Opinion
Civil Action No. H-04-3041.
November 9, 2004
MEMORANDUM AND OPINION
In this consolidated suit, present and former employees of Apollo Group, Inc. and its subsidiary, the University of Phoenix, Inc., allege that the defendant employer failed to pay them overtime. Plaintiffs have moved under the Federal Arbitration Act, 9 U.S.C. § 4, to compel arbitration of their claims for unpaid overtime. Plaintiffs assert that they are seeking to enforce arbitration agreements that applied to each employee. The agreements, set out in the employee handbooks, require each employee to complete a multistep internal grievance procedure for covered disputes before submitting those disputes to arbitration. Plaintiffs have refused to follow the grievance procedure, alleging that to require exhaustion of the grievance procedure before arbitration violates public policy. Plaintiffs seek to compel arbitration of their claim that the contractual requirement to exhaust the grievance procedure before arbitration violates public policy, as well as to compel arbitration of their unpaid overtime and related claims. (Docket Entry No. 13). Defendants respond that the validity of the contractual requirement to exhaust the grievance procedure is for the court, not the arbitrator, to decide, and that it is valid.
Based on a careful review of the pleadings; the motions, responses, and replies; the parties' submissions; the arguments of counsel; and the applicable law, this court denies the motions to compel arbitration and, by separate order, dismisses this case. The reasons for this ruling are set out below.
I. Background
Different present and past employees of defendants have filed five suits to compel arbitration of claims arising out of unpaid overtime. Twenty-one plaintiffs filed suit in the federal district court in the Southern District of Texas in May 2004, seeking to compel defendants to arbitrate the claims for unpaid overtime under the Fair Labor Standards Act (FLSA), 29 U.S.C.A. § 207(a)(1). LaShonda McCraw, et al. v. Apollo Group, Inc. University of Phoenix, Inc., Civil Action H-04-2080. After the Secretary of Labor had filed suit against defendants in Arizona Federal District Court, alleging the same FLSA overtime violations, the court dismissed the McCraw suit. The Department of Labor proceeding terminated the private causes of action under the FLSA as to those plaintiffs named in that proceeding. (Docket Entry No. 17, Exs. 4, 5).
The claimants in the McCraw suit whose FLSA claims were terminated because they were named in the DOL proceeding are Leah Birmingham, Derek Braxton, Chris Buouilette, Barbara David, Christopher Eckford, Ronshawdra Hayes, Crystal Johnson, Kimberly Lasane, LShonda McCraw, Monquicio McNeal, Jamie Mouton, Blessing Oghobaase, Elaine Tarhini, Tricia Tolbert, Tanisha Washington, Xenita Whitaker, and Binyon Wright.
Four other suits seeking to compel arbitration of overtime and related claims were filed in Texas state court, removed to the Southern District of Texas in Houston, and consolidated in this court. The removed suits are: (1) Crystal Allen, et al. v. Apollo Group, Inc. University of Phoenix, Inc., Civil Action H-0403041 ( "Allen I") (FLSA unpaid overtime claims); (2) Candace Blue, et al. v. Apollo Group, Inc. University of Phoenix, Inc., Civil Action H-04-3041 (FLSA retaliation claim); (3) Patricia Partridge, et al. v. Apollo Group, Inc. University of Phoenix, Inc., Civil Action H-04-3365 (FLSA unpaid overtime claims); and (4) Crystal Allen, et al. v. Apollo Group, Inc. University of Phoenix, Inc., No. H-04-3410 ( "Allen II"). In Allen II, the last suit removed to federal court, the plaintiffs alleged and sought arbitration of state law implied-in-fact contract claims for unpaid overtime, rather than FLSA claims. After the cases were consolidated, plaintiffs filed this motion to compel arbitration on September 17, 2004. (Docket Entry No. 13).
In the current motion, twenty-four plaintiffs seek to compel arbitration of: (1) the validity of the requirement to exhaust the grievance procedure before submitting disputes to arbitration; and (2) three different sets of overtime payment claims. Plaintiffs no longer seek arbitration of overtime claims under the FLSA as to those employees specifically identified in the DOL complaint, conceding that the DOL proceeding terminated the private rights of action of those employees under the FLSA. (Docket Entry No. 22, p. 8). Twenty-one plaintiffs seek arbitration of state-law claims that defendants failed to pay them overtime wages, in breach of an implied-in-fact contract. Eighteen of these plaintiffs were named in the McCraw action; three of the McCraw plaintiffs have since settled with the defendants. (Docket Entry No. 20, Ex. 1). Two plaintiffs, who were not involved in the McCraw action and are not named in the DOL proceeding in Arizona, seek to compel arbitration of FLSA unpaid overtime claims. Four plaintiffs assert FLSA retaliation claims and seek to compel arbitration of those claims.
The plaintiffs who have settled their overtime claims are Monquicio McNeal, Jamie Mouton, and Xenita Whitaker.
These plaintiffs are Patricia Partridge and Stephanie Williams.
One of those plaintiffs, Candace Blue, has settled her claims. Blue was the only plaintiff in the removed suit alleging retaliation under the FLSA. Three other plaintiffs are named in the consolidated motion to compel, although they were not identified in earlier motions to compel. They are John Hudson, Lurane Grant, and Stephanie Vanarsdale. Although defendants assert that these claims are not before this court because they were not covered by the consolidation order, plaintiffs' addition of these individuals in the amended motion to compel effectively adds them as plaintiffs.
The parties agree that they are bound by the arbitration agreements contained in the Apollo Employee Handbooks. (Docket Entry No. 13, p. 5). Defendants do not deny that the arbitration agreements encompass the unpaid overtime and related claims. The dispute is over the conditions to arbitration set out in the parties' agreements. Plaintiffs have refused to comply with the prearbitration grievance procedure and seek to proceed directly to arbitration. Plaintiffs claim that the grievance procedure violates public policy because it allows defendants to control the timing of arbitration and does not rely on a neutral decisionmaker. Plaintiffs assert that the claim that the grievance procedure is invalid and unenforceable is itself arbitrable. Defendants ask this court to decide the challenge to the requirement of exhaustion of the grievance procedure.
Defendants also ask this court to find that the plaintiffs who were parties to the McCraw case may not reassert a motion to compel arbitration of overtime claims under state law after the court in McCraw denied the motion to compel arbitration of overtime claims under the FLSA. Defendants assert that the McCraw decision precludes relitigation of the motion to compel. Plaintiffs dispute that the requirements necessary for preclusion are present.
II. Analysis
A. The Language of the Arbitration Agreement
The arbitration agreement states in relevant part as follows:
6. 3 Grievance Procedure
6.3.1 Purpose
. . .
All covered disputes shall be resolved pursuant to these procedures and there shall be no recourse to court, with or without a jury.
6.3.2 Grievance Procedure
1. Grievances will be resolved informally, if possible. At a minimum, an employee with a grievance must advise his/her supervisor of the nature of the dispute and the desired resolution. If this does not solve the problem, the following grievance procedure shall be followed.
2. The grievant must submit a written grievance to the President of the grievant's Company as soon as practical after becoming aware of the problem, but in no event more than 30 days after the knowledge of the problem arises. The Company President or designee must respond in writing within 30 working days. If the grievance is not resolved at this level, the grievant may proceed to the next step. There are no waivers of statutory rights by failure to bring a grievance within the time limits herein.
3. If the matter is not resolved at the Company President level, the grievant may appeal the President's decision in writing to the Chief Executive Officer of Apollo Group, Inc. with ten (10) working days of receipt of the President's decision. The Chief Executive Officer will appoint a sub-committee of uninvolved employees who will review the matter and submit a recommendation to the Chief Executive Officer within 30 working days. The Chief Executive Officer will then issue a final determination, which may or may not incorporate the recommendations of the sub-committee. If the dispute is still unresolved and the dispute is subject to arbitration as provided for herein, the grievant may proceed to binding arbitration. . . .
6.3.3. Arbitration Procedure
1. The term "dispute," includes, without limitation, all claims or issues of which the employee is, or should be aware, involving alleged unlawful employment discrimination, harassment, wrongful termination, breach of contract or policy, violations of federal or state statutes or public policy, or employment tort . . .
. . .
Disputes Subject To Arbitration
4. All covered disputes shall be subject to the Grievance Procedure and if not settled shall be presented for resolution pursuant to this arbitration procedure following exhaustion of the Grievance Procedure.
5. The time periods contained in the policy are designed to aid both parties in reaching a prompt, equitable resolution of any covered employment dispute. However, these times periods are not to be applied so as to limit the right to process such a dispute within the applicable limitations period provided by law.
. . . .
18. The arbitrator may interpret the Employee Handbook and apply it to the particular case under consideration; however, the arbitrator has no authority to add, subtract, nor modify the terms of the Employee Handbook.
(Docket Entry No. 13, Ex. 1, Ex. A).
Plaintiffs argue that an arbitrator must decide whether the grievance procedure is invalid as against public policy, explaining that the arbitration agreement encompasses all alleged violations of public policy because the agreement specifically lists "public policy" disputes as covered disputes. (Docket Entry No. 13). Defendants respond that the agreement clearly states that "[a]ll covered disputes shall be subject to the Grievance Procedure" and that the agreement specifically requires exhaustion of the "Grievance Procedure" as a condition to arbitration. Defendants argue that the parties did not intend to arbitrate the validity of the grievance procedure requirement, as reflected by the unequivocal limitation on the arbitrator's jurisdiction in paragraph 18, which precludes an arbitrator from striking any provision of the grievance procedure. According to defendants, the arbitration agreement covers only public policy disputes that arise out of employment conditions. Defendants maintain that plaintiffs must comply with the arbitration prerequisites and that compelling arbitration of the grievance procedure requirement, which is a condition to arbitration under the arbitration agreement, would require this court to rewrite the arbitration agreement. (Docket Entry No. 17).
B. The Federal Arbitration Act
Congress enacted the Federal Arbitration Act to "reverse the longstanding judicial hostility" to arbitration agreements. Equal Employment Opportunity Comm'n v. Waffle House, Inc., 543 U.S. 279, 289, 122 S.Ct. 754, 151 L.Ed.2d 255 (2002). "[T]he purpose of the FAA is to ensure that arbitration agreements are not treated differently from other contract provisions under state law." Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 431 (5th Cir. 2004). Parties may contractually limit the issues they will arbitrate and may specify the rules under which that arbitration will be conducted. Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 57, 115 S.Ct. 1212, 131 L.Ed. 2d 76 (1995). "Arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute he has not agreed so to submit." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). An arbitrator may not determine his own jurisdiction. Smith Barney Shearson, Inc. v. Boone, 47 F.3d 750, 752 (5th Cir. 1995).
Under the FAA, federal courts generally determine two issues: whether a valid agreement to arbitrate exists and whether a particular dispute is covered by the terms of the arbitration agreement. Green Tree Financial Corporation v. Bazzle, 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003); Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1321 (5th Cir. 1994). If the arbitration agreement is valid and broad in scope, the so-called gateway questions of how to interpret the agreement are narrow and few. Questions of contract interpretation to decide the kind of arbitration proceeding agreed to is generally for the arbitrator to decide. Questions of contract interpretation to decide whether the agreement to arbitrate is valid and whether it covers the dispute at issue are for the courts to decide. Green Tree, 539 U.S. at 452. The questions of contract interpretation are decided under state law. Banc One, 367 F.3d at 429. In determining whether a particular dispute is covered, the court must give due attention to the federal policy favoring arbitration and resolve ambiguities in favor of arbitration. Id. Once the court finds the parties agreed to arbitrate a dispute, it must consider whether any federal statute or policy makes the claims nonarbitrable. Id. A court may not rule on the merits of the underlying claims in deciding whether those claims are arbitrable. ATT Tech., Inc. v. Communications Workers of America, 475 U.S. 643, 649-50, 106 S.Ct. 56, 88 L.Ed.2d 46 (1986).
C. The Arbitrability of the Grievance Procedure as an Arbitration Prerequisite
Plaintiffs claim that they are entitled to arbitrate their challenge to the contractual requirement that the parties exhaust the internal grievance procedure before arbitration. Plaintiffs assert that the enforceability of the grievance procedure requirement raises an issue of "procedural arbitrability" that is for the arbitrator to decide. Defendants respond that the issue is one of "substantive arbitrability" because it challenges the validity of an aspect of the arbitration agreement and requires a determination of whether the parties agreed to arbitrate that issue.
Whether contracting parties have submitted a particular dispute to arbitration is a question of "substantive arbitrability" and presumptively for the court to decide. Howsam, 537 U.S. at 83. Questions of "procedural arbitrability" arise when the subject matter of the dispute is covered by an arbitration clause and the issue is whether a party has complied with procedural steps required to initiate the arbitration process. John Wiley Sons v. Livingston, 376 U.S. 543, 83 S.Ct. 1300, 10 L.Ed.2d 411 (1964). Issues of procedural arbitrability that are presumptively for an arbitrator to decide include notice, laches, estoppel, and similar compliance defenses. Howsam, 537 U.S. at 84 (citing Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).
The dispute at issue is whether the arbitration agreement's requirement that the parties exhaust the grievance procedure before submitting a covered dispute to arbitration is valid. It is clear law that a challenge to the validity of an arbitration agreement is a gateway issue for a court to decide. Green Tree, 539 U.S. at 452; Banc One, 367 F.3d at 429. Plaintiffs challenge the validity of the arbitration agreement's conditioning arbitration on the exhaustion of the grievance procedure, asserting that it violates public policy. The Fifth Circuit has held that the courts have the authority to determine whether an agreement to require arbitration is void on public policy grounds. Banc One, 367 F.3d at 430-31; Iberia Credit Bureau, Inc. v. Cingular Wireless, L.L.C., 379 F.3d 159, 166, n. 6 (5th Cir. 2004); Inv. Partners, L.P. v. Glamour Shots Licensing, Inc., 298 F.3d 314, 316 (5th Cir. 2003).
The FAA states that arbitration agreements are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.
The agreement apparently has no severability clause. The grievance procedure is an integral portion of the parties' agreement to arbitrate. Defendants argue that the grievance procedure is part and parcel of the arbitration agreement; if the grievance procedure is invalid, the arbitrator is left with no authority to arbitrate. See John R. Ray Sons, Inc. v. Stroman, 923 S.W.2d 80, 87 (Tex.App.-Houston [14th Dist], 1996, writ denied) ("[T]he purpose of a severability clause is to allow a contract to stand when a portion has been held to be invalid. However, when the severed portion is integral to the entire contract, a severability clause, standing alone, cannot save the contract.").
The parties dispute whether the agreement extends to arbitrating challenges to the grievance procedure requirement. "[A] disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court." Howsam, 537 U.S. at 84. Plaintiffs argue that there is an inherent ambiguity in the agreement that must be resolved in favor of arbitration: the agreement prohibits an arbitrator from modifying its terms, but the agreement includes alleged "violations of public policy" among the arbitrable disputes. Plaintiffs argue that the restriction on the arbitrator's authority creates a contract impervious to public policy scrutiny, because under the agreement an arbitrator, not a court, has the authority to decide public policy violations.
The agreement defines "dispute" as including:
without limitation, all claims or issues of which the employee is, or should be aware, involving alleged unlawful employment discrimination, harassment, wrongful termination, breach of contract or policy, violations of federal or state statues or public policy, or employment tort.
(Docket Entry No. 13, Ex. 1).
The proper approach is to consider the provisions together, rather than interpret one provision as nullifying the other. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223 (Tex. 2003) (arbitration agreements, like all contracts are to be read as a whole and interpreted so that no provision is rendered meaningless). Viewed as a whole, the agreement is not ambiguous. The agreement broadly defines "disputes" to include alleged violations of public policy. The agreement then states that "all covered disputes shall be subject to the Grievance Procedure" and if not settled will be subject to arbitration "following exhaustion of the Grievance Procedure." The nature, timing, and role of the grievance procedure make it clear that the parties intended to arbitrate claims arising out of employment conditions unrelated to the validity of the grievance procedure itself. The agreement unequivocally states that an "arbitrator has no authority to add, subtract, nor modify the terms of the [agreement]." (Docket Entry No. 13, Ex. 1). The agreement defines the arbitrator's jurisdiction as limited to disputes that have been exhausted in the grievance procedure. This court concludes that the parties did not intend to arbitrate whether the grievance procedure — a condition precedent to arbitration under the agreement — is valid and enforceable.
Under the heading "Purpose," the agreement states as follows:
The following procedures shall be used in the resolution of all disputes arising out of the termination of any employee (other than job elimination), the imposition of discipline of a substantial nature, or other personnel action of comparable magnitude. This includes, without limitation, all claims of employment discrimination or harassment pursuant to state or federal law, any statutory or common law tort claim or alleged breach of contract. Because of the expense involved in processing a grievance through these procedures, these procedures shall not be used to resolve personnel issues of a lesser nature. . . . All covered disputes shall be resolved pursuant to these procedures and there shall be no recourse to court, with or without a jury.
(Docket Entry No. 13, Ex. 1).
The parties' agreement clearly conditions arbitration on exhaustion of the grievance procedure. The agreement states several times that an employee must exhaust the grievance procedure:
All covered disputes shall be resolved pursuant to [the grievance] procedures . . .
If the dispute is still unresolved [after the third step in the grievance procedure] and the dispute is subject to arbitration as provided for herein, the grievant may proceed to binding arbitration as provided below . . .
All covered disputes shall be presented for resolution pursuant to this arbitration procedure following exhaustion of the Grievance Procedure.
(Docket Entry No. 13, Ex. 1). Courts examining similar agreements have found that it is for the court to determine whether the grievance procedure is valid and whether noncompliance precluded arbitration. In Kemiron Atlantic, Inc. v. Aguakem Internat'l, Inc., 290 F.3d 1287 (11th Cir. 2002), the court refused to stay civil proceedings based on the parties' arbitration agreement because the parties had not fulfilled the prerequisites to arbitration. The agreement contained language similar to the agreement at issue, stating that:
In the event that a dispute cannot be settled between the parties, the matter shall be mediated within fifteen (15) days after receipt of notice by either party . . .
In the event that the dispute cannot be settled through mediation, the parties shall submit the matter to arbitration within ten (10) days after receipt of notice by either party.Id. at 1289. The court found that the plain language of the agreement conditioned arbitration on the parties fulfilling two steps: requesting mediation and providing notice to the other party of their intent to arbitrate. The moving party had not requested mediation. The court stated that "[t]he FAA's policy in favor of arbitration does not operate without regard to the wishes of the contracting parties. Here, the parties agreed to conditions precedent before arbitration can take place and, by placing those conditions in the contract, the parties clearly intended to make arbitration a dispute resolution mechanism of last resort." Id. at 1291. In HIM Portland, L.L.C. v. Devito Builders, Inc., 317 F.3d 41 (1st Cir. 2003), the court reached a similar result and held that if the parties condition arbitration on the satisfaction of some condition precedent, the failure to satisfy the condition will preclude a party from compelling arbitration. The parties' agreement clearly intended mediation as a condition precedent to arbitration and neither party had requested mediation. The court rejected the moving party's argument that the district court should have compelled arbitration because of the liberal federal policy favoring arbitration. The court noted that the federal policy favoring arbitration does not trump the parties' intent. "[W]ere a court to employ the FAA to frustrate the clear intentions of parties that had contracted to arbitrate under privately negotiated rules and procedures, the `result would be quite inimical to the FAA's primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms.'" Id. at 43 (quoting Mastrobuono, 514 U.S. at 57).
Plaintiffs frame the issue as one of "procedural arbitrability" for an arbitrator to determine, relying on John Wiley, 376 U.S. at 555. In John Wiley, a labor union brought a motion to compel arbitration under a collective bargaining agreement ("CBA") that required compliance with a multistep grievance procedure before arbitration. The CBA required the employer and the union to engage in discussions aimed at resolving a grievance before it was submitted to arbitration. John Wiley, the corporate employer, had merged with the employer that had originally entered into the CBA. A number of issues arose as to the effect of the merger on the rights of employees covered by the CBA. John Wiley did not believe that it was bound by the CBA, refused to acknowledge the union representatives, and had refused to discuss the employees' grievances with those representatives. John Wiley then argued that it had no duty to arbitrate because the prearbitration grievance procedure required in the CBA were not followed. The union responded that John Wiley's refusal to discuss the employee's grievances with the union representatives made compliance with that procedure futile. John Wiley argued that the court, not an arbitrator, should decide whether noncompliance with the grievance procedure precluded arbitration. The Supreme Court disagreed, holding that the issue was arbitrable.
In the opinion, the Court held that "[o]nce it is determined . . . that the parties are obligated to submit the subject matter of a dispute to arbitration, `procedural' questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator." Id. at 557. The Court stated that "doubt whether grievance procedures or some part of them apply to a particular dispute, whether such procedures have been followed or excused, or whether the unexcused failure to follow them avoids the duty to arbitrate cannot ordinarily be answered without consideration of the merits of the dispute which is presented for arbitration." Id. A court's task of determining "substantive arbitrability" does not raise the same concerns. "Refusal to order arbitration of subjects which the parties have not agreed to arbitrate does not entail the fractioning of disputes about subjects which the parties do wish to have submitted." Id at 558-59. John Wiley does not compel the result plaintiffs seeks. The issue in John Wiley was whether the court or arbitrator decides if the parties to an arbitration agreement have complied with the arbitration prerequisites. The issue in this case, by contrast, is whether the court or arbitrator decides the validity of, rather than compliance with, the arbitration prerequisites. In John Wiley, the Court declined to decide whether the parties had complied with the CBA's prerequisites to arbitration because that question could not be answered without considering the effect of the merger on the parties' rights under the CBA, which went to the merits of the very dispute presented for arbitration. Here, plaintiffs challenge the validity and enforceability of the grievance procedure as a prerequisite to arbitration on the ground that it is against public policy. Plaintiffs base their argument on the absence of time limits on certain steps in the internal grievance procedures and on the absence of a neutral decisionmaker. Plaintiffs' public policy challenge does not assert a disputed issue of compliance with the grievance procedure. To the contrary, it is undisputed that plaintiffs failed to comply with the procedure. Plaintiffs' public policy challenge does not require this court to decide any issue relating to the merits of the overtime claims that are presented for arbitration. Unlike John Wiley, plaintiffs' challenge is to the validity of a part of the arbitration agreement; it is not a procedural question that grows out of the overtime dispute and bears on its final disposition. John Wiley, 376 U.S. at 357.
Even assuming that this case presents an issue of "procedural arbitrability," the facts fall within an exception to the presumption that such an issue is for an arbitrator, not the court. The John Wiley Court stated that the general rule of allowing an arbitrator to decide the issue of procedural arbitrability did not apply if a court could confidently say that a claim was strictly "procedural" and that it "should operate to bar arbitration" altogether. Id. at 557-58. The Fifth Circuit has interpreted this "rare exception" to mean that "a court will not order arbitration if `no rational mind' could question that the parties intended for a procedural provision to preclude arbitration and that the breach of the procedural requirement was clear." General Warehousemen Helpers Local Union 767 v. Albertson's Distribution, 331 F.3d 485, 488 (5th Cir. 2003) (quoting Oil, Chem. Atomic Workers' Intern. Union, Local 4-447 v. Chevron Chem. Co., 815 F.2d 338, 342 (5th Cir. 1987)).
In General Warehousemen, the court declined to apply the exception because there were factual disputes as to whether the union had failed to comply with the procedural requirements for arbitration and whether the noncompliance was excused by the parties' conduct. The CBA required the union to file a grievance before arbitration and to seek arbitration within five months of the filing. Albertson's argued that it had no duty to arbitrate a dispute over an employee's discharge for two reasons: the grievance filed by the union did not cover the discharge and the union did not timely request arbitration. According to Albertson's, the grievance could not have covered the discharge because it was filed before the date of the employee's discharge. The Fifth Circuit concluded that the union had offered sufficient evidence to dispute the employer's chronology and that a rational mind could conclude that the grievance covered the discharge. Id at 489. As to the untimeliness argument, the court pointed to a provision in the CBA that allowed for extension of the five-month period if a representative from Albertson's was not available to select an arbitrator or schedule the arbitration. The union alleged that Albertson's was in fact unavailable, allowing a rational mind to conclude that Albertson's' conduct excused the untimeliness. The court concluded that it could not "say confidently, as required by John Wiley, that this conduct does not excuse the union's untimely arbitration. Albertson's argues that the union contributed to the failure, but the arbitrator must decide this factual dispute." Id. at 490. The court concluded that the "heavily factual disputes about the timeliness of arbitration and potential excuses should be submitted to the arbitrator." Id.
In this case, by contrast, there is no factual dispute as to the parties' conduct or whether plaintiffs complied with the contractually required grievance procedure. Plaintiffs concede that they have refused to follow the grievance procedure. Under the parties' arbitration agreement, failure to comply with the grievance procedure bars arbitration. Under the John Wiley exception, the nature of plaintiffs' challenge to the arbitration agreement does not require that it be decided by an arbitrator.
D. The Validity of the Grievance Procedure Requirement for Arbitration
Plaintiffs argue that requiring exhaustion of the grievance procedure as a condition to arbitration violates public policy because it allows the defendants to control the timing of the arbitration. The agreement provides specific periods for all but two aspects of the grievance process. In step 1, the employee must inform her supervisor of the grievance. The timing of step 1 is controlled by the employee. In step 2, the employee files a written grievance with the president, who has thirty working days to respond. In step 3, an employee may appeal the president's response to the chief executive officer. The CEO appoints a subcommittee of uninvolved employees to review the matter and to submit a recommendation to the CEO within thirty days. Following the subcommittee's recommendation, the CEO issues a final recommendation. The agreement does not provide a time limit for the CEO's response.
Defendants claim that they have been willing to use the grievance procedure fairly and the true basis for plaintiffs' repudiation of the grievance process lies with plaintiffs' counsel's concern for attorney fees. Plaintiffs' counsel recently filed suit against three claimants who have settled with the defendants alleging that they breached the fee agreement by settling their disputes with defendants. (Docket Entry No. 20).
The agreement specifically states that the procedure is designed to further a prompt resolution to grievances and that its time periods do not effect any waiver of the employees' rights to pursue their claims within the limitations provided by law. Defendants asserted, and plaintiffs have not disputed, that defendants agreed to require the CEO to issue a response within five working days of the CEO's receipt of the subcommittee's recommendation. (Docket Entry No. 21, Hearing Tr.; Docket Entry No. 25, July 22, 2004 letter to McCraw). The agreement does not improperly burden plaintiffs' ability to secure timely arbitration.
Moreover, defendants could not unilaterally delay arbitration by their own unexcused failure to comply with the grievance procedure. If the plaintiffs had complied with the grievance procedure and the CEO failed to issue a response within a reasonable time, the plaintiffs could have filed a motion to compel arbitration. Under such facts, excuses made by defendants would be for an arbitrator to decide. See General Warehousemen, 331 F.3d at 490 (under doctrine of procedural arbitrability, disputes as to the timeliness of compliance with prerequisites to arbitration should be submitted to the arbitrator).
Plaintiffs also argue that the grievance procedure violates public policy because it does not rely on a neutral decisionmaker. Plaintiffs rely on a California state case in which the court held that an arbitration agreement between an employer and employee was unconscionable under California law. Nyulassy v. Lockheed Martin Corp., 16 Cal. Rptr. 3d 296, 304 (Cal.App. [6 Dist.], 2004). The court described as one-sided the agreement's requirement that the employee submit to discussions with his employer as a condition precedent to arbitration. The court stated that the employer-controlled mechanism allowed the employer to get a "free peek" at an employee's case. The arbitration clause in that case was unilateral: only the employee was required to arbitrate his claims and the defendant-employer was not bound by any arbitration. Moreover, the agreement imposed a shortened limitations period on the employee's claims, but not on the employer's claims against the employee. The court concluded that "[w]e have little trouble concluding that, taken together, these three aspects of the mandatory employment arbitration agreement render it substantively unconscionable." Id. at 308. The court stated that the agreement's imposition of a unilateral obligation to arbitrate carried the greatest overall significance in its conclusion. Id. at 311.
The parties' agreement in the present case does not contain two out of the three characteristics of the agreement in Nyulassy that led the California court to find it "one-sided." Plaintiffs do not provide any other support for their argument that the lack of an external, neutral, decisionmaker in an internal grievance process makes that process void on public policy grounds. Plaintiffs ignore the fact that parties frequently agree to try to resolve a dispute internally before submitting it to arbitration before an external decisionmaker. See John Wiley, 376 U.S. at 555-56 (step one of the grievance procedure provided for a conference between the affected employee, a union steward, and the employer or supervisor in charge of the employee). Under the parties' arbitration agreement, only the final step of arbitration is binding. The agreement does not deprive the employees of the ability to present their claims to a neutral decisionmaker.
Plaintiffs have failed to comply with a valid arbitration agreement that requires exhaustion of the grievance procedure before a dispute is submitted to arbitration. Their noncompliance precludes this court from compelling arbitration of the overtime disputes.
This court need not address the issue of the preclusive effect of the McCraw decision, which is asserted as an additional basis for denying the motion to compel.
III. Conclusion
Plaintiffs' motion to compel arbitration is denied. The case will be dismissed by separate order.