Dow Chemical Co. v. Local No. 564, International Union of Operating Engineers , 83 F. App'x 648 ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS December 17, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
No. 03-40096
DOW CHEMICAL CO.,
Plaintiff-Appellant-Cross-Appellee,
versus
LOCAL NO. 564, INTERNATIONAL UNION OF OPERATING ENGINEERS,
Defendant-Appellee-Cross-Appellant.
Appeals from the United States District Court
for the Southern District of Texas, Galveston
(G-02-CV-462)
Before DeMOSS, DENNIS, and PRADO, Circuit Judges.
PER CURIAM:*
Plaintiff-Appellant-Cross-Appellee Dow Chemical Co. (“Dow”)
seeks reversal of certain portions of an arbitration award that
granted the reinstated grievants performance awards, vacation pay,
and 401(k) benefits, all of which the district court affirmed at
summary judgment. Dow argues that the court erred in finding the
arbitration panel did not exceed its authority under the collective
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
bargaining agreement (“CBA”). Defendant-Appellee-Cross-Appellant
Local No. 564, International Union of Operating Engineers (the
“Union”), to which the reinstated grievants belong, cross-appeals
the district court’s summary judgment vacatur of the arbitration
award relating to one particular grievant, Freddie Bonner
(“Bonner”). The Union argues that the district court erred in
finding Bonner’s discharge warranted under his October 1997 last
chance agreement (“LCA”). Because the district court did not err
either in affirming the back benefits awarded by the arbitration
panel to all grievants except Bonner or in vacating the arbitration
award as to Bonner, we AFFIRM the decision below.
BACKGROUND
On May 15, 2000, Dow took a “snapshot” of its email server.
Throughout June and July 2000, Dow conducted an investigation which
uncovered that over 250 employees had sent, received, and/or saved
pornographic, violent, and otherwise non-work-related emails. Dow
then rated each employee’s email behavior on certain criteria,
including the category of material and what was done with it; in
August 2000 Dow discharged 20 employees for violating its email
policy. Twelve of those discharged employees are represented by
the Union under its CBA with Dow. The Union filed grievances on
behalf of them and demanded arbitration of its claims pursuant to
the CBA’s dispute resolution provisions. All the grievances were
heard in a single hearing by a panel of three arbitrators during
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the week of January 14, 2002.
The issue presented to the arbitrators was framed as whether
Dow violated the CBA when it terminated the 12 Union-represented
employees, and if it had, what remedy was appropriate. The panel
handed down its written decision on April 1, 2002. It applied the
general standard of “just cause” and found that although the
grievants had engaged in “sending garbage through Company email,”
Dow did not have just cause to terminate them because other
employees in similar situations had been treated less severely and
because Dow had not considered any mitigating factors, such as the
grievants’ tenure and clean records. The panel also took into
account Dow’s inadequate training on its unclear email policy and
that many of the grievants’ supervisors were also misusing email.
Thus, it found Dow violated the CBA by terminating the grievants
and converted their terminations into 18-month disciplinary
suspensions. The panel stated no “back pay” was to be given, but
that the reinstated grievants “are entitled to seniority rights and
benefits as if they had never been discharged.”
After the panel issued its decision, Dow moved that it
reconsider Bonner’s reinstatement in light of the three-year
probation period outlined in his October 21, 1997, LCA, which had
been entered into partly due to his prior involvement with sexual
materials in the workplace. In an April 8, 2002, clarification,
the panel affirmed its decision as to Bonner, stating it “did not
invoke last chance penalties on the Grievants” and restored all of
3
them to the “status quo ante before these terminations.” Both Dow
and the Union also sought clarification of that part of the initial
award relating to “benefits.” On June 10, 2002, the panel issued
a second clarification, which specified that the grievants were to
receive (1) “the same Performance Award for 2002 as other
comparably classified employees without discipline for the year,”
(2) “vacation time and pay or vacation allowance for 2000, 2001,
and 2002,” and (3) “the sum of the maximum [401(k)] amount he/she,
personally, would have been allowed to contribute for the time
period that he/she was off work [and] whatever matching Company
funds that were allowed during his/her time off work.” The panel
also clarified that Bonner was to be returned to the position of
“Special Relief Operator.”
Dow then filed a complaint in the district court, asking that
the court set aside all the benefits-related portions of the award
and subsequent clarifications, but not challenging the
reinstatement of the grievants, except Bonner. The Union answered
and cross-claimed, asking that the district court enforce the
panel’s entire award. Both parties moved for summary judgment.
The district court partially granted each motion; in essence, it
affirmed the panel’s award as to the back benefits for 11 of the
reinstated grievants but vacated that part of the award which
reinstated and conferred benefits on Bonner. This appeal by Dow
and cross-appeal by the Union timely followed.
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DISCUSSION
Dow and the Union are correct in asserting that in an appeal
from a grant of summary judgment in a suit to vacate an arbitration
award, appellate courts review the district court’s ruling de novo.
Weber Aircraft v. Gen. Warehousemen and Helpers Union Local 767,
253 F.3d 821, 824 (5th Cir. 2001) (citations omitted). Under Fed.
R. Civ. P. 56(c), summary judgment is proper if, viewing the facts
in the light most favorable to the nonmovant, the movant shows
there is no genuine issue of material fact such that the movant is
entitled to judgment as a matter of law. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 251-52, 255 (1986).
Appellate courts apply a highly deferential standard when
reviewing arbitration awards. Int’l Chem. Workers Union v.
Columbian Chems. Co., 331 F.3d 491, 494 (5th Cir. 2003). In fact,
“[j]udicial review of a labor-arbitration decision pursuant to [a
CBA] is very limited.” Id. (quoting Major League Baseball Players
Ass’n v. Garvey, 532 U.S. 504, 509 (2001)) (alteration in
original). Courts may not review the arbitration decision on the
merits, even where a party alleges factual errors or
misinterpretation of law. Brown v. Witco Corp., 340 F.3d 209, 216
(5th Cir. 2003); see also Columbian Chems., 331 F.3d at 494. Where
there is a CBA governed by the Labor Management Relations Act of
1947, as here, courts do not overrule the arbitrator’s decision
simply because they might interpret the contract differently.
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Columbian Chems., 331 F.3d at 495 (citing United Steelworkers of
Am. v. Enter. Wheel & Car Corp., 363 U.S. 593, 599 (1960)).
Though the interpretation of a CBA as a contract is a question
for the panel, see Steelworkers, 363 U.S. at 598-99, arbitrators
cannot exceed their scope of authority under the governing CBA.
Houston Lighting & Power Co. v. Int’l Bhd. of Elec. Workers, Local
Union No. 66, 71 F.3d 179, 182 (5th Cir. 1995). Still, courts
must affirm an arbitration award where such decision “draws its
essence” from the CBA and where the arbitrator is not fashioning
“his own brand of industrial justice.” Weber, 253 F.3d at 824(citations omitted). That is, the award stands “as long as the
arbitrator is even arguably construing or applying the contract and
acting within the scope of his authority.” Id. (quoting United
Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 38 (1987);
see also Delta Queen Steamboat Co. v. Dist. 2 Marine Eng’rs
Beneficial Ass’n, 889 F.2d 599, 602 (5th Cir. 1989) (noting
arbitrators can look beyond the written CBA “if the instrument is
ambiguous or silent upon a precise question”).
The “essence” test is met when the award has “a basis that is
at least rationally inferable . . . from the letter or purpose” of
the CBA. Local Union No. 66, 71 F.3d at 183 (citation omitted).
The “essence” standard is interpreted expansively, rather than
restrictively, to uphold awards. Int’l Ass’n of Machinists &
6
Aerospace Workers, Dist. 776 v. Texas Steel Co., 538 F.2d 1116,
1121 (5th Cir. 1976). However, the “essence” test is not met – and
courts can set aside awards – when the arbitrator acts contrary to
express contractual provisions, thus exceeding her contractual
mandate. See Delta Queen, 889 F.2d at 602, 604; see also
Steelworkers, 363 U.S. at 597 (noting courts must refuse an award
that “manifests an infidelity” to the essence standard).
Whether the district court erred in finding that the panel did not
exceed its authority under the CBA in awarding the grievants
certain back benefits.
Here, Article XIX, Arbitration Procedure, of the CBA provided
that:
[T]he case will be presented to the impartial arbitrator
on the earliest possible date and his/her decision will
be final and binding upon both parties to this agreement.
Such decision shall be within the scope and terms of this
agreement and shall not change any of its terms or
conditions.
(Emphasis added). The agreement governing the instant arbitration
also noted that “the authority of the arbitrators and all other
aspects of the hearing will be governed by the collective
bargaining agreement.”
Dow argues that the panel overstepped its authority under the
CBA by awarding the grievants 2002 performance awards, vacation pay
for 2001, and 401(k) benefits because those benefits conflicted
with the express language of the CBA. Exhibit E of the CBA states:
“Employees who during the year are placed on disciplinary probation
as a result of an Employee Review Board decision, or who receive
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disciplinary time off will be excluded from that year’s performance
award.” Dow argues this plain language means that because the
grievants received disciplinary time off in 2002 due to the panel’s
imposed 18-month suspension (which indeed spanned the beginning of
2002), they were all ineligible to receive “that year’s performance
award.”
Dow similarly argues that Article XI, Vacations, of the CBA
only permits vacation benefits for employees who have “drawn pay”
during that year. Therefore, because the grievants were placed on
disciplinary suspension for all of 2001, they drew no 2001 pay and
would not have been eligible for any 2001 vacation time. Dow also
claims that vacation under the CBA usually equals paid time off;
vacation equals “pay” only in certain circumstances, such as injury
or illness, retirement, being laid off, or quitting with notice.1
Finally, Dow contends that because the CBA nowhere provides
for 401(k) benefits at all, the panel could not have been drawing
from the essence of the CBA in fashioning that award. Dow also
argues that under the clear terms of its 401(k) plan, Article 3,
Contributions, the grievants are ineligible to contribute to their
401(k) plans because contributions can only come from a Union
1
Dow also claims the district court entirely misconstrued the
vacation issue. Instead of whether any vacation pay or time was
proper for 2001, the district court suggested that the issue was
whether 2001 time could be accrued and then applied to 2002
vacation. Upon review, Dow seems correct, but this makes little
difference to our determination that the district court did not err
in finding the panel’s vacation award for 2001 meets the “essence”
test.
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employee’s pretax or after-tax “Hourly Wage.” Because the
grievants did not earn any wages during their suspension, to allow
them to contribute and to make Dow match contributions would be
prohibited by the 401(k) plan and would violate federal public
policy under the Internal Revenue Code and Treasury Regulations.
The Union’s consistent response to all of Dow’s challenges to
the award is that arbitrators must be given flexibility to fashion
remedies when they are “commissioned to interpret and apply the
collective bargaining agreement” because “[t]he draftsmen may never
have thought of what specific remedy should be awarded to meet a
particular contingency.” Steelworkers, 363 U.S. at 597. The Union
urges that courts must adhere to a very limited and deferential
review of awards in order to further the federal policy of settling
labor disputes through arbitration. See id. at 596.
Thus, the Union argues, because the CBA had no express
provision detailing the exact types of performance award remedies
that wrongfully discharged employees reinstated through arbitration
would be eligible for,2 the arbitrators were doing what the CBA
expressly authorized them to do when they awarded the grievants
2
Dow claims that these particular grievants could not be treated
in a manner “above and beyond what any other employees returning to
work under similar circumstances would have been permitted to
receive under the CBA.” However, the CBA does not provide the
proper remedies for employees “similar” to the grievants. It
arguably provides for what happens when Dow itself places employees
on disciplinary probation or time off, not when an arbitration
panel decides to downgrade Dow’s wrongful discharge of certain
employees to a suspension.
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performance awards for 2002 – making a “final and binding” decision
that did not “change any of [the CBA’s] terms or conditions.”
The Union similarly claims that because the CBA contained no
express provision to confer vacation benefits on employees
reinstated through arbitration, the panel acted within its
authority to grant the grievants the time or pay “they otherwise
would have received had they worked the entire time since August,
2000, for each year.” Thus, for the purpose of vacation benefits,
the grievants were to be treated as if they had drawn pay in 2001.
Finally, the Union asserts that because the CBA specified no
available 401(k) remedies for this situation, the panel was
authorized to fashion a proper remedy. While the Union
acknowledges the CBA makes no mention of the Dow 401(k) plan, it
argues that the panel’s source of authority while fashioning
remedies does not merely stem from the literal words of the CBA
alone. The Union also dismisses Dow’s public policy arguments,
noting that the panel itself recognized the contributions might not
be eligible under Dow’s 401(k) plan. This is precisely why the
panel alternatively allowed for a lump sum payment for the
grievants’ “private investment or other use.”
As the district court correctly pointed out, it need not be
privy to the panel’s precise rationale for awarding the grievants
only a 2002 performance award. Courts must only satisfy themselves
that the award draws its essence from the CBA and is not contrary
to any express contractual provision. The CBA’s performance award
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provision, as the district court found, could be construed as
ambiguous in that it could be interpreted to bar performance awards
either (1) in each year an employee is away from work due to
disciplinary probation or time off or (2) just “during the year” an
employee is first placed on disciplinary probation or time off.3
In other words, the panel drew from the essence of the CBA to
fashion an equitable remedy in these circumstances for these
grievants who, granted, wrongly sent inappropriate email but also
whom Dow wrongly terminated.
The district court was also correct in finding that the
panel’s decision to award vacation pay or time for 2001 was an
equitable determination drawn in essence from the “purpose” of the
CBA. It did not contradict any express provision because there was
no prohibition against granting retroactive vacation time or pay to
reinstated employees. The only express prohibitions, as the Union
3
Dow places much emphasis on the fact that the panel made no
reference to any ambiguous language in the CBA when awarding the
2002 performance awards. Again, though, the district court is only
to determine whether the panel was basing its award on “an arguable
construction and application of the CBA.” Weber, 253 F.3d at 824.
Arguably, the panel either found the performance award language in
the CBA ambiguous or that it could not be literally applied to the
situation of these specific grievants. Either explanation would
draw its essence from the CBA. Indeed, the latter explanation
perhaps suggests why the panel in its second clarification
repeatedly stated, “The remedy provided is not necessarily an
interpretation of rights under the Collective Bargaining
Agreement.” Dow claims this means the panel was expressly
disavowing making an interpretation under the CBA. However, this
phrase could indicate that the panel believed it could not
literally apply the CBA’s language to the grievants’ situation, so
rather it inferred a remedy from the “purpose” (not the “letter”)
of the CBA.
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points out, apply to employees who quit without notice or who are
discharged for cause and are not applicable here.
Finally, the district court found it difficult to swallow that
if, instead of an email violation, a Union member had been
wrongfully terminated based on race or gender discrimination, the
panel would exceed its authority under the CBA by allowing for an
appropriate 401(k)-type lump sum benefit, where the CBA was silent
as to such remedy. This nonliteral reading of the CBA makes sense;
otherwise, employees reinstated through arbitration would be
entitled to virtually no benefits for the time they were under a
wrongful discharge under the literal provisions of the instant CBA.
The district court noted that an arbitrator’s award of a remedy
should be upheld even where the instant CBA neither permits nor
precludes such a remedy. See Executone Info. Sys., Inc. v. Davis,
26 F.3d 1314, 1325 (5th Cir. 1994) (noting a previous decision by
the Fifth Circuit that allowed an award of back pay where the
underlying CBA made no mention at all of such remedy). This is the
case here; the panel drew from the “purpose” of the CBA to award
401(k)-type benefits where the CBA was silent as to such remedy.
What the arbitrators give or do not give as an explanation for
their award does not matter. “This Court looks only to the result
reached. The single question is whether the award, however arrived
at, is rationally inferable from the contract.” Executone, 26 F.3d
at 1325 (citation omitted). Here, we find the district court was
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correct in determining that the arbitration panel did not exceed
its authority in awarding back benefits to all the grievants except
Bonner.
Whether the district court erred in overturning the reinstatement
of and benefits awarded to grievant Bonner.
In this Circuit, an LCA is considered to form a firm contract
– it functions as “a supplement to the CBA and is just as binding
upon the arbitrator.” Int’l Union of Operating Eng’rs, Local 351
v. Cooper Natural Res., Inc., 163 F.3d 916, 919 (5th Cir. 1999).
When an arbitration panel ignores the explicit terms of an LCA, its
decision as to that employee is “owed no deference” and “must be
closely scrutinized.” Cooper, 163 F.3d at 919.
There is no dispute that Bonner had entered into an LCA with
Dow on October 21, 1997, and it appears that his three-year
probation period was to start on his first day back at work, which
was November 10, 1997. Bonner’s October 1997 LCA clearly stated
that “failure to meet any job performance criteria, requirements,
policies, and/or expectations will result in [his] termination” and
that “any future performance problems . . . will result in [his]
termination.” It also explicitly listed one of Bonner’s
performance issues as “possessing sexually oriented materials on
Dow property” in violation of Dow policy. Thus, the district court
correctly disregarded the Union’s argument that Bonner’s email
violation (forwarding a sexually explicit cartoon) could not be
considered a “performance problem.” However, the Union also argues
13
that because Dow entered into another LCA with Bonner (for an
improper seed resin transfer) on June 16, 2000, after the email
investigation had started in early June 2000, the June 2000 LCA
took into account and thus superseded or waived the October 1997
LCA. Finally, the Union relies on Weber, 253 F.3d at 824, for the
proposition that where a CBA is ambiguous as to “just cause,”
arbitrators act within their authority if they impose a punishment
(here, suspension) within the range contemplated by the CBA.
Dow contends because the October 1997 LCA was in effect until
Bonner’s three-year probation period ended in November 2000, it was
free to terminate Bonner in August 2000 for his May 15, 2000, email
violation uncovered in the June/July 2000 investigation. It argues
the June 2000 LCA had no effect on the previous LCA because the
email investigation had just started and was still ongoing. Thus,
it was not clear that Bonner had violated his October 1997 LCA at
the time. Moreover, Bonner’s June 2000 LCA seemed to be a
concession on Dow’s part that this particular job performance error
would not activate his October 1997 LCA, in light of Bonner’s
“improved” behavior, but also acknowledged that Bonner still
“currently ha[s] a last chance letter in [his] file.” In essence,
Dow claims the October 1997 LCA acts to supplement the CBA; thus,
Bonner’s reinstatement is expressly contrary to that LCA and the
CBA.
Dow puts forth the stronger argument. Because the June 2000
14
LCA referenced the October 1997 LCA and considered it still in
effect, Dow could properly rely on the October 1997 LCA to
terminate Bonner for possessing and sending improper sexually
oriented email. Weber would only control were there not an LCA as
to Bonner in place (and did control as to the 11 grievants not
covered by an LCA). Because the panel ignored the express terms of
the binding October 1997 LCA, its decision as to Bonner is not owed
any deference and must be carefully scrutinized. It fails such
scrutiny. Therefore, the district court properly took the October
1997 LCA into account when it vacated the panel’s arbitration award
as to Bonner.
CONCLUSION
Having carefully reviewed the record of this case and the
parties’ respective briefing and for the reasons set forth above,
we AFFIRM the decision of the court below upholding the arbitration
award as to all grievants except Bonner and vacating the
arbitration award as to Bonner.
AFFIRMED.
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