High court may examine arbitrator modification of CBA

Last year, a split panel of the 9th U.S. Circuit Court of appeals, in ASARCO LLC v. United Steel Workers, 2018 DJDAR 11543 (Dec. 4, 2018), partially affirmed an Arizona district court's opinion upholding an arbitrator's award to modify a collective bargaining agreement despite language in the contract prohibiting the arbitrator from adding to or altering the contract in any way.

The U.S. Supreme Court is currently considering whether to review the ruling (docket no. 18-1415), addressing in part, "Whether a collective bargaining agreement that expressly states '[t]he arbitrator shall not have jurisdiction or authority to add to, detract from or alter in any way the provisions of this Agreement' prohibits the arbitrator from reforming the CBA by adding language to it."

Background

The case arises out of a labor dispute between ASARCO LLC, a miner, smelter and refiner of precious metals, and the United Steel Workers who represents the employees. The union and ASARCO became parties to a collective bargaining agreement in 2007, which was modified and extended in 2010 and 2011.

The original agreement provided a copper price bonus to be paid quarterly to employees who participate in ASARCO's pension plan. The modified agreement made employees hired on or after July 1, 2011, ineligible for ASARCO's pension plan. This modification made these employees ineligible for the bonus. The union, not knowing of the link between the pension plan and the bonus, filed a grievance over ASARCO's refusal to pay the bonus. It was undisputed that the parties did not discuss the bonus when negotiating the modified agreement and neither party indicated during negotiations that the bonus would be in any way impacted by the modification to the pension plan provision.

The grievance was submitted to arbitration. The parties stipulated that the matter was properly before the arbitrator and that the arbitrator had jurisdiction to decide the grievance. The union argued that there was a mutual mistake because the parties did not recognize that the original agreement tied bonus eligibility to participation in the pension plan and that both parties intended for all employees to remain eligible for the bonus when they negotiated the modified agreement. The union argued that the appropriate remedy based on the mutual mistake was reformation of the agreement. ASARCO did not offer any evidence to dispute the union's evidence concerning the mutual mistake. Instead, ASARCO argued that the arbitrator had no jurisdiction to change the agreement based on the no-add provision of the contract. After six days of hearing, the arbitrator found that neither party anticipated that the modification would impact new hires' eligibility for the bonus. Having found that the parties were mutually mistaken about the terms of the modified agreement, the arbitrator ordered that the agreement be reformed to provide that new hires remain eligible for the bonus.

ASARCO filed a petition to vacate in the district arguing that the no-add provision deprived the arbitrator from reforming the agreement, but did not challenge the arbitrator's findings of fact or conclusions of law. The district court confirmed the arbitration award, rejected the union's argument that ASARCO waived its argument regarding the arbitrator's jurisdiction and held that the arbitrator did not violate the no-add provision because the reformation corrected a defect in the modified agreement that was created by mutual mistake.

ASARCO appealed arguing that the no-add provision deprived the arbitrator authority to reform the agreement; that the arbitrator's award did not draw its essence from the collective bargaining agreement; and that the award violated public policy.

The 9th Circuit

The majority of the 9th Circuit panel, relying on longstanding case law concerning the deference due to arbitrators, got it right. Judge Sandra Ikuta dissented on the grounds that the "no-add" language of the collective bargaining agreement did not give the arbitrator the authority to rewrite the terms of the agreement.

The court found that the arbitrator's award drew its essence from the collective bargaining agreement and that the arbitrator was authorized to reform the agreement upon concluding that the parties were mutually mistaken about the impact of the modification on the new hires' bonus. The court said the award did not violate public policy, which it described as a "very limited" exception to the deference given to arbitrator decisions. The U.S. Supreme Court in United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960), held that labor arbitrators are awarded extreme deference in interpreting collective bargaining agreements, and unless the arbitrator has "dispensed his own brand of 'industrial justice' by making an award that does not 'draw its essence from the collective bargaining agreement,'" the court must affirm the award. The 9th Circuit found that the arbitrator's decision "was grounded in his reading" of the agreement.

Ordinarily the arbitrator would not be allowed to reform the contract based on the no-add provision, however the court held arbitrators can reform a contract to correct a mutual mistake. The court distinguished the one case ASARCO cited, West Coast Telephone. W. Coast Tel. Co. v. Local Union No. 77, Int'l Bhd. of Elec. Workers, AFL-CIO, 431 F.2d 1219 (9th Cir. 1970). That case involved the issue of whether contract reformation was arbitrable in light of a no-add provision in the contract, which was not the issue before the court. Given the arbitrator's "extensive treatment" of the agreement, the 9th Circuit correctly agreed with the district court that the arbitrator's decision was grounded in his reading of the agreement and the court was "bound to enforce the award."

Takeaways

Here, the parties agreed to submit the issue to the arbitrator to decide. ASARCO did not refuse to arbitrate the union's grievance. Instead, it agreed to arbitration, stipulated that the matter was properly before the arbitrator, and simply argued the lack of authority based on the contract language. The 9th Circuit was correct in finding that West Coast Telephone did not warrant vacating the arbitrator's award. The agreement's arbitration clause gave the arbitrator authority to decide all issues of contract interpretation, including the scope of the no-add provision. Upon agreeing to arbitrate the issue, ASARCO was bound by the arbitrator's award. Finally, the court correctly found that the award did not violate public policy. Given the well-established case law giving deference to labor arbitrators, the majority's decision was correct and, should the Supreme Court decide to review, should be affirmed. 