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A divided 3rd U.S. Circuit Court of Appeals on Friday overturned an arbitrator’s decision in a dispute between the Pennsylvania Power Co. and an electrical workers union after finding that the arbitrator’s award did not “draw its essence from the collective bargaining agreement.” But a dissenting judge complained that the majority in Pennsylvania Power Co. v. Local Union 272 was ignoring a recent decision from the U.S. Supreme Court that severely restricted the scope of court review when arbitration awards are appealed. The dispute began when Local 272 of the International Brotherhood of Electrical Workers, AFL-CIO, filed a grievance on behalf of workers who were denied voluntary retirement benefits. The claimants worked at the Bruce Mansfield plant in Shippingport, Pa. Under a 1996 collective bargaining agreement, Pennsylvania Power and the union had agreed to “actively support and participate in a joint effort to improve the competitive position of the power plant.” Due to impending deregulation, the cooperative agreement provided for a “period of transformation” during which the company said it would use a voluntary retirement program if it needed to reduce the workforce. The company had the sole power under the agreement to decide whether workforce reductions were necessary and whether the union had cooperated in attaining “production efficiency.” Pennsylvania Power struck similar agreements with the unions at its other plants in Pennsylvania and Ohio. In 1998, the company told the Bruce Mansfield plant workers that it was not planning to reduce the workforce but that, even if it did, the workers would not be entitled to the voluntary retirement benefits because the union had failed to cooperate in the efficiency improvement efforts. But workers at other plants were offered the benefits because the company determined that those unions had cooperated. And supervisory workers at Bruce Mansfield were also deemed entitled to the voluntary retirement package. An arbitrator found that while the Bruce Mansfield union had failed to cooperate, the company had nonetheless violated the collective bargaining agreement by paying the voluntary retirement benefits to supervisory workers while denying them to union members. Such disparate treatment, the arbitrator said, amounted to a violation of the anti-discrimination clause of the collective bargaining agreement in which the company promised not to “discriminate, coerce nor intimidate any employee because of membership or non-membership in the union.” The arbitrator’s award required the company to provide the benefits to the Bruce Mansfield plant union workers. Pennsylvania Power filed suit in U.S. District Court in Pittsburgh to challenge the award, but Judge Gary L. Lancaster refused to vacate it. On appeal, Pennsylvania Power argued that the arbitrator’s ruling did not “derive its essence” from the collective bargaining agreement but instead directly conflicted with it. Senior 3rd Circuit Judge Max Rosenn found that because federal policy encourages arbitration awards, “there is a strong presumption in their favor.” Nonetheless, Rosenn said, courts can intervene when the arbitrator’s decision does not draw its essence from the agreement or when the arbitrator is “dispensing his or her own brand of industrial justice.” Rosenn found that Pennsylvania Power was correct when it argued that the arbitrator “exceeded his powers” by issuing an award that effectively altered the agreement. “He wrote into the contract that the plant production and maintenance employees shall have the same benefits as the supervisory employees. The agreement specifically excludes supervisory employees from its terms,” Rosenn wrote in an opinion joined by 3rd Circuit Judge Maryanne Trump Barry. Rosenn found that the arbitrator’s reasoning was flawed because “nothing in the anti-discriminatory provision of the contract … remotely provides a basis for a determination that the company discriminated against its union employees because it did not offer the same [voluntary retirement] benefits it afforded its supervisors.” Instead, Rosenn said, “Congress understood that the dynamics of industry and commerce required that loyalty owed by supervisory personnel to their employers excludes them from collective bargaining for rank-and-file employees.” Benefits usually differ between the two groups of workers, Rosenn said. Since supervisors aren’t legally considered “employees” as that term is defined in the National Labor Relations Act, Rosenn found that providing more benefits to them “cannot possibly constitute discrimination between employees.” Rosenn concluded that the arbitrator “strayed far beyond the scope of the arbitration” and that his award “has no basis in reality, law or industry practice.” In his closing paragraphs, Rosenn offered a blistering summation: “What the arbitrator has wrought here not only alters and amends the collective bargaining agreement, but far exceeds the power of the arbitrator. Were it applied generally in the marketplace, it would wreak consternation and havoc throughout American industry. The award amounts to nothing more than the arbitrator’s personal brand of justice with which we do not agree.” ALITO DISSENTS But in dissent, 3rd Circuit Judge Samuel A. Alito said his colleagues were guilty of the same offense they found in the arbitrator — exceeding their power. “Just last term, the Supreme Court reminded us how narrow our proper scope of review is in a case such as this,” Alito wrote, citing the high court’s decision in Eastern Associated Coal Corp. v. United Mine Workers of America. Alito said the high court emphasized that when companies and unions give arbitrators the power to interpret their contracts, they have “bargained for the arbitrator’s construction of their agreement … and courts will set aside the arbitrator’s interpretation of what their agreement means only in rare instances.” The majority, Alito said, had set aside an arbitrator’s decision simply because it “strongly disagreed” with it. Alito said he, too, found the arbitrator’s interpretation less convincing than the one offered by his colleagues. “But I cannot agree that the arbitrator’s decision did not ‘draw its essence from the contract’ or that the arbitrator was not ‘even arguably construing the contract,’ ” Alito wrote. Instead, Alito said, the arbitrator’s decision was based on his interpretation of the anti-discrimination provision in the contract. “That the arbitrator probably misconstrued that provision is beside the point. The parties bargained for the arbitrator’s construction of the agreement and that is what they got,” Alito wrote. “By intervening to rescue the Pennsylvania Power Co. from one of the consequences of its bargain, the majority has exceeded the proper scope of our court’s authority.” Pennsylvania Power was represented by attorneys James A. Prozzi and A. Patricia Diulus-Myers of Jackson Lewis in Pittsburgh. The union was represented by attorney Joshua M. Bloom of Gatz Cohen in Pittsburgh.

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