Employment Law Daily Arbitrator’s decision to reform CBA based on finding of ‘mutual mistake’ enforced
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Thursday, June 21, 2018

Arbitrator’s decision to reform CBA based on finding of ‘mutual mistake’ enforced

By Ronald Miller, J.D.

Given an arbitrator’s extensive examination of a Basic Labor Agreement (BLA) and his acknowledgement of a no-add provision, the Ninth Circuit concluded that his arbitration award was grounded in his reading of the BLA, and as such, the court was bound to enforce it. Because the arbitrator’s award drew its essence from the BLA, the appeals court found that he was authorized to reform the parties’ agreement upon a finding that they were mutually mistaken about terms to which they had agreed. Judge Ikuta filed a separate dissenting opinion (ASARCO, LLC v. United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC, June 19, 2018, Gettleman, R.).

Copper price bonus. The employer is a mining company whose employees are represented by the union, and they were parties to a BLA. The BLA has been modified and extended through two Memorandum of Agreement (MOAs) negotiated in 2010 and 2011. A provision of the BLA provided for a copper price bonus, paid quarterly, to employees who participated in the employer’s pension plan. The 2011 MOA modified the BLA to make employees hired on or after July 1, 2011, ineligible for the pension plan; that also made them ineligible for the bonus.

The union, unaware of the link between the pension plan and bonus, filed a grievance disputing the employer’s refusal to pay the bonus to employees hired after July 1, 2011. The case proceeded to arbitration.

Mutual mistake. The union claimed there was a mutual mistake in the 2011 MOA: the parties failed to recognize that the BLA tied eligibility for the bonus to participation in the pension plan, and both parties intended for all employees to remain eligible for the bonus when they negotiated the 2011 MOA. Accordingly, the union argued that reformation of the BLA was the appropriate remedy. For its part, the employer offered no evidence to the contrary, but it argued that the arbitrator lacked authority to reform the BLA because the agreement contained a no-add provision.

Following a hearing, the arbitrator concluded that neither party anticipated that the 2011 MOA modification would impact new hires’ eligibility for the bonus. Because he found that the parties were mutually mistaken as to the terms of the 2011 MOA, he ordered the BLA be amended to provide that new hires remain eligible for the bonus.

No-add provision. The employer filed a petition to vacate the arbitration award. It did not challenge the findings of fact or conclusions of law, but argued that the no-add provision deprived the arbitrator of authority to amend the BLA. The district court confirmed the arbitration award, concluding that the arbitrator did not violate the no-add provisions because the reformation corrected a defect in the BLA, which was the product of a mutual mistake, to reflect the terms the parties had agreed upon.

This appeal involved the validity of the arbitration award that the employer asserted was invalid because the arbitrator reformed the CBA between the parties in contravention of the no-add provision in the agreement.

Jurisdiction of arbitrator. As an initial matter, the appeals court considered the union’s argument that the employer had waived its right to contest the arbitrator’s jurisdiction. According to the union, the employer waived its right by conceding that the grievance was arbitrable and failing to expressly preserve the right to contest jurisdiction in a judicial proceeding. The appeals court agreed with the union, observing that “a claimant may not voluntarily submit his claim to arbitration, await the outcome, and, if the decision is unfavorable, then challenge the authority of the arbitrators to act.” In this case, the employer did not exercise its options to expressly preserve the jurisdictional question for judicial review. Instead, it conceded that the grievance was arbitrable, then argued to the arbitrator that he lacked jurisdiction to reform the BLA in crafting a remedy. By its conduct, the employer evinced clearly its intent to allow the arbitrator to decide not only the merits of the dispute but also the question of jurisdiction.

Merits. The employer argued that the arbitration award did not warrant deference because: (1) the award did not draw its essence from the BLA; (2) the arbitrator exceeded his authority in reforming the BLA; and (3) the award was contrary to public policy. Specifically, the employer argued that the no-add provision deprived the arbitrator of authority to reform the BLA, and the arbitrator’s award did not draw its essence from the BLA because it ignored that provision.

The appeals court limited its review to whether the arbitrator’s solution could be rationally derived from some plausible theory of the general framework or intent of the agreement.  The arbitrator recognized that new hires were not entitled to the bonus under the plain language of the BLA and he could not find for the union based solely on that language. He also recognized that arbitrators do not generally have the authority to rewrite bargaining agreements or ignore their provisions. He noted, however, that arbitrators can reform a contract to correct an obvious mutual mistake and absent a finding of a mutual mistake, he would not have the authority to reform the BLA.

Given the arbitrator’s extensive treatment of the BLA and acknowledgement of the no-add provision, the appeals court agreed with the district court that the arbitrator’s decision was grounded in his reading of the BLA, and the court was bound to enforce the award. Upon concluding that the parties were mutually mistaken as to the impact of the 2011 MOA on new hires’ eligibility for the bonus, the arbitrator was authorized to reform the CBA despite the employer’s protest.

Public policy. Finally, the appeals court rejected the employer’s argument that the arbitrator’s award should be vacated because it distorted the product of the parties’ bargaining and thus violated public policy. The court pointed out that “a court may vacate an arbitration award that ‘runs contrary to an explicit, well-defined, and dominant public policy, as ascertained by reference to positive law and not general considerations of supposed public interests.’” The employer’s argument failed, though, because the arbitrator did not distort the BLA; he reformed it so that it no longer distorted the agreement that the parties had made during collective bargaining.

Dissent. Judge Ikuta wrote that, by adding to the BLA’s pension provision to permit employees hired after July 1, 2011, to receive a bonus, the arbitrator clearly exceeded the authority granted him by the CBA. The dissent argued that without discussing the no-add provision, the arbitrator here ordered that the pension provision be amended. According to Ikuta, the arbitrator dispensed his own brand of industrial justice by exceeding the scope of his delegated powers and modifying the agreement.

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