Arbitration Between Ramsey County v. American Federation of State, County & Municipal Employees, Council 91, Local 8

309 N.W.2d 785, 113 L.R.R.M. (BNA) 2630, 1981 Minn. LEXIS 1407

• Court: Supreme Court of Minnesota
• Decided: September 4, 1981
• Docket: 51227
• Status: Published

Opinions

AMDAHL, Justice.

American Federation of State, County and Municipal Employees Council No. 91, Local 8 (hereinafter “Union”) appeals from an order of the district court vacating an arbitration award on the ground that the arbitrator exceeded his powers. We reverse and remand this matter to the district court with instructions to reinstate the award.

In 1969, Ramsey County (hereinafter “County”) adopted an Administrative Vacation Plan applicable to certain county personnel including employees in the classification of Real Estate Appraiser III. This plan granted a greater number of vacation days to the covered employees than other county employees but limited overtime compensation to a straight time basis and then only when specifically authorized.

In 1975, pursuant to Minn.Stat. § 179.67 subd. 4 (1974) of the Public Employment Labor Relations Act of 1971, the union was certified as the exclusive representative of County employees in various job classifications. The classification of Real Estate Appraiser III was included within the bargaining unit.¹

The County and the Union thereafter negotiated a collective bargaining agreement effective for 1975. The vacation schedule contained in the new agreement differed from the Administrative Vacation Plan in that it provided for fewer vacation days but allowed overtime compensation at a rate of time and one-half for all work performed in excess of the regular work day, in excess of 40 hours in any work week, or on a scheduled day off. Section 1.2 of the preamble to the agreement states that “[a]ll personnel policies provided by this contract, unless otherwise stated, shall be applied uniformly across the entire bargaining unit.”

After 1975, the agreement was renewed or renegotiated at least twice for terms of either one or two years. The provisions of the original collective bargaining agreement that are relevant to this dispute were not changed and are contained in the agreement in effect at the present time.

In March of 1979, the County converted to a computerized personnel system. The County claims that it then discovered that the six employees in the Real Estate Appraiser III classification who were appointed prior to the effective date of the collective bargaining agreement continued to accrue vacation time as provided under the Administrative Vacation Plan. The six appraisers were notified of the alleged error and informed that they would immediately be placed under the existing rate for vacation accrual in accordance with the collective bargaining agreement.

The Union thereafter filed a class action grievance² on behalf of the six appraisers, alleging the existence of an oral agreement between the parties that only appraisers appointed after January 1, 1976 would be subject to the vacation schedule set forth in the collective bargaining agreement and that the six appraisers in question could continue to accrue vacation time pursuant to the Administrative Vacation Plan. The union asserted that the six appraisers, relying to their detriment on the oral agreement, did not put in for overtime compensation to which they would otherwise have been entitled and claimed that the past practice of the parties with regard to vacation time of the six appraisers bound the County to continue the policy. The County denied the grievance at each step of the grievance procedure, asserting that the collective bargaining agreement was clear and unambiguous on its face, denying any other agreement between the parties concerning the six appraisers and alleging that it acted promptly as soon as it discovered its error.

Unable to settle the dispute, the parties submitted to compulsory binding arbitration as required by Minn.Stat. § 179.70, subd. 1 (1980) pursuant to Step 4 of the grievance procedure set forth in the agreement. It was stipulated that the dispute was properly before the arbitrator for decision and that the issue to be resolved was whether “the county violated its agreement with AFSCME Council when it altered the vacation accumulation rate of six (6) Real Estate Appraiser Ill’s.”

The arbitrator selected by the parties issued an award sustaining the grievance. The award provided:

These 6 Real Estate Appraiser Ill’s are to be ‘grandfathered’ into the existing agreement exclusively at the vacation accumulation rates previously earned, providing that at the same time their restrictions on overtime continue. All other Appraiser Ill’s will accumulate vacation as provided in the Master Contract. * *

In so deciding, the arbitrator recognized that although the contractual language at issue was clear and unequivocal on its face, the past practice of the parties with regard to vacation accrual of the six appraisers satisfied the criteria of mutuality, specificity, specific duration and reliance and was thereby binding upon the parties as a condition of employment notwithstanding the vacation schedule set forth in the collective bargaining agreement.³ It was additionally noted that there was some indication that the parties had an understanding that the vacation schedule under the new agreement would be applied only to new appraisers and that the six appraisers, because of their overtime work, could continue to accumulate vacation time under the more liberal Administrative Vacation Plan. In response to the fact that the contract was silent on the matter, the arbitrator referred to testimony indicating that the issue of a different vacation policy for the six appraisers was not discussed during negotiations in reliance upon the county’s assurances that the prior policy would be continued. Finally, the arbitrator stated that it did not stand to reason that the appraisers should be in essence penalized for the award oversight which the county admitted “could have been discovered by Central Personnel.”

The County thereafter moved the district court to vacate the arbitrator’s award on the ground that the arbitrator exceeded his powers. By order dated March 6, 1980, the district court vacated the award, stating:

The express terms of the contract very clearly evidence the mutual intention of the parties. It seems to this court that the arbitrator was clearly beyond his powers when he made the award in question. The express terms of the agreement must provide the basis for the award and the arbitrator only had authority to interpret and apply the contract and not to change its terms. For the court to hold otherwise would jeopardize the integrity of all future negotiations between the parties.

Initially, it should be emphasized that this case does not involve the arbitrability of the dispute. We are not asked to decide whether the arbitrator had the power or jurisdiction to hear the grievance in question. The parties stipulated that the grievance was properly before the arbitrator for decision.

The sole issue before this court on appeal is: did the arbitrator exceed his powers within the meaning of Minn.Stat. § 572.19, subd. 1(3) (1980) in issuing an award based upon the past practice of the parties where the practice conflicts with the clear and unambiguous language of the parties’ written agreement?

We answer the question in the negative and accordingly reverse the district court.

The Uniform Arbitration Act, Minn.Stat. §§ 572.08-.30 (1980) governs the authority and procedure for judicial interference with the arbitration process under either a private sector or public sector collective bargaining agreement containing an arbitration clause unless otherwise provided in the agreement. State v. Berthiaume, 259 N.W.2d 904, 909 (Minn.1977); Minnesota Education Association v. Independent School District No. 495, 290 N.W.2d 627, 629 (Minn.1980). Under the Act, courts are empowered to vacate an arbitrator’s award only on the grounds specified in section 572.19, subd. 1(3).⁴ Among the grounds justifying vacation of an award is when the arbitrator exceeds his powers.

We have consistently recognized that the Uniform Act is to be liberally interpreted and applied, noting that its basic intent is “ * * * to discourage litigation and to foster speedy, informal and relatively inexpensive procedures for the voluntary resolution of disputes in a forum created, controlled, and administered by the written arbitration agreement.” Dunshee v. State Farm Mutual Auto. Ins. Co., 303 Minn. 473, 481, 228 N.W.2d 567, 572 (1975) quoted in State v. Berthiaume, 259 N.W.2d 904, 909 (Minn.1980) and Minnesota Education Association v. Independent School District No. 495, 290 N.W.2d 627, 629 (Minn.1980). See also Layne-Minnesota Co. v. Regents of the University of Minnesota, 266 Minn. 284, 123 N.W.2d 371 (1963).

Consistent with the policy of fostering arbitration of labor disputes, judicial intervention has been carefully circumscribed by this court. In reviewing arbitration awards, we stated:

The scope of the arbitrators’ powers is a matter of contract to be determined from the reading of the parties’ arbitration agreement, and an arbitrators’ award will be set aside by the courts only when the objecting party meets its burden of proof that the arbitrators have clearly exceeded the powers granted to them in the arbitration agreement; courts will not overturn an award merely because they may disagree with the arbitrators’ decision on the merits.

Children’s Hospital, Inc. v. Minnesota Nurses Association, 265 N.W.2d 649, 652 (Minn.1978); See State v. Berthiaume, 259 N.W.2d 904, 910 (Minn.1977).

Thus, it is well settled under Minnesota law that once arbitrability is established, the role of the judiciary does not encompass a re-examination of the merits of the case. We have not, however, delineated the limits of arbitral authority in deciding a dispute nor at what point it can be said with assurance that an arbitrator has clearly exceeded those limits.

The principles established by the United States Supreme Court in the famed “Steelworkers Trilogy” are instructive. United Steelworkers v. American Manufacturing Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). Judicial review of arbitration awards is similarly circumscribed under federal law. As stated in Enterprise Wheel:

[T]he question of interpretation of the collective bargaining agreement is a question for the arbitrator. It is the arbitrator’s construction which was bargained for; and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.

Id. at 599, 80 S.Ct. at 1362. The power of the arbitrator is not, however, without limit; the award must draw its “essence” from the contract.

[A]n arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may of course look for guidance from many sources, yet his award is legitimate only so long as it draws its essence from the collective bargaining agreement. When the arbitrator’s words manifest an infidelity to this obligation, courts have no choice but to refuse enforcement of the award.

Id. at 597, 80 S.Ct. at 1361.

The question before this court is therefore quite narrow: does the instant arbitration award meet the so-called “essence” test or does it manifest no more than the arbitrator’s personal notion of justice? The difficulty of the inquiry is evident in the elusive nature of the applicable standard. A review of the decisions in the area substantiates the observation of the Court of Appeals for the Third Circuit that the cases have not “exuded uniformity in translating the ‘essence’ test into a pronouncement of the appropriate extent or limitation of judicial review of the arbitrator’s interpretation.” Ludwig Honold Manufacturing Co. v. Fletcher, 405 F.2d 1123, 1126 (3rd Cir. 1969).

The “essence of the collective bargaining agreement” must be considered in light of the Supreme Court’s recognition in Warrior & Gulf that an arbitrator plays a unique role in administration of the collective bargaining agreement. That role necessarily entails a consideration of aspects of the parties’ relationship which are not typically cognizable in a court of law.

The labor arbitrator performs functions which are not normal to the courts; the considerations which help him fashion judgments may indeed be foreign to the competence of courts:

“A proper conception of the arbitrator’s function is basic. He is not a public tribunal imposed upon the parties by superior authority which the parties are obliged to accept. He has no general charter to administer justice for a community which transcends the parties. He is rather part of a system of self-government created by and confined to the parties * * (citation omitted.)

The labor arbitrator’s source of law is not confined to the express provisions of the contract, as the industrial law — the practices of the industry and the shop — is equally a part of the collective bargaining agreement although not expressed in it.

United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 581—82, 80 S.Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). Furthermore, insofar as the contract permits, an arbitrator is entitled to consider “such factors as the effect upon the productivity of a particular result, its consequences to the morale of the shop, his judgment whether tensions will be heightened or diminished.” Id. at 582, 80 S.Ct. at 1353.

The “Steelworkers Trilogy” is based upon the underlying recognition that a collective bargaining agreement is not an ordinary contract; “it is a generalized code to govern a myriad of cases which the draftsmen cannot wholly anticipate.” Id. at 578, 80 S.Ct. at 1351. The source of rules governing the “community of the industrial plant” cannot be restricted to the words of the contract but must be considered in light of the “common law of the shop which implements and furnishes the context of the agreement.” Id. at 580, 80 S.Ct. at 1351, quoting Cox, Reflections Upon Labor Arbitration, 72 Harv.L.Rev. 1482, 1499 (1959). The establishment of a system of “industrial self-government” is the object of a collective bargaining agreement and the grievance machinery is at the very heart of that system. Id. at 581, 80 S.Ct. at 1352.

The arbitrator plays a key role in the continuing interaction between and among the citizens of the industrial community. In resolving industrial strife, his function is to ascertain the parties’ intended standard of behavior. Certainly the express provisions of the contract evidence this intent. The contract is not, however, the sole evidence of the parties’ will; the conduct of the parties is likewise indicative of their mutual intent. See United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358, 1361, 4 L.Ed.2d 1424 (1960). Therefore, the question before an arbitrator faced with conflicting contractual language and practice is basically an evidentiary one, focusing on “which evidence is most persuasive and therefore controlling, and not on whether the practice should be considered at all.” Treece, Past Practice and Its Relationship to Specific Contract Language in the Arbitration of Grievance Disputes, 40 U.Colo.L. Rev. 358, 374 (1968). To hold otherwise is to completely ignore what the Supreme Court considers an integral part of the parties’ agreement.

The district court erroneously utilized conventional contract principles in finding that the best evidence of the parties’ intentions was manifested by the words which the parties themselves employed to express their intent. As the vacation schedule was free from ambiguity and purportedly applied to all employees in the bargaining unit, the district court essentially concluded that there was no need to resort to interpretive aids such as past practice.⁵ Accordingly, it was held that the arbitrator impermissibly changed the contract, contrary to the express limitations of his authority.⁶

That the use of past practice may not add to or otherwise modify the express written agreement of the parties is followed by at least one court. In Torrington Co. v. Metal Products Workers Union Local 1645, 362 F.2d 677 (2d Cir. 1966), an arbitrator found that a longstanding policy regarding paid leave for voting purposes could be terminated only by mutual agreement. The contract was silent on the matter and contained a similar no “additions or modifications” clause to the one at bar. A divided Court of Appeals refused to enforce the award on the ground that the arbitrator exceeded his power by expanding the express terms of the contract on the basis of the parties’ prior practice. Id. at 682. The result in Torrington, however, has been widely criticized by the commentators⁷ and for the most part rejected by other courts. See, e. g., Sergeant Bluff-Luton Educational Association v. Sergeant Bluff-Luton Community School District, 282 N.W.2d 144, 149-50 (Iowa 1979); Jacinto v. Egan, R.I., 391 A.2d 1173, 1177 (1978) and cases cited therein.

Although contrary to the literal words contained in the written agreement, in General Teamsters Local 249 v. Potter-McCune Co., 412 F.Supp. 8 (D.Pa.1976) the court upheld an arbitrator’s award based upon the past practice of the parties. The union there attacked the award on the ground that the arbitrator refused to enforce the admittedly plain and unambiguous language of the contract. The Court rejected the union’s contention that the award failed to draw its “essence” from the contract, noting that:

a standard involving no more than a strict comparison [of the award and the literal contract terms] would not only reduce the arbitrator to a mere cipher, approaching his task blinded to all save the express terms of the contract and stripped of the opportunity to utilize his special knowledge of the shop and industry, it would also obviate any need for anything like the “essence test” * * *.

Id. at 11-12.

This Court agrees that a simple comparison of the contractual language with the disputed award is inappropriate. The approach utilized by the Court in Torrington effectively negates an arbitrator’s power to consider the practices of the shop as authorized by Warrior & Gulf.8 We believe the “essence” test as interpreted in Amoco Oil Co. v. Oil, Chemical and Atomic Workers, 548 F.2d 1288 (7th Cir. 1977), cert. denied, 431 U.S. 905, 97 S.Ct. 1697, 52 L.Ed.2d 389 (1977), is more consistent with the underlying rationale of the Trilogy cases:

An arbitrator’s award does “draw its essence from the collective bargaining agreement” so long as the interpretation can in some rational manner be derived from the agreement, “viewed in the light of its language, its context, and any other indicia of the parties’ intention; only where there is a manifest disregard of the agreement, totally unsupported by principles of contract construction and the law of the shop, may a reviewing court disturb the award.” Neither the correctness of the arbitrator’s conclusion nor the propriety of his reasoning is relevant to a reviewing court, so long as his award complies with the aforementioned standards to be applied by the reviewing court in exercising its limited function.

Id. at 1294. Accord, Ludwig Honold Manufacturing Co. v. Fletcher, 405 F.2d 1123, 1128 (3d Cir. 1969).

Applying this test to the instant case, we are unpersuaded that the award failed to draw its essence from the collective bargaining agreement or otherwise evinced a manifest disregard of that agreement.⁹ Rather than dispensing his own brand of justice the arbitrator clearly drew upon permissible evidence of the parties’ mutually intended standard of behavior in resolving the dispute. In addition to the express contractual language, the arbitrator was entitled to consider the past practice of the parties,¹⁰ conversations which took place prior to the negotiation of the collective bargaining agreement and the effect upon employee morale. In his judgment, those considerations outweighed the evidence of the parties’ intent as manifested by their written words.

Having concluded that the award at issue meets the essence test, the fact that we may or may not agree with the arbitrator’s decision is of no consequence. It was the arbitrator’s construction of the parties’ agreement which was bargained for; not the interpretation of this court.

In light of our decision, it is apparent that the broad “no additions or modifications” clause contained in the written agreement does not prevent enforcement of the award. The arbitrator in the case at bar did not change the contractual language solely on the basis of his own personal, extracontraetual judgment. Rather he looked to the mutual intent of the parties as evidenced by their bargaining history and past practice. Therefore, the instant award, although based upon the arbitrator’s subjective analysis, is supported by the actual intent of the parties rather than on what the arbitrator personally conceived as a just result. Faced with substantially similar provisions, courts have upheld awards based upon past practices which seemingly conflict with, or modify, the express provisions of the parties’ written agreement. See, e. g., Sergeant Bluff-Luton Educational Association v. Sergeant Bluff-Luton Community School District, 282 N.W.2d 144 (Iowa 1979); Cape Cod Gas Co. v. United Steelworkers of America, Local 18507, 3 Mass.App. 258, 327 N.E.2d 748 (1975) and cases cited therein; Rochester City School District v. Rochester Teachers Association, 41 N.Y.2d 578, 394 N.Y.S.2d 179, 362 N.E.2d 977 (1977); Jacinto v. Egan, R.I., 391 A.2d 1173 (1978).

We therefore hold that the arbitrator did not exceed his powers within the meaning of Minn.Stat. § 572.19, subd. 1(3) (1980) as the award is rationally derived from the collective bargaining agreement viewed in light of its language, its context and other indicia of the parties’ intent, including past practice. If arbitration is to remain a viable alternative to problem resolution in the area of industrial strife, the concept of judicial deference to arbitral authority must encompass the recognition that the arbitrator is the “reader” of the contract. As the parties’ chosen “reader,” he is authorized to consider matters outside the written agreement in resolving disputes arising out of the continuing employment relationship. So long as an arbitrator’s decision meets the standards enunciated herein, the courts will not interfere with that decision. Accordingly, the district court order is reversed and this cause is remanded with instructions to reinstate the arbitration award.

1 . Section 2.1 of the agreement that was subsequently negotiated provides in pertinent part:

2.1 The Employer recognizes the Union as exclusive representative for the following classifications in the Ramsey County General recognized bargaining unit:

* * * * * *

Real Estate Appraiser III

2 . Section 15.1 of the agreement defines a grievance as a “dispute or disagreement as to the interpretation or application of the specific terms and conditions of this agreement.”

3 . Past practice has been defined as “a prior course of conduct which is consistently made in response to a recurring situation and regarded as a correct and required response under the circumstances.” Certain qualities distinguish a binding past practice from a course of conduct that has no particular evidentiary significance:

(1) clarity and consistency

(2) longevity and repetition

(3) acceptability

(4) a consideration of the underlying circumstances

(5) mutuality

Mittenthal, Past Practice and the Administration of Collective Bargaining Agreements, in Arbitration and Public Policy 30 (S. Pollard ed. 1961); Gilman, Past Practice in the Administration of Collective Bargaining Agreements in Arbitration, 4 Suffolk L.Rev. 688 (1970); Treece, Past Practice and its Relationship to Specific Contract Language in the Arbitration of Grievance Disputes, 40 U.Colo.L.Rev. 358 (1968).

4 . Minn.Stat. § 572.19 (1980) provides in part:

Subdivision 1. Upon application of a party, the court shall vacate an award where:

(1) The award was procured by corruption, fraud or other undue means;

(2) There was evident partiality by an arbitrator as a neutral or corruption in any of the arbitrators or misconduct prejudicing the rights of any party;

(3) The arbitrators exceeded their powers;

(4) The arbitrators refused to postpone the hearing upon sufficient cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 572.12, as to prejudice substantially the rights of a party; or

(5)There was no arbitration agreement and the issue was not adversely determined in the proceedings under section 572.09 and the party did not participate in the arbitration hearing without raising the objection.

But the fact that the relief was such that it could not or would not be granted by a court of law or equity is not ground for vacating or refusing to confirm the award.

5 . The traditional view that past practice may not be considered when the contractual language is clear and unambiguous has been soundly criticized by the commentators. See generally Mittenthal; Treece, Gilman, supra, n.3.

6 . Article XV, section 15 of the agreement states in pertinent part:

(a) The arbitrator shall have no right to amend, modify, nullify, ignore, add to, or subtract from the terms and conditions of the contract. * * *.

(b) * * *. The decision shall be based solely on the arbitrator’s interpretation or application of the express terms of this Agreement and to the facts of the grievance presented.

7 . See e. g. Kaden, Judges and Arbitrators: Observations on the Scope of Judicial Review, 80 Colum.L.Rev. 267, 272-273 (1980); Aaron, Judicial Intervention in Labor Arbitration, 20 Stan.L.Rev. 41 (1967).

8 . Mittenthal, supra, n. 3, indicates that past practice may be used by the arbitrator as an interpretive aid in at least four situations:

(1) to clarify what is ambiguous

(2) to give substance to what is general

(3) to modify or amend what is seemingly unambiguous

(4) to establish a separate, enforceable condition of employment which cannot be derived from the express language of the agreement.

Id. at 30.

9 .The fact that the arbitrator did not specifically find that the parties orally agreed to a different vacation schedule for the six appraisers is not crucial to the union’s case. As succinctly noted by one commentator, “[T]he form the agreement takes is not important. Whether it be a formal writing, an oral understanding, or a longstanding practice, so long as each is supported by mutuality, the parties have indeed chosen to change their contract.” Mittenthal, supra n.3, at 43.

10 . The County alleged that it had mistakenly allowed the six appraisers to continue to accrue vacation time under the Administrative Vacation Plan. It is true that no evidentiary significance should be accorded a prior course of, conduct unless the party knew of its existence. However, acceptability may be inferred from less than actual knowledge under circumstances which indicate the party should have been aware of the prior course of conduct. Rarely is a past practice clear, detailed and undisputed. Whether the evidence is sufficient to show that a particular course of conduct is the mutually accepted and proper response under the circumstances is a question for the arbitrator, not the courts.