discrimination Claims for Union Members

By Kelley Edwards

On April 1, 2009, a divided U.S. Supreme Court handed down a landmark decision upholding 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 under the terms of a collective bargaining agreement.  In 14 Penn Plaza L.L.C. v. Pyett, Justice Thomas 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.  While the 14 Penn Plaza decision leaves a number of questions unanswered, the decision demonstrates the Court’s clear position that arbitration is a legitimate, if not preferred, method of dispute resolution.

Legal Background

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.  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.

Factual Background

The employees at issue in 14 Penn Plaza were members of Local 32BJ of the Service Employees International Union (SEIU), which was the employees’ exclusive bargaining representative.  The employer, 14 Penn Plaza L.L.C., 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.

After a group of employees were reassigned to other jobs because their former services were no longer necessary, the SEIU filed grievances on behalf of the employees, claiming that the reassignments violated the collective bargaining agreement’s seniority rules and its prohibition against age discrimination, 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.

After receiving a right-to-sue letter, the employees filed a lawsuit alleging age discrimination under the ADEA and state law.  The employer filed a motion to compel arbitration under the Federal Arbitration Act.  The federal district court, however, denied the motion and held that under existing precedent in the Second Circuit, union waivers of employees’ rights to litigate certain statutory claims in a judicial forum are unenforceable.

The Second Circuit also refused to compel arbitration of the employees’ ADEA claims based on its belief that Supreme Court precedent 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 court recognized the Supreme Court’s prior holding that an individual employee was free to agree to compulsory arbitration of age discrimination claims, it found such individual arbitration agreements to be different from the grievance and arbitration provisions set forth in a negotiated collective bargaining agreement.

The Supreme Court Holds Employees May be Compelled to Arbitrate

Overruling the Second Circuit, the Supreme Court found 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.” The Court rejected the individual employees’ argument that the arbitration clause was outside the permissible scope of bargaining because it affected “employees’ individual, non-economic statutory rights.”  Instead, it 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.”  Finding no such a prohibition in the ADEA, the Court upheld the arbitration agreement.

Implications and Issues

Interpreted strictly, the Court’s decision in 14 Penn Plaza is limited to claims arising under the ADEA.  Ultimately, however, 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 prohibit compulsory arbitration. 

Practically speaking, however, 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, (2) specifically named the statues 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.  Employers and labor organizations who wish to compel employees’ statutory discrimination claims to arbitration should ensure that their collective bargaining agreements comply with this high standard.

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