The Courts Giveth, and the Courts Taketh Away

Just over one year ago, we were celebrating the decision of the Minnesota Court of Appeals in overturning the decision of an arbitrator that seemingly took away the management rights of an employer to contract out work to be performed at its many work locations, based on both its management rights clause as well as contract language specific to the situation.  As arbitrators’ awards are so rarely overturned by the courts, this was a monumental event – or so we thought.

In its recent decision in Hennepin Healthcare System, Inc. v. AFSCME Minnesota Council 5, the Minnesota Supreme Court saw things differently.  And if you haven’t heard the word “essence” used a lot in the past, you’re going to get your fill of it this week, and then some.

For those who don’t recall the details of this case, we discussed it here.  After the Court of Appeals reversed the district court’s decision, AFSCME appealed to the Supreme Court.  The Court began by reciting the decades-old precedent in Minnesota, “An arbitration 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.”  It then discussed the “essence test” used to review challenges to the reasoning of arbitration awards.  Under that test, “an award cannot be vacated if it draws its ‘essence’ from the contract.”

For those who are not familiar with the essence test, it reads as follows:

An arbitration award draws its essence from a collective bargaining agreement so long 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.”  It is important to note that on the three previous occasions the Court has applied the essence test, the arbitrator’s decision has been upheld.

While stating it is not a “particularly high bar,” for an arbitrator’s award to pass the essence text, the Court concluded that the arbitrator’s award, was, in fact, “grounded in his interpretation of the language” of the CBA, in that he interpreted the CBA and did not rely “on his own conception of a ‘just result.’”  The Court stated, “[I]t is not the role of this court (or any court) to re-examine the merits of the case.”

The Court stated that the “no additions or modifications” clause included in most collective bargaining agreements will not bar enforcement of an award as long as it passes the essence test.  An award passes the essence test even if it is based on “extra-textual ‘indicia of the parties’ intent.’”  So, unlike most contracts where so-called parol evidence is barred, in labor contracts parol evidence can always be used be arbitrators, even in the face of direct and clear language to the contrary within a collective bargaining agreement.

In the end, because the arbitrator discussed the collective bargaining agreement in coming to his decision, the employer “failed to meet its burden to demonstrate that the arbitrator clearly exceeded the powers granted to him.”  As a result, the Court of Appeals’s decision was reversed, and the arbitrator’s decision was upheld.  That said, the issue of whether the arbitrator had impinged upon the employer’s management rights was not reached by the Court as it was not appropriately presented, and that matter was remanded –potentially providing the employer another crack at victory.

Based on this case, it will be difficult for an employer to argue that the plain language of a collective bargaining agreement will preclude an arbitrator from grafting the parties’ “intent” and past practice when evaluating a language case.  Employers would be well advised to specifically preclude the evaluation of such factors in a contract and when plain language should rule.  We can help with that.

Moreover, it has long been our position that overturning an arbitrator’s award – whether it be over language or discipline – is one of the most challenging things for an employer to do.  Not only did the decision get upheld, it took almost three years to have the decision resolved. It also clarified that a bargained-for arbitration process will be upheld in most every instance.  If you or your organization are considering challenging an arbitrator’s award, contact Wiley Reber Law, for legal advice that works.

Perhaps more importantly, this case shows just how important prevailing during labor arbitration is, and that is an area where the firm excels.