The NFL Constitution Takes a Hit

The NFL Constitution's arbitration provision took not one, but two hits this week. Courts on opposite ends of the country ruled against the NFL on major arbitration issues with both refusing to compel arbitration based, in part, on the NFL Constitution’s arbitration clause. The first hit came from the Nevada Supreme Court in Gruden v. NFL, et al., and then, the Second Circuit handed the NFL another loss in Flores v. N.Y. Football Giants, et al. I’ve previously written about the District Court’s order in Flores, so let’s discuss what happened on appeal.

I.                    Background

The NFL is governed by the NFL Constitution, which grants broad powers to the NFL Commissioner, including the power to arbitrate disputes between employees and member teams. In 2022, Flores (and two other NFL coaches, who are not part of this appeal) filed a putative class action lawsuit against the NFL and six member teams alleging claims of racial discrimination under both federal and state law. In response, Defendants moved to compel arbitration, relying on two arbitration clauses: one in the coaches' employment contracts with their respective teams, and one in the NFL Constitution. Each coach’s employment agreement 1) included an arbitration clause covering disputes between the coach and his member team and 2) incorporated by reference the NFL Constitution with its broad arbitration clause.

The District Court compelled arbitration for each coach’s claim against his respective team based on the employment agreements but denied the motion as to Flores's claims against the Broncos, Giants, and Texans, and related claims against the NFL. These claims are the subject of this appeal.

The Second Circuit affirmed the District Court’s order denying the motion to compel arbitration, finding that the NFL Constitution’s arbitration provision was unenforceable under federal law.

II.                 Federal Arbitration Act: 9 U.S.C. §§ 1-16

The Federal Arbitration Act does not require courts to enforce every self-described “arbitration agreement.” Instead, the FAA protects the enforcement of arbitration agreements that embrace “traditional arbitral practice” and “the norm of bilateral arbitration.” An arbitration agreement “does not alter or abridge substantive rights; it merely changes how those rights will be processed.” “When a party ‘agree[s] to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.’” Importantly, “the FAA does not require courts to enforce contractual waivers of substantive rights and remedies.”

Agreements to arbitrate statutory claims are especially scrutinized and can invalidate an otherwise valid arbitration agreement. Under the Supreme Court’s “effective vindication” doctrine, agreements to arbitrate statutory claims can doom an arbitration agreement if they “operat[e]. . .as a prospective waiver of a party’s right to pursue statutory remedies.” (emphasis in original). An agreement to arbitrate statutory claims may invalidate the agreement if it amounts to a contractual waiver of substantive rights and remedies.

Here, neither party contested the District Court’s determination that Flores’s claims against the NFL and Broncos came within the scope of Section 8.3 of the NFL Constitution, which gives the Commissioner “‘full, complete, and final jurisdiction and authority to arbitrate’ several types of disputes, including ‘any dispute between any. . .coach. . .and any member club or clubs.’” But, because the NFL Constitution “provides for arbitration in name only,” it fell outside the FAA. Further, Flores’s agreement to arbitrate his statutory claims is unenforceable “because the agreement fails to guarantee that Flores can ‘vindicate [his] statutory cause of action in [an] arbitral forum.”

III.               The FAA Does Not Protect the NFL Constitution

While arbitration is typically guided by informal procedures and gives parties the ability to construct arbitration agreements on their own terms, the Second Circuit found that “the NFL Constitution’s arbitration provision fails to bear even a passing resemblance to ‘traditional arbitral practice.’” The Court explained as follows:

It contractually provides for no independent arbitral forum, no bilateral dispute resolution, and no procedure. Instead, it offends basic presumptions of our arbitration jurisprudence by submitting Flores’s statutory claims to the unilateral substantive and procedural discretion of the “principal executive officer” of one of his adverse parties, the NFL. And “[s]imply labeling something as ‘arbitration’ does not automatically bring it within the ambit of the FAA’s protection.” The NFL Constitution’s arbitration provision is “unworthy even of the name of arbitration” and thus falls outside of the FAA’s protection.

(internal citations omitted).

The Court did not stop there, noting that the NFL Constitution “fails to provide an independent arbitral forum for bilateral dispute resolution.” At its core, “an arbitral forum is an independent forum that is separate from the parties to the dispute.” But here, because the arbitration agreement prevents the parties from submitting their dispute to an independent neutral and instead requires “one party to submit its disputes to the substantive and procedural authority of the principal executive office of one of their adverse parties.” At a structural level, the NFL Constitution lacks the requisite independence characteristic of FAA’s concept of arbitration. The agreement “could not be called with a straight face a ‘forum-selection clause.’”

The NFL Constitution also fails to provide the procedures to be used in arbitration; the NFL Constitution is silent on the process to be used in arbitration. Given the lack of procedures, “the NFL Constitution’s arbitration provision bears virtually no resemblance to arbitration agreements as envisioned and as protected by the FAA.”

The NFL’s “Hail Mary” attempt to cure the structural and procedural deficiencies also failed. After submitting the briefs on appeal, the Defendants alerted the Court that the NFL Commissioner had “exercised his discretion” to appoint Peter C. Harvey to arbitrate Flores’s claims. Mr. Harvey is a member of the NFL’s “Diversity Advisory Committee” and has been a diversity consultant for the NFL. This last minute audible did not cure the NFL Constitution’s defects, as the Court found that “the late unilateral designation of an adviser to the NFL neither provides for an even facially independent arbitral forum, nor remedies the Commissioner’s unilateral contractual authority over both the substance of Flores’s statutory claims and the procedures governing their alleged ‘arbitration.’”

Because the FAA’s liberal policy of enforcing arbitration agreements is limited to actual “arbitration agreements,” the NFL Constitution “enjoys no special deference under the FAA.”

Additionally, the Court found that under the “effective vindication” doctrine, the NFL Constitution is unenforceable. For the same reasons that the NFL Constitution lacks FAA protection, the Court found that the arbitration provision “functions as a ‘prospective waiver of a party’s right to pursue statutory remedies.’” Based on similar reasoning as above, the Court held that the NFL Constitution’s arbitration agreement was unenforceable.