Foods, Inc v. Office

• Court: Court of Appeals for the First Circuit
• Decided: February 17, 2000
• Docket: 99-1446
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-1446



                        KRAFT FOODS, INC,



                      Plaintiff, Appellant,



                                v.



     OFFICE AND PROFESSIONAL EMPLOYEES INTERNATIONAL UNION,

                    AFL-CIO, CLC, LOCAL 1295,



                       Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT

                                 

                FOR THE DISTRICT OF MASSACHUSETTS



           [Hon. Reginald Lindsay, U.S. District Judge]


Before



                   Boudin, Stahl, and Lipez, 

                                

                        Circuit Judges.


Nathan L. Kaitz, with whom Stacy L. Miller and Morgan, Brown

& Joy, L.L.P., were on brief for appellant.



     Robert M. Schwartz for appellee.


February 16, 2000


LIPEZ, Circuit Judge.  Kraft Foods, Inc. appeals from a

judgment of the district court affirming an arbitration award.  The

arbitrator found that Kraft had violated its collective bargaining

agreement (the "Agreement") with the Office and Professional

Employees International Union, AFL-CIO, CLC, Local 1295 (the

"Union") by applying the Agreement's break-in wage provisions to

one class of new employees while paying a second class full wages. 

Finding that the parties had agreed to a break-in wage provision

applying to all new employees covered by the Agreement, the

arbitrator ordered back pay to the workers who had received break-

in wages so that all workers would enjoy full wages during the

period in which Kraft was in breach.  Kraft filed a suit in

district court under Section 301 of the Labor Management Relations

Act, 29 U.S.C.  185, arguing, inter alia, that the remedy exceeded

the arbitrator's authority.  On cross-motions for summary judgment,

the district court rejected this claim and affirmed the

arbitrator's judgment.  We now do the same.

                                I.

  We state the facts as the arbitrator found them.  See 

United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 37

(1987).  During negotiations for the 1996-1999 collective

bargaining agreement, Kraft proposed break-in wage rates that would

apply only to newly hired production employees.  Although the Union

objected, it eventually accepted break-in rates that would apply to

all newly hired employees rather than just production workers. 

Article 10 of the Agreement reflected this understanding, providing

that "[n]ew employees hired after May 21, 1996 shall be paid at the

rate of eighty percent (80%) of the job rate in the classification

in which the employee is working for the first six (6) months,

ninety percent (90%) of the job rate for the second six months."

  In October, 1997, the Union learned that Kraft had hired

maintenance and power plant employees (the "crafts employees") at

standard wage rates rather than the break-in rates provided for in

the Agreement.  However, all new production employees were paid the

break-in wages.  The Union filed a grievance challenging the

discriminatory application of the break-in wage provision.  The

dispute was submitted to arbitration pursuant to the Agreement. 

Kraft argued that it had agreed only to break-in rates for

production employees; this limitation had been "inadvertently"

omitted from the Agreement.  

  The arbitrator rejected Kraft's claim of mutual mistake,

finding that "there was a meeting of the minds between the parties

that the break-in rates set forth in Article 10 would apply to all

bargaining unit employees hired after May 21, 1996." (emphasis in

original).  The arbitrator also concluded that he could not reform

the Agreement as Kraft proposed because Article 43 gave the

arbitrator "no authority to amend, alter or modify this Agreement

or its terms."  The arbitrator therefore found Kraft in breach and

ordered it to apply the break-in wage provision evenly until the

Agreement terminated in 1999.

  The more difficult question related to an appropriate

remedy for the past discrimination.  The arbitrator found that

there were only two plausible methods of remedying Kraft's unequal

application of the break-in wages.  He could order the crafts

workers to remit the wages paid to them in violation of the

Agreement, a remedy that he characterized as "patently unfair" and

one that Kraft and the Union opposed.  Or he could order back pay

to the production workers to make up for the compensation they lost

when Kraft "discriminated against them by applying the break-in

rates to them but not to other newly hired [crafts] employees." 

The arbitrator found that this alternative provided "reasonable and

equitable" compensation for Kraft's breach.  On appeal, Kraft does

not challenge the arbitrator's finding that it breached the

Agreement.  Rather, it argues that the back-pay remedy exceeded the

arbitrator's authority. 

                               II.

  The general principles that we must apply are familiar. 

Our review of labor arbitral decisions is extremely narrow and

"extraordinarily deferential."  Dorado Beach Hotel Corp. v. Union

de Trabajadores de la Industria Gastronomica Local 610, 959 F.2d 2,

3-4 (1st Cir. 1992). "Because the parties have contracted to have

disputes settled by an arbitrator chosen by them rather than by a

judge, it is the arbitrator's view of the facts and of the meaning

of the contract that they have agreed to accept."  Misco, 484 U.S.

at 37-38.  The arbitrator cannot, of course, ignore the contract

and simply dispense "his own brand of industrial justice."  United

Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S.

593, 597 (1960).  Rather, the arbitrator's decision must "draw[]

its essence" from the agreement.  Id.  Provided that the arbitrator

"is even arguably construing or applying the contract and acting

within the scope of his authority," a court may not disturb his

judgment even if it is "convinced he committed serious error." 

Misco, 484 U.S. at 38; see also Advest Inc. v. McCarthy, 914 F.2d

6, 9 (1st Cir. 1990) (quoting Misco).  

  Kraft argues that the arbitration clause of the Agreement

denied the arbitrator the power to order the back-pay remedy. 

Because "[t]he extent of an arbitrator's authority lies within the

language of the contract," we must carefully consider any

restrictions that the Agreement imposes on the arbitrator's power. 

Strathmore Paper Co. v. United Paperworkers Int'l Union, 900 F.2d

423, 426 (1st Cir. 1990).  Kraft does not identify any language in

the Agreement explicitly barring back-pay remedies.  Rather, it

points to Article 43 which states, in pertinent part, that "[t]he

arbitrator shall have no authority to amend, alter, or modify this

Agreement or its terms and shall limit the decision solely to the

interpretation and application of this Agreement."  

  This standard "no-modification" clause incorporates

general legal principles concerning an arbitrator's authority,

"reinforc[ing] the admonition in Misco that legitimate arbitral

awards draw their essence from the contract." LaRocque v. R.W.F.,

Inc., 8 F.3d 95, 97-98 (1st Cir. 1993) (internal citations and

quotation marks omitted).  Thus the clause reminds arbitrators that

their duty is to interpret and apply the agreement as negotiated,

and that they may not reform the contract to do "industrial

justice." Misco, 484 U.S. at 30.  The arbitrator here was aware of

this limitation on his authority, noting in his written decision

that while he was "not unsympathetic to the Company's plight,"

Article 43 prevented him from reforming the break-in wage provision

as Kraft advocated, and that Kraft would have to "live with that

bargain for the duration" of the Agreement. 

  While courts disagree on the extent to which a "no-

modification" clause bars arbitrators from looking beyond the

language of the agreement to determine breach, courts agree that

"the fashioning of an appropriate remedy is not an addition to the

obligations imposed by the contract."  Tobacco Workers Int'l.

Union, Local 317 v. Lorillard Corp., 448 F.2d 949, 956 (4th Cir.

1971).  In United Steelworkers of America v. United States Gypsum

Co., 492 F.2d 713, 718 (5th Cir. 1974), the employer violated the

agreement's requirement that it negotiate a wage increase with the

union.  As the union was defunct at the time of arbitration, the

arbitrator ordered the employer to pay a wage increase based on

what it calculated the negotiation would have produced.  See id. at

728-29.  Although the agreement included a standard "no-

modification" clause, the court held that the salary increase the

arbitrator ordered did not "add[] terms to the contract.  In the

context present here his action merely represent[ed] an attempt to

make the union whole for the damage suffered as a result of

Gypsum's breach of the collective bargaining agreement." Id. at

730.  Likewise, in Local 879, Allied Industrial Workers of America

v. Chrysler Marine Corp., 819 F.2d 786, 788 (7th Cir. 1987), the

arbitrator imposed a severance plan not provided for under the

contract to compensate for Chrysler's failure to hold required

negotiations prior to the plant closing. Notwithstanding the "no

modification" clause, the court found that the arbitrator's power

to determine breach "further implies the authority to prescribe a

remedy which can be said reasonably to cure the breach."  Id. at

789-790.

  Kraft argues that this case is different because the

arbitrator's remedy directly altered the Agreement. In Kraft's

view, it was ordered to "violate the collective bargaining

agreement a second time to remedy its first violation of the

agreement."  In a sense, Kraft is right: the arbitrator's back-pay

award had the effect of eliminating the break-in wage clause

entirely during the time period in which Kraft had applied it in a

discriminatory fashion.  However, a standard "no-modification"

clause does not limit remedies of this type if such a remedy is

required to cure a breach and is not specifically barred by the

agreement.  See Dixie Warehouse & Cartage Co. v. General Drivers,

Warehousemen & Helpers, Local Union No. 89., 898 F.2d 507, 510-511

(6th Cir. 1990) (no-modification clause does not limit remedial

authority "[i]n the absence of a contractual provision that

expressly limits or removes" such authority).  When parties wish to

curb an arbitrator's remedial authority, they can draft a contract

that specifically excludes certain remedies (such as back-pay) or

limits these remedies to particular situations.  See, e.g.

Resilient Floor & Decorative Covering Workers, Local Union 1179 v.

Welco Mfg. Co., 542 F.2d 1029, 1031 (8th Cir. 1976) (empowering

clause barred arbitrator from awarding "money damages except back

pay in case of wrongful discharge").  Likewise, the parties can

choose to provide pre-negotiated, exclusive remedies for a

particular breach which the arbitrator may not disturb.  See, e.g.

S.D. Warren Co. v. United Paperworkers Int'l Union, 845 F.2d 3, 8

(1st Cir. 1988) (arbitrator could not impose his own remedy for

disciplinary violation when agreement itself provided disciplinary

penalties); Georgia-Pacific Corp. v. Local 127, United Paperworkers

Int'l Union, 864 F.2d 940, 946 (1st Cir. 1988) (same). 

  Where, as here, the agreement neither requires nor bars

particular remedies, the arbitrator's discretion "is at its

zenith." Advest, 914 F.2d at 11; see also S.D. Warren, 845 F.2d at

8 ("[I]f the parties do not pre-negotiate remedies, the arbitrator

can fashion them as part of his decisional discretion.").  When

such explicit restrictions are absent, we must be mindful of the

Supreme Court's admonition that broad remedial authority is

required to give arbitrators "flexibility in meeting a wide variety

of situations.  The draftsmen may never have thought of what

specific remedy should be awarded to meet a particular

contingency."  Enterprise Wheel, 363 U.S. at 597.  If the 

violation ordered by the arbitrator is designed to correct a prior

breach by the offending party, the remedy must be upheld so long as

it "draws its essence" from the agreement. Id.; see also Local

1445, United Food & Commercial Workers Int'l Union v. Stop & Shop

Cos., 776 F.2d 19, 22 (1st Cir.1985)("Arbitrators are not required

to follow principles of contract law or judicial precedent.  The

arbitrator's decision must be simply in the realm of what a judge

might decide.") (internal citation omitted). 

  The remedy in this case meets this standard.  To redress

the discriminatory treatment caused by Kraft's breach, the

arbitrator had to choose between the unpalatable pay-back approach

or one that ordered Kraft to provide back pay to the production

workers.  While the arbitrator's decision to order back pay

effectively nullified the break-in wage provision during the period

of breach, this result is consistent with the intent of the

original bargain between Kraft and the Union.  The Union had

accepted only a break-in wage provision that would apply to all

workers, rejecting Kraft's initial proposal of break-in wages

exclusively for production workers.  Forcing Kraft to abandon

break-in wages for production workers during the period in which it

improperly abandoned break-in wages for crafts workers fulfilled

the equality principle embodied in Article 10.  The remedy, while

forcing Kraft to ignore a contractual provision, prevented Kraft

from unilaterally adopting the more limited break-in wage provision

that the Union had rejected.  As this remedy "draws its essence"

from the Agreement, we will not disturb it.  Enterprise Wheel, 363

U.S. at 597.

  Affirmed