The Third Circuit Won’t “Rubber Stamp” An Arbitrator’s Decision

The Third Circuit Court of Appeals decided a case on December 30, 2019 reaffirming the prevailing standard of judicial review applicable to arbitrators’ decisions. Monongahela Valley Hospital v. United Steel Paper and Forestry Rubber Manufacturing Allied Industrial and Service Workers International Union AFL-CIO CLC, No. 19-2182 (3d Cir. 2019), involved a dispute over a labor agreement concerning vacation scheduling at a hospital. The decision upheld a District Court’s grant of summary judgment overturning an arbitrator’s award in favor of the union. Judge Thomas Ambro’s opinion makes very clear that the Court will not “rubber stamp” an arbitrator’s award. “[W]e will vacate an award if it is entirely unsupported by the record or if it reflects a manifest disregard of the agreement”.

This decision illustrates the kind of analysis a court will apply in reviewing an arbitrator’s award when it is challenged on a substantive basis rather than on grounds of fraud, evident partiality or misconduct. Notwithstanding the Court’s characterization of the arbitrator’s award as “off the rails,” it is not surprising that an arbitrator found in favor of the union under the circumstances presented. As a study of the limits on an arbitrator’s authority to mete out “justice,” the opinion is worth reading in its entirety.

Background

The dispute arose from a grievance by an employee who was denied a requested vacation schedule because the same time period was requested by, and granted to, her working supervisor. Both could not be on vacation at the same time due to hospital coverage requirements. The labor agreement contained a provision dealing with the resolution of competing demands for scheduled vacation time when both a union member and an exempt, management employee requested vacation at the same time. It stated that

“[v]acation will, so far as possible, be granted at times most desired by employees; but the final right to allow vacation periods, and the right to change vacation periods[,] is exclusively reserved to the Hospital.” (Emphasis in opinion)

The arbitrator focused on the phrase “so far as possible” and found it mandated preference for the employee “when there is no operating need” (a phrase not in the parties’ agreement). In his view, a strict application of the Hospital’s “final” and “exclusive” right to allow vacation would render meaningless the words “so far as possible.” 

In contrast, the Court said that “final” means final and “exclusive” means exclusive. The Hospital had the final say on vacation schedules, plain and simple. The arbitrator’s invention of the “no operating need” requirement exceeded his authority. 

Analysis

Although this could be viewed as a straightforward case of contractual interpretation based on the language quoted immediately above, certain undisputed facts supplied the more persuasive justification for the Court’s conclusion. The Hospital had granted the employee her first three vacation requests in the year in question. Further, the union failed to introduce evidence that the Hospital did not “so far as possible” attempt to honor the employee’s requests.

The Court found that the phrase “so far as possible” requires only that the Hospital “should consider in good faith the bargaining unit employees’ preferences when exercising its final and exclusive right to determine vacation.” The parties’ agreement did not include the requirement of “good faith” any more than it did the arbitrator’s “operating need” test. But the facts established that the “good faith” standard had been met. Presumably, if the facts were different (e.g., numerous employees were routinely and consistently denied their requests in favor of supervisors’ vacations, for no good reason), the result would have been different. In those circumstances, an arbitrator might make a finding that the Hospital failed to demonstrate its “good faith.”  

On such alternate facts, the arbitrator’s application of an “operating need” test to justify his award would seem reasonable. It would, in effect, give some substance to the Court’s requirement of “good faith.” On such alternate facts, the parties’ agreement would still say that the Hospital has “final” and “exclusive” authority, but those words would not necessarily compel an award for the Hospital. The problem here was not that the arbitrator misread the parties’ contract, but that he effectively assumed “bad facts” for the Hospital that are not in the record. 

The Take-Away 

The opinion in this case focused primarily on the arbitrator’s failure to apply the wording of the parties’ agreement, but the better justification for vacating the arbitrator’s award was his disregard of the evidence in the record. “Ignoring the terms of the contract” fits more neatly within the typical boundaries of “manifest disregard.” Disagreements with an arbitrator’s assessment of the facts can get into some murky waters. Here the facts were such that the Court’s opinion is clearly correct. No harm, no foul. 

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