Published on April 13, 2016

Updated on Sep. 18, 2024

Arbitrator Lise Gelenter (NAA Member) comments on a recent decision by the US Court of Appeals for the Third Circuit vacating an arbitration award:

At first glance, the United States Third Circuit Court of Appeals’ recent decision concerning the limits of an interest arbitrator’s^[1] powers appears non-controversial.  Hamilton Park Health Care Center Ltd, v. 1199 SEIU United Healthcare Workers East (3^rd Cir., 4/1/16).  The court held that the parties had the power to set the arbitrator’s jurisdiction and that their agreement had authorized the arbitrator to issue a multi-year award.  This is totally consistent with the Supreme Court’s recent arbitration jurisprudence that requires courts to honor the parties’ arbitration agreements under most circumstances.

The court vacated the award, however, because it also found that Hamilton Park had not consented to Arbitrator Martin Scheinman’s inclusion of an interest arbitration provision in the award.  This is where it gets interesting.  According to the facts as described by the court, Hamilton Park, a long-term healthcare facility, and 1199 SEIU, the union that represented Hamilton Park’s employees, had a collective bargaining agreement (CBA) with a term from March 13, 2008 through February 28, 2013.  A reopener clause in the contract allowed the union to choose in November 2011 to reopen negotiations for new wages, hours and other terms and conditions of employment for the last year of the contract (February 28, 2012 to February 28, 2013).  If the parties failed to reach an agreement after the union reopened the contract, the parties “could submit any unresolved items to binding interest arbitration.”

Because the union chose to reopen negotiations in 2011 and the parties reached an impasse, the parties submitted the disputed issues to Arbitrator Scheinman for resolution, using the interest arbitration process envisioned by the contract.  The November 2012 award covered a four-year period ending in June 2016, which the court held the parties had authorized.  The award also included a reopener/interest arbitration clause that mirrored the clause in the expiring contract, except for a change in dates that reflected the four-year duration of the terms ending in June 2016 imposed by the award.

The Third Circuit reversed the District Court’s decision, which had found that Arbitrator Scheinman acted within the limits of his jurisdiction when he included the reopener/interest arbitration clause in his award.  Hamilton Park Healthcare Center v. 1199 SEIU, 2015 WL 3440857 (D. N.J. 2015).  The Court of Appeals characterized the disputed clause as a “second generation interest arbitration provision,” in which an arbitrator, “once empowered to decide a particular dispute, could then require all future disputes to be arbitrated.”  This would create a type of endless loop, the court explained, because “a party that has once agreed to a limited arbitration provision could forever be held hostage to it.”  Furthermore, the court found that the second generation provision conflicts with the National Labor Relations Act’s “public policy considerations” of not requiring parties to bargain over non-mandatory issues, such as interest arbitration.  The court noted that its holding was consistent with all the other circuit courts that had considered this issue – the Fourth, Sixth, Eighth and Ninth Circuits.

Although the Third Circuit does have plenty of company on rejecting “second generation” interest arbitration awards, as the District Court pointed out, the other circuits’ cases looked at a different situation in which the interest arbitrator imposed an interest arbitration provision after the union had been unsuccessful during the bargaining process in persuading the employer to agree to an interest arbitration process.  In contrast, in Hamilton Park, the parties had agreed on an interest arbitration provision in the expiring contract.  The Third Circuit acknowledged this difference, but said it did not matter because “[e]ven if the impetus for the provision comes from an arbitrator rather than a party, the result is the same: the imposition of a requirement to arbitrate.”  Notably, the Third Circuit added, “Unless both parties consent to that arrangement, it is unenforceable.”

What the Third Circuit did not acknowledge is that the parties had, indeed, agreed on “that arrangement,” according to the District Court.  There was nothing in the record showing that the union had been the party during negotiations for the expiring contract that insisted on the original interest arbitration clause or that Hamilton Park had opposed it.  The District Court found, “Rather, the record indicates that the parties deferred to Arbitrator Scheinman by consenting to expand his jurisdiction without defining the boundaries of his discretion.”  Since the Third Circuit would have accepted the arbitrator’s imposition of interest arbitration if the parties had agreed to give him that jurisdiction, and the fact finder found that they had, it seems the Third Circuit should have rejected Hamilton’s petition to vacate.  Moreover, since there is a presumption in most interest arbitration cases that the uncontested terms of the existing or expired contract would or should remain in place, the arbitrator carrying the existing interest arbitration clause forward in Hamilton Park was consistent with that presumption.

What is also interesting about the case is that both the District Court and the Court of Appeals used the vacatur standards of the Federal Arbitration Act (FAA) and did not mention Section 301 of the Labor Management Relations Act (LMRA), which, until recently, had been most courts’ source of law for enforcing labor contracts, including questions about the validity of arbitration awards issued pursuant to a labor contract’s arbitration process.  Courts appear to be adopting the practice of either: 1) seeing the LMRA and the FAA as interchangeable on the issues that they both cover; or 2) accepting the primacy of the FAA over the LMRA.  Suffice it to say that reasonable minds can disagree about the legitimacy of either of those propositions, but the reality is that the federal courts are adopting these stances, knowingly or unknowingly, most likely spurred by the mixing and matching the Supreme Court has done with respect to the FAA and the LMRA in its more recent decisions.