Arbitration is an alternative dispute resolution method where parties can pursue their claims in a forum other than court. It is often favored for its confidentiality, efficiency and ability to provide a specialized forum for dispute resolution. Recent legal challenges involving the National Football League (NFL), however, have highlighted the importance in contract drafting to ensure such clauses comply with the law.
In two separate cases, Minnesota Vikings Defensive Coordinator Brian Flores and former Las Vegas Raiders head coach Jon Gruden filed lawsuits against the NFL. The cases are wholly separate lawsuits filed by different plaintiffs with different claims in different courts, but they currently have similar procedural postures.
In both cases, the NFL moved to compel arbitration and argued that the respective plaintiffs were bound by an arbitration provision in the NFL Constitution. Arbitration under the NFL Constitution is inherently favorable for the NFL because it allows – though does not require (at the NFL's sole discretion) – its chief executive officer (i.e., Commissioner Roger Goodell) to serve as the arbitrator of the proceedings. In response to both Flores' and Gruden's claims, the NFL pointed to Article VIII of its Constitution to assert that the claims must be arbitrated. Article VIII, in relevant part, states:
8.3 The Commissioner shall have full, complete, and final jurisdiction and authority to arbitrate: . . .
(E) Any dispute involving a member or members in the League or any players or employees of the members of the League or any combination thereof that in the opinion of the Commissioner constitutes conduct detrimental to the best interests of the League or professional football.
Brian Flores' Case
Brian Flores filed a putative class action lawsuit in federal court against the NFL and several teams, alleging racial discrimination in hiring practices. Rather than the case remaining in public court, the NFL sought to compel arbitration under the NFL Constitution's arbitration clause. Judge Valerie E. Caproni of the Southern District of New York denied the NFL's motion and the NFL ultimately appealed to the U.S. Court of Appeals for the Second Circuit.
On August 14, the Second Circuit affirmed the District Court's denial, and stated that the NFL Constitution's arbitration clause "offends basic presumptions of our arbitration jurisprudence" because it submits Flores' claims to the discretion of the "'principal executive officer' of one of his adverse parties, the NFL." The appeals court noted that the provision lacks an independent arbitral forum, bilateral dispute resolution, and procedure, rendering it "unworthy even of the name of arbitration" and outside the Federal Arbitration Act's (FAA) protection.
The FAA typically ensures the enforceability of written agreements to arbitrate disputes. However, simply using the word "arbitrate" in a contract is not enough to compel arbitration under the FAA. As the Second Circuit states, the NFL Constitution's arbitration clause "provides for arbitration in name only" and therefore "enjoys no special deference under the FAA."
The Second Circuit refused to enforce the NFL Constitution's arbitration clause because the court believed that it would alter Flores' substantive rights. The purpose of arbitration under the FAA is for the parties to simply submit their claims to an arbitral forum, rather than a judicial one. But here, with the NFL Commissioner serving as the arbitrator (or, if he did not serve himself, appointing another unilaterally at his discretion), the court believed this would surely alter Flores' substantive rights in pursuing his claims.
"Because the FAA's mandate is limited to the enforcement of actual 'arbitration agreements,' the NFL Constitution's arbitration provision enjoys no special deference under the FAA." Due to the inadequacies in the NFL Constitution's arbitration clause, the Second Circuit affirmed the denial of the NFL's motion to compel arbitration of Flores' claims.
Jon Gruden's Case
Jon Gruden's lawsuit against the NFL centers on his claim of intentional character assassination. While the NFL was investigating the Washington Commanders' allegedly toxic workplace environment, vulgar emails sent by Gruden were leaked to The Wall Street Journal and The New York Times. Gruden alleged that the NFL and Commissioner Roger Goodell intentionally leaked the emails to force Gruden's resignation as head coach of the Las Vegas Raiders. Following his resignation in October 2021, Gruden filed his lawsuit in Nevada state court against the NFL and Goodell (the NFL Parties), seeking damages for tortious interference with his coaching contract, negligence, and civil conspiracy. Gruden's suit was met with a motion from the NFL Parties to compel arbitration based on the arbitration clause.
On August 11, the Supreme Court of Nevada affirmed the denial of the NFL Parties' motion to compel arbitration, determining that arbitration was not proper for two reasons.
First, Gruden is a former employee of the NFL, therefore the arbitration clause in the NFL Constitution does not apply to him. The NFL Parties argue the NFL Constitution's arbitration clause still binds Gruden despite the fact he no longer coaches in the NFL. The Supreme Court of Nevada disagreed, looking to the plain terms of the NFL Constitution; the term in question states that the Commissioner may arbitrate disputes "involving a member or members in the League or any players or employees of the members of the League." Per the court, this language "unambiguously restricts the Commissioner's power to arbitrate to current members of the league and their employees or players." Therefore, Gruden cannot be bound by the NFL Constitution and its arbitration provision as a former employee. This ruling appears to open a door to former players and former coaches to challenge the NFL Constitution's arbitration provision.
Second, even if the NFL Constitution did apply to former employees, the arbitration clause incorporated into Gruden's contract is "unconscionable" and therefore unenforceable. For an arbitration clause to be deemed unconscionable in Nevada, a court must find some degree of both procedural and substantive unconscionability. Procedural unconscionability is found when there is an absence of meaningful choice by a party to the clause; substantive unconscionability is found when the contract term is unreasonably favorable to the other party.
Regarding procedural unconscionability, the NFL Parties argued that the contract containing the arbitration provision was not unconscionable because Gruden could freely negotiate his seven-page contract with the Raiders. But the court was not persuaded by this argument because all NFL contracts, per the NFL Constitution, must include a clause where the parties agree to be bound by the Constitution. Accordingly, Gruden's contract with the Raiders incorporated the 447-page NFL Constitution by reference. Per the Supreme Court of Nevada, "[i]n essence, Gruden had a 454-page contract, only seven pages of which he could actually negotiate." And "Gruden had no ability to negotiate the contents of the NFL Constitution or its incorporation into his coaching contract." Therefore, the Nevada Supreme Court found procedural unconscionability.
Regarding substantive unconscionability, the court found the arbitration clause problematic for two reasons: "First, the NFL Constitution would allow Goodell, as Commissioner, to arbitrate disputes about his own conduct—exactly what is at issue here. The ability of the stronger party to select a biased arbitrator is unconscionable, even if the stronger party may ultimately choose a neutral arbitrator . . . Second, the NFL has the power to amend the NFL Constitution, including the arbitration clause, at any time, and without notice. The NFL Parties' control over the NFL Constitution also renders the NFL Constitution's arbitration clause substantively unconscionable."
The Supreme Court of Nevada affirmed the denial of the NFL Parties' motion to compel arbitration because the NFL Constitution does not apply to Gruden as a former employee and, even if it did apply, the arbitration clause is unconscionable and unenforceable.
Implications for Cases Against the NFL
Both Gruden and Flores will now proceed with their claims in a judicial forum, which allows for extensive discovery and the potential for a public trial. This raises substantial questions about documents and communications the NFL may need to disclose during the discovery phase of these cases.
The NFL has previously used its Constitution to arbitrate issues brought by its players, coaches, and other employees, most notably in disputes between the league and its players association. Those days appear to be coming to an end with the back-to-back decisions in the Gruden and Flores cases.
Generally, these cases underscore the necessity of fairness and balance in arbitration clauses. While arbitration can offer advantages, the clauses must be designed to ensure an equitable process for the parties. As seen by the rulings discussed in this article, having an inadequate arbitration provision is on par with not having one at all.
Specifically, these two cases provide prospective plaintiffs with a federal law basis to find the NFL Constitution's arbitration clause unenforceable (via the inapplicability of the FAA's protections), as well as a state law basis (via unconscionability).
In the future, we may see more employees – current and former – filing lawsuits against the NFL in a public forum, with the plaintiffs less fearful of the NFL Constitution's arbitration provision serving as a roadblock. The long-term effect of cases against the NFL being held in a judicial forum is yet to be seen, but Phelps' Sports working group will continue to monitor these cases.
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