Freeport Area School District v. Freeport Education Assoc. (Majority Opinion)
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IN THE COMMONWEALTH COURT OF PENNSYLVANIA Freeport Area School District, Appellant v. Freeport Education Association BEFORE: : : : : : : : No. 2253 C.D. 2007 Argued: May 6, 2008 HONORABLE ROCHELLE S. FRIEDMAN, Judge HONORABLE RENà E COHN JUBELIRER, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE COHN JUBELIRER FILED: June 5, 2008 Freeport Area School District (District) appeals an order by the Court of Common Pleas of Armstrong County (trial court) denying District s petition to vacate a labor arbitration award. Freeport Education Association (Association) submitted a grievance regarding health insurance benefits for recently retired professional employees, questioning whether the Association members retiring in June of a given year would need to pay the insurance costs for the following July and August. The arbitrator granted the grievance and the trial court affirmed. The District argues that the award was not rationally derived from the collective bargaining agreement (CBA). District also argues that, in light of the arbitrator s decision, the trial court erred in not entertaining an action in declaratory judgment as to the status of an Early Retirement Incentive Plan1 (ERIP) negotiated concurrently with the CBA. I This case involves 12 District employee-teachers, who were members of the Association s bargaining unit and retired after the 2005-2006 school year. The District planned to cease providing medical insurance coverage to the employees in June, at the end of the school year. On May 16, 2006, prior to the close of the school year, the Association filed a grievance report, averring that [t]he District is improperly denying retiring employees of health care benefits for the months of June, July and August in their final year of employment. Health care benefits for these months are earned by virtue of working the regularly scheduled school term. (Grievance Report at 1.) The Association requested that the District provide fringe benefits in June, July and August to retiring employees who had worked the full school year. The Association also sought to have the impacted employees made whole for all expenses incurred as a result of the District s cancelation of their insurance coverage. (Grievance Report at 1.) Finally, the Association sought all other relief that an arbitrator would deem appropriate. 1 (Early Retirement Incentive Plan (October 20, 2005).) 2 The grievance proceeded through Level Two (Superintendent), Level Three (School Board), and Level Four (Arbitrator) of the grievance procedures established by the CBA. At the Level Two stage, the Superintendent denied the grievance, concluding that: [The district has committed] [n]o violation of contract. Association has failed to identify any provision of contract requiring the District to continue to provide health care benefits to former employees after their separation from employment with the District. The termination of health care coverage at the end of the month in which an employee retires has long been the past practice of the District and this practice has been followed for years without objection by the Association. Accordingly this claim is now time barred. (Grievance Report at 2.) At the Level Three Stage, the School Board adopted the Superintendent s position. The case proceeded to Level Four of the grievance procedure a grievance arbitration before an arbitrator who conducted a hearing on the matter. The arbitrator found in favor of the Association. In doing so, the arbitrator relied on Article VIII, Paragraph F of the CBA, which provides the method of payment for salaries. The arbitrator concluded that Paragraph F established that the District s employees work for a portion of the year, but that payment for their services extends over the full year. He reasoned that, [s]ince the retirees worked the same year of service as the employees under the provisions of the [CBA] they should be provided with the same benefits as other employees who worked during this period of time. (Arbitrator s Op. at 20.) The arbitrator also concluded that the language contained in the ERIP contradicts the intent of the language in the 3 [CBA] which establishes the school year. (Arbitrator s Op. at 20.) The District filed a petition with the trial court to vacate the labor arbitration award. The District also sought a declaratory judgment as ancillary relief. In the request for declaratory judgment, District asked the trial court to address the legal viability of the ERIP in light of the arbitrator s decision. The trial court denied the petition to vacate, concluding that, under the essence test, the arbitrator s decision was rationally derived from the CBA. The trial court also declined to exercise jurisdiction over the declaratory judgment action because, inter alia, the Uniform Arbitration Act2 removes all labor disputes arising from collective bargaining agreements from the province of common law. District appeals the trial court s order. II The first issue we address is whether the arbitrator s decision comports with the essence test, pursuant to which a reviewing court must determine: (1) whether the issue falls within the terms of the collective bargaining agreement ; and (2) whether the arbitration award is rationally derived from the agreement. State System of Higher Education (Cheyney University) v. State College University Professional Association (PSEA-NEA), 560 Pa. 135, 150, 743 A.2d 405, 413 (1999). Under the essence test, a reviewing court will only vacate an arbitrator s 2 42 Pa. C.S. §§ 7301-20. 4 award where the award indisputably and genuinely is without foundation in, or fails to logically flow from, the collective bargaining agreement. Id. A Neither party contests that the issue of medical benefits falls within the terms of the CBA. Accordingly, the issue before this Court is whether the arbitrator s decision is rationally derived from the CBA. District contends that the arbitrator s decision does not rationally derive from the parties CBA for the following reasons: the CBA contains no express language providing employees with any entitlement to health insurance benefits other than during the employees active employment period; the arbitrator abused his discretion in explicitly disregarding the ERIP, which both the District and Association negotiated and entered concurrently with the CBA; and this ERIP contained a clear indication of the parties intent that health benefits cease at the time of an employee s retirement. Per Cheyney, the arbitrator's award will be upheld if the arbitrator's interpretation can rationally be derived from the collective bargaining agreement. Id. at 150, 743 A.2d at 413. The rationale behind the essence test is well- established and stems from a policy of seeking to enforce bargained-for contract terms which specifically provide for the remedy of arbitration. In contracting for this remedy, the parties agreed to be bound by the decisions reached in arbitration. Absent the exceptional circumstances set forth in the essence test that the 5 decision does not rationally derive from the CBA we are bound to affirm an arbitrator s award. In the present case, the arbitrator essentially constructs his analysis on the keystone of Article VIII, Paragraph F of the CBA.3 This paragraph, titled Method of Payment, indicates in its first line that it relates to the employees regular salary and that it extends payment of that salary over the full twelve months of the calendar year. (CBA, art. VIII, ¶ F.) Article VIII of the CBA identifies the salary and compensation in different paragraphs and addresses them in different appendices to the CBA. Paragraph A of Article VIII indicates that basic salaries are set forth in Appendix A of the CBA. Appendix A lists the salaries for each of several school years (i.e., 2004-05 through 2009-10). Paragraph A of Article VIII indicates that the salary schedules [of Appendix A] shall remain in effect during the designated periods. (CBA, art. VIII, ¶ A.) Of relevance to this case, Paragraph C of Article VIII provides simply that [f]ringe benefits of employees covered by [the CBA] are set forth in appendix 3 Paragraph F of Article VIII of the CBA provides: F. Method of Payment 1. Employees shall be paid in twelve (12) equal monthly installments for their regular salary. Payment will be made on the 20th of each month . . . . 2. Employees may request, in writing by May 1st, to have the Employer approve the lump sum payment of their summer months checks paid in a single payment with their June 20th salary payment. (CBA, art. VIII, ¶ F.) 6 C , which is attached to and incorporated in [the CBA] . Unlike the language of Paragraph A of Article VIII, as relates to salaries, Appendix C does not establish a definite, limited term for health insurance benefits.4 The arbitrator essentially copied the time period from Paragraph A and added it to Paragraph C. In doing so he reasoned that: The work year of the professional employees covered by the [CBA] commences the first day the teacher reports in August and ends the last day the teacher performs services for the District. The professional employees are compensated with a monthly salary and provided with health insurance benefits during the summer months until the next school year begins. The language of the [CBA] establishes employees are paid their regular salary in 12 equal monthly installments but could request a lump sum payment for the summer months checks. In my considered opinion, the applicable 4 This appendix provides in relevant part: A. All benefits provided shall be in accordance with the terms of [the CBA] and the documents executed between the Employer and the carrier. This position is not intended to restrict or deny benefits previously held by the employees. The Employer reserves the sole right to choose the provider and benefits, including an insurance trust, providing that the coverage and benefits are equivalent. .... C. Health Insurance 1. The Employer shall provide health insurance benefits equivalent for each employee and the employee s dependents that were in effect on August 22, 2005 . . . . 2. It is specifically understood that, during the term of [the CBA], the Employer shall have the right to institute, delete or modify the full range of wellness and cost containment measures in hospitalization, surgical, major medical, dental and vision coverage. Where there is compliance with the program, there shall be no reduction in benefits. (CBA, Appendix C.) 7 [CBA] language does not establish the school year follows the fiscal year of the District. (Arbitrator s Op. at 22.) From our review, the arbitrator s decision to apply the time period provided in Article VIII, Paragraph F, is not an irrational interpretation of the CBA. Accordingly, under the essence test, we are required to uphold the arbitrator s decision. B The trial court, in considering the District s arguments, noted that [t]he District s alternative interpretations of the [CBA], which may be more reasonable than the Arbitrator s, are of no consequence; the Court is compelled to uphold [the Arbitrator s] decision, for which both parties bargained, because it is not irrational. (Trial Ct. Op. at 8-9.) The trial court intimated that the District has a more reasonable explanation and, from our own evaluation of the arguments and record, we agree. The language of the CBA and the existence of the ERIP lend substantial support to the District s arguments. The structure of Article VIII suggests an interpretation contrary to that given by the arbitrator. Notably, Paragraph F only indicates that salary may be paid over a twelve month period; however, nothing in Paragraph F references fringe benefits of any kind also being paid over a twelve month period. Nothing required the salary to be paid over the twelve month period. Notably, Article VIII delineates fringe benefits separately from salary , both in the article itself and in supporting appendices to the CBA. The plain language of Paragraph F of 8 Article VIII references salary, which relates back to Paragraph A of Article VIII and explicitly discusses salary. Medical benefits are not identified in Paragraph A, but are separately identified in Paragraph C of Article VIII. Additionally, salary is discussed in a separate appendix, Appendix A to the CBA, and fringe benefits, such as medical benefits, are addressed in Appendix C. Although these differences indicate that fringe benefits and salary are to be treated differently, they are not conclusive. In the absence of other indicia of the parties intentions, the arbitrator s decision rationally fills in what could be seen as a gap or uncertainty in the CBA s terms whether fringe benefits are paid over a one year period. The problem, however, is that there was additional evidence the ERIP which provided other indicia of the parties intent. Cheyney, 560 Pa. at 155, 743 A.2d at 416. The ERIP should, therefore, be considered; however the arbitrator essentially explains it away. For instance, an October 20, 2005 Heath Insurance Buyout (Insurance Buyout) document notes that employees who have received an Insurance Buyout may not reenroll in the School District s health insurance program until the next fiscal year beginning July 1 . . . . (Health Insurance Buyout (October 20, 2005).)5 Similarly, the ERIP contains several references to June 30th as marking the end of a year for retirement purposes: (1) the current retirement incentive plan . . . is 5 The Insurance Buyout authorized 14 employees per fiscal year to be able to receive an insurance coverage buyout, in the amount of $2,500.00, prorated for the actual number of months of non-participation in the medical plan. (Insurance Buyout.) 9 rescinded effective June 30, 2005 ; (2) [t]he professional employee [wishing to be eligible to participate] must submit a letter of retirement . . . no later than April 1 . . . to be effective by June 30 ; (3) [e]ligible professional employees must retire from the PSERS on or before June 30 . . . . ; (4) [t]he eligible professional employee who elects to participate in the ERIP shall receive . . . [e]ither a sum of $625.00 per month for twenty-four (24) continuous months for a maximum of $15,000.00 to be paid beginning in July in the year of retirement . . . . (ERIP.) The clear implication is that fringe benefits, including medical insurance coverage, run during the District s fiscal year July 1 through June 30. When reading the ERIP and Insurance Buyout documents in pari materia with the CBA, particularly with the provisions of Article VIII, the presence of the twelve-month period language in the salary section, and the absence of similar language in the fringe benefits section, is telling fringe benefits were not intended to run for the full twelve month period in instances of retirement. The ERIP is a prime example of a document that is helpful in establishing indicia of the parties intent it: (1) was negotiated by both parties to the CBA; (2) entered into by both parties to the CBA; (3) addressed issues arising from the CBA; (4) was attached to the CBA with a Letter of Understanding between the District and Association;6 and (5) is specifically identified as an addition to the CBA. The Table of Contents to the CBA, which follows the title page to the CBA, 6 (Letter from Meredith J. Christy, President of District, to Janet McMeans, President of Association (November 16, 2005) (signed by both Christy and McMeans) (Letter of Understanding).) 10 specifically lists the Letter of Understanding as one of the items of the CBA. In entering this ERIP agreement, it would seem that the parties were aware of the terms of the CBA, which they negotiated, and that they did not intend for any of the terms of the ERIP to conflict with those terms. We must presume the parties did not intend an absurd result. See generally, Spigelmire v. School District of Borough of North Braddock, 352 Pa. 504, 510-11, 43 A.2d 229, 231 (1945) (applying rules of statutory construction to contract interpretation). Therefore, as intimated by the trial court, when reading these documents in pari materia, the District s interpretation is far more reasonable than the Association s interpretation. Nonetheless, the Letter of Understanding does contain the somewhat mysterious, limiting language that it is not part of the CBA, but is an addition to the CBA.7 The arbitration provisions of the CBA provide that: 7 The Letter of Understanding is listed by name in the Table of Contents of the CBA and is identified as being at page 49 of the CBA. The text of the Letter of Understanding provides in relevant portion that: During the Course of negotiations for a successor agreement, the following three items were agreed to by both parties: .... 2. The District agrees to continue to provide an Early Retirement Incentive Plan which shall be considered an addition to, but not part of, the 20052010 Agreement, and to be administered by the District. 3. The District agrees to provide a health insurance buyout for medical benefits only which shall be considered an addition to, but not part of, the 2005-2010 Agreement, and to be administered by the District. (Letter of Understanding (emphasis added).) 11 The arbitrator shall have no power or authority to add to, subtract from, alter, change or modify the provisions of [the CBA] in arriving at a decision on the issue presented. The arbitrator shall confine his decision solely to the application and interpretation of [the CBA] and is authorized only to clarify and interpret the express terms, provisions and clauses of [the CBA]. The decision or award shall be final and binding and in accordance with the terms of Act 195 (PERA). (CBA, art. XVI, ¶ C(6)(b).) Consistent with Cheney, the arbitrator considered the ERIP, but, focusing on the limiting language that the ERIP was not part of the CBA, the arbitrator disregarded it, concluding that: In my considered opinion, the language contained in the ERIP contradicts the intent of the language in the [CBA] which establishes the school year. . . . In my considered opinion, the language of the ERIP is not consistent with the provisions of the [CBA]. If the language of the ERIP rather than the [CBA] language is considered, the employees who decided to retire at the end of the school year would be deprived of a portion of their compensation. (Arbitrator s Op. at 20-21.) The arbitrator further reasoned that: In my opinion, the District cannot require the employees who participate in the ERIP to shorten their work year in order to change to the District s fiscal year. Since the bargaining unit employees work under the provisions of the [CBA], the same time period must apply when the employees are entitled to participate in the ERIP. . . . Consequently, the employees who retire and participate in the ERIP must continue to receive benefits after retiring until the next school year begins before being required to follow the outlined requirements of the ERIP related to the health insurance benefits. (Arbitrator s Op. at 23.) Although the District s interpretation is more reasonable than the arbitrator s, that is not the test. Instead, we must apply the essence test. 12 Because we simply cannot say that the arbitrator s decision was irrational, we are bound to uphold it. III The second issue presented in this appeal is whether the trial court abused its discretion in declining to adjudicate the District s request for declaratory judgment as to the validity and enforceability of the ERIP. This issue is problematic because it arises from the effect of the arbitrator s decision of the first issue. District argues that the trial court abused its discretion in deciding not to hear the declaratory judgment action because: the arbitrator s ruling results in the effective repudiation of the parties ERIP agreement8 and it will result in duplicative proceedings, which could result in inconsistent rulings. For instance, a future proceeding addressing the ERIP may result in an order directing the District to abide by the ERIP, thereby bringing that order into conflict with the order issued in the present case. In response, the Association notes that the Arbitrator ¦ did not find the ERIP or any provision therein to be illegal, but rather only found that a conflict existed between the language of the ERIP and the parties CBA. (Association s 8 The District s position is that the arbitrator s award modifies the ERIP by obligating the District to make insurance premium payments in excess of the $500 per month that was bargained for in the ERIP, and for a longer period of time (122 months instead of the 120 months) than was bargained for in the ERIP. If the limitation on District s premium contributions is unenforceable, the District is of the position that it cannot rightfully be expected to continue to pay premium contributions under the ERIP. 13 Br. at 15.) The trial court similarly focused on the arbitrator s statement that the ERIP was not illegal. In reviewing this argument we note that declaratory judgments are not obtainable as of right and it is within a trial court s discretion to exercise jurisdiction over a declaratory judgment action. Faldowski v. Eighty Four Mining Co., 725 A.2d 843, 845 n.6 (Pa. Cmwlth. 1998). Pursuant to the Declaratory Judgments Act, 42 Pa. C.S. §§ 7531-7541, declaratory relief may be granted for the purpose of affording relief from uncertainty and insecurity regarding legal rights, status and other relations. Id. at 844-45. The trial court presents sound reasons for not entertaining the declaratory judgment action. In particular, the trial court correctly notes that: The Uniform Arbitration Act, under which the instant appeal has been taken, removes all labor disputes arising from a collective bargaining agreement from the province of the common law; it provides its own procedural and substantive provisions and remedies, and gives this Court, vested with original jurisdiction in civil actions, appellate jurisdiction. (Trial Ct. Op. at 11.) Any issue as to the viability or applicability of particular provisions of the ERIP are appropriately raised and addressed before an arbitrator. As such, it does not appear that the trial court abused its discretion. 14 IV For these reasons, the order of the trial court denying the District s Petition to Vacate Labor Award and dismissing the District s Petition for Declaratory Judgment as Ancillary Relief is affirmed. _________________________________ RENà E COHN JUBELIRER, Judge 15 IN THE COMMONWEALTH COURT OF PENNSYLVANIA Freeport Area School District, Appellant v. Freeport Education Association : : : : : : : No. 2253 C.D. 2007 ORDER NOW, June 5, 2008, the order of the Armstrong County Court of Common Pleas in the above-captioned matter is hereby AFFIRMED. _________________________________ RENà E COHN JUBELIRER, Judge
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