Did the company violate the agreement when it did not pay holiday pay?

Questions

1. Which party has the burden of proof in this case? Why?

2. Evaluate the union’s argument that, since George Washington’s birthday holiday had occurred before the agreement was ratified, employees were entitled to holiday pay.

3. Evaluate the company’s argument that the parties agreed to make the effective date retroactive.

4. Should the holiday pay be included in the category of wages and benefits?

5. Be the arbitrator. How would you rule? Give your reasons.

During September 2005, the parties were negotiating the labor agreement due to expire on October 31, 2005. The union had proposed to add Martin Luther King, Jr.’s birthday and Memorial Day as nonwork holidays. The company countered with a proposal to “Swap George Washington’s birthday for Memorial Day.” On October 25, 2005, the parties agreed to a contingent agreement on contract extension, which stated:

It is understood by all parties that:

1. The current Labor Agreement expires at midnight on October 30, 2005;

2. The parties are negotiating in good faith to reach a new Agreement;

3. The parties wish to provide every opportunity for the bargaining unit’s voters to consider the negotiation proposals while work under the existing Agreement continues uninterrupted and without threat of interruptions; and

4. The parties do not wish for the current Agreement to expire without a new Agreement in place unless and until all reasonable efforts to avoid operating without an Agreement have been pursued.

As such, the parties agree as follows:

1. The current Agreement will remain in full force and effect until midnight November 15, 2005, unless a new Agreement is substituted for the current Agreement or the parties mutually agree in writing to end the Agreement earlier;

2. After November 15, 2005, either party may terminate the current Agreement’s extension by written notice to the other of at least seven (7) calendar days;

3. The parties agree to apply the terms of any wage or benefit change agreed upon during the extension of the current Agreement back to the expiration of that Agreement on October 30, 2005.

On November 10, 2005, a Negotiation Proposal Status and Counter Proposals Report was prepared. In regard to holidays, the union proposal was:“ Add Memorial Day and MLK’s birthday as non-work holidays.” The company proposal was: “Exchange GW’s (George Washington) birthday for Memorial Day.”

On January 20, 2006, the company presented its final proposal. Article 6 Holiday, paragraph 12, included:

Article 6 Holidays

Paragraph 12

Exchange George Washington’s Birthday for Memorial Day.

On February 14, 2006, Jim Fulgham, HR manager, posted the following notice:

Effective immediately, the company-paid George Washington’s birthday holiday has been swapped for the Memorial Day holiday, as agreed upon with the union.

This means beginning this year (actually next week), George Washington’s birthday will not be a company-paid holiday. Memorial Day, Monday, May 29, 2006, will be a company-paid holiday.

On February 15, 2006, Mr. Marty H. Stokes, company attorney, sent an e-mail to Mr. Jim McBride, the union’s staff representative. Mr. Stokes stated:

Holidays

Memorial Day will become a paid holiday in exchange for the current George Washington’s birthday holiday.

On February 23, 2006, Mr. Stokes sent a second e-mail message to Mr. McBride, which stated:

This is to confirm our discussions from yesterday:

1. The retro pay of $150 per person eligible will be paid no later than March 10, 2006, presuming a ratification by this weekend;

2. The $150 will be paid either in a separate check or noted in a single, regular check and programmed so as to note the additional amount and so as to avoid the extra taxes paid if the retro pay was combined as ordinary income with the regular check;

3. The “show up pay” will also be paid no later than 3/10/06. These amounts will be paid in a regular check with a notation of the additional amount, or in a separate check. Since this must be included in ordinary income, the amount will be paid at 100 percent [rather than 80 percent, with no deductions], and normal deductions will be made;

4. The terms and conditions offered for the final offer are as spelled out in our memo dated 2/14/06.

On February 24, 2006, Mr. Stokes sent an e-mail message to Mr. McBride, which contained the Labor Agreements Final Proposal. Included was:

Holidays

Memorial Day will become a paid holiday in exchange for the current George Washington’s Birthday holiday.

The company did not pay its employees holiday pay for George Washington’s birthday, and the following Grievance was filed by Jim McBride on March 6, 2006:

Statement of Grievance:

The company scheduled the bargaining unit employees to work on George Washington’s Birthday and did not pay them their proper holiday pay.

Articles & Sections of Contract Alleged Violated Including, But Not Limited To:

Article 6 Holidays, Paragraph 12 and Paragraph 14 of the extended Agreement.

Settlement Desired:

Make the bargaining unit employees whole by paying everyone who worked four (4) hours pay for working and eight (8) hours holiday pay. Employees who did not work the holiday to be paid eight (8) hours holiday pay only.

The company response was provided by Jim Fulgham, HR manager, who wrote:

Disposition of Grievance:

George Washington’s Birthday was paid in accordance with the ratified agreement.

The grievance was appealed to arbitration.

Issue

Were the employees entitled to holiday pay for George Washington’s birthday, 2006?

If so, what is the remedy?

Relevant Provisions of the Agreement

Article 6, Section 12b: Holidays

Recognized Holidays–The holidays to be recognized are New Year’s Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day, Christmas Day, Martin Luther King, Jr.’s Birthday, and the employee’s birthday. The company retains the right to schedule work on the holidays enumerated above with the exception of Christmas and Thanksgiving. (When one of the named holidays falls on Saturday it shall be celebrated on the preceding Friday. Holidays falling on Sunday shall be celebrated on Monday.)

Article 22: Effective Dates of Agreement

In witness whereof, the parties hereto have signed and executed this Agreement effective this 1st day of

November 2005.

Positions of the Parties

The Union:

The union stated that during the most recent contract negotiations, the company proposed eliminating George Washington’s Birthday as a paid holiday and making Memorial Day a paid holiday instead. The union countered with a proposal to have both days as paid holidays. The parties were unable to conclude a new agreement prior to October 31, 2005, the expiration date of the previous agreement. On October 25, 2005, the parties entered into a contingent agreement that extended the previous agreement subject to termination by either party with seven days’ notice. The contingent agreement provided that the parties agreed “to apply the terms of any wage or benefit change agreed upon during the extension of the current Agreement back to the expiration of the Agreement on October 31, 2005.”

In January 2006, the company presented an offer that Memorial Day would be a paid holiday, but not Washington’s Birthday. On January 15, 2006, the union membership voted and rejected that offer. One of the issues that especially concerned the membership was the loss of Washington’s Birthday as a paid holiday. After several more negotiation sessions, the union scheduled a vote on the company’s final offer for Sunday, February 19, 2006. Because the company scheduled that day as a workday, the date for the union ratification vote was rescheduled to Sunday, February 26, 2006. On that day, the membership voted to ratify the agreement.

On February 14, 2006, the company had posted a notice which stated that the company and union had agreed to swap the holidays. The notice stated that “beginning this year (actually next week), George Washington’s birthday will not be a company-paid holiday.” When the notice was posted, union representative Jim McBride called HR manager Jim Fulgham and told him that the notice should not have been posted because the union had not ratified the labor agreement. As a result of that call, Mr. Fulgham took the notice down.

The company did not treat Washington’s Birthday as a paid holiday, and a grievance was filed on March 6, 2006. Afterward, the company did treat Memorial Day as a paid holiday.

The union stated that the company’s position was that the contingent agreement provided that wages and benefits agreed to subsequent to the expiration of the prior agreement would be applied retroactively to the expiration date of the prior agreement, the holidays were swapped, and the employees were entitled to pay for Memorial Day, but not Washington’s Birthday. That position, however, is unreasonable, is not supported by the facts, and should be rejected.

The union argued that the company’s position emphasized the wrong clause of the contingent agreement. The first enumerated item of the parties’ agreement provided that the previous agreement would remain in effect following its expiration. The agreement provided three methods for terminating the extension: (1) substitution of a new agreement, (2) a mutual agreement in writing to end the agreement, and (3) termination by either party on seven days written notice. By Washington’s Birthday, February 22, 2006, none of those actions had occurred. The previous contract was still in effect, and there was no dispute that the previous agreement provided that Washington’s birthday would be a paid holiday. The right of the employees to have that day treated as a paid holiday vested on that day. Obviously, a retroactivity clause cannot erase events that have already occurred. Therefore, the only reasonable construction of the contingency agreement is that the retroactivity clause was not applicable to that event. The union claimed that in construing ambiguous contractual language, nonsensical results are to be avoided.

The union stated that the company will no doubt make the argument that it is unfair for the employees to receive pay for Washington’s Birthday in 2006 in light of the fact that they were paid for Memorial Day in 2006. That argument should not carry any weight. It is well settled that clear and unambiguous contractual language should be construed according to its plain meaning. In this case, the company does not even contend that the prior agreement, which was extended and was in effect on February 22, 2006, did not clearly and unambiguously provide that Washington’s Birthday was a paid holiday. That was the effective language on February 22, 2006, and it should be applied.

The union concluded:

Based upon the foregoing, the union urges that its grievance should be sustained and that as a remedy, the Arbitrator should award back pay plus interest.

The Company:

The company stated that the union demands that eligible employees be paid holiday pay for George Washington’s birthday of 2006. The company contended that the issue is whether the grievance should be granted or denied and, if granted, employees otherwise eligible for holiday pay for George Washington’s birthday would be compensated according to the previous labor agreement, which expired on October 30, 2005.

The company stated that it never offered to add a new holiday benefit; they just exchanged one for another, something agreed upon and ratified by the parties. For the past 15 years, the current and all preceding collective bargaining agreements (CBAs) provided eight paid holidays. The previous CBA, which expired on October 30, 2005, had provided for eight paid holidays, but included George Washington’s birthday. The current agreement exchanged that holiday for the current CBA’s Memorial Day. During the entire history of these last negotiations, the company never indicated willingness nor offered to increase the number of paid holidays beyond eight in a year. Beginning on October 18, 2005, when the company substituted George Washington’s birthday for Memorial Day, all offers and the final agreement involved no increase in paid holidays, only this holiday exchange. There is no dispute that the final agreement ratified on February 26, 2006, was consistent with the company’s long-standing and unwavering offer as to eight paid holidays per year.

The company argued that the parties agreed to apply retroactively the terms and conditions of the new agreement’s wage or benefit change back to October 30, 2005. On October 25, 2005, the parties agreed to extend the expiring CBA until a new agreement could be negotiated. This practice is not unusual, especially in more long-standing relationships such as this one. This practice benefits all parties by stabilizing the labor relations scene while allowing for a less hectic conclusion to negotiations. In such extensions, it is common to provide for some retroactivity, especially as to wages and, sometimes, benefits. This practice stabilizes conditions and avoids the temptation of employers to “drag things out” for financial gain.

The negotiations at issue contained three significant “wage and benefit” issues which were implemented during the first year of the new agreement:

■A $0.40 per hour wage increase and some wage classification changes

■An $8.00 per week employee contribution for health insurance

■A change in scheduled holidays

The retroactivity of any wage and benefits back to the expiration of the prior CBA’s expiration is clearly spelled out in the Contingent Agreement on Contract Extension signed on October 25, 2005. This contingent agreement assured both parties that the wage and benefit changes negotiated during any interim extension would be effective as of October 30, 2005, unless no new CBA was reached or either party terminated the contract extension with seven days written notice. No such nullification occurred and the ratified CBA was made retroactive, as agreed.

The company claimed that the parties did apply all the new non-holiday wage and benefit terms retroactively without dispute. The new CBA was ratified on February 26, 2006. Measuring from the expiration of the previous agreement, this was 17 pay weeks. If one assumes the normal 40-hour work week, the $0.40 per hour retroactive pay increase would have amounted to $272 per employee (17 × 0.40 × 40 hrs). Employees were paid approximately $150 in retroactive pay. This was to account for the CBA’s new $8 a week insurance payment of $136 (8 × 17 weeks), while allowing for possible additional hours worked and other pay changes. Employees were paid a slightly rounded up amount of $150 to deal with all retroactive pay and benefit changes under the new CBA. As such, all other wage and benefit items in the CBA were applied retroactively to October 30, 2005.

The company stated that the CBA ratification meeting was originally scheduled for February 19, 2006, prior to the George Washington holiday and the accident of a later meeting date must not have the unintended consequences sought in the grievance. The original ratification date was set for February 19, 2006, and was delayed a week for scheduling convenience. In the interim between February 19, 2006, and the ratification vote for February 26, 2006, there were no substantive changes to the proposal.

The later vote date did come after the holiday on February 22, 2006, but before the holiday was paid. While the actual pay date was not referenced, the arbitrator should take judicial notice of the fact that large companies do not pay employees for hours worked during the same work week; there is a delay of one or more weeks, as in this case. This was necessary to calculate overtime and to prepare and distribute checks. This time lag would have allowed the company to pay the George Washington holiday pay if there had been no ratification and no retroactivity.

The company explained that, in anticipation of the ratification vote on February 19, 2006, and so as to avoid any possible confusion, Mr. Fulgham posted a short notice to employees on February 14, 2006. This notice informed employees that the new CBA would not have George Washington’s birthday as a paid holiday but would have Memorial Day as a paid holiday instead. This notice was taken down later on the day it was posted. There was no dispute that this notice was accurate, only that the CBA had not yet been ratified. Since the vote was then scheduled for the February 19, 2006, ratification was anticipated at that time. With the later ratification vote, an intervening holiday, George Washington’s Birthday, under the previous agreement had occurred. The union accepted that the current CBA became retroactive at the time of ratification vote on February 26, 2006, back to the old expiration date of October 30, 2005; by the time the obligation to pay for the prior week’s work had occurred. The CBA in effect did not include an obligation to provide holiday pay for February 22, 2006.

Under the totality of circumstances, granting the union’s grievance would have a harsh and unjust result. The cost of an additional paid holiday for the company approaches $100,000. This is far more than a token amount, even for a large plant. Consequently, it would be unreasonable and inequitable for the company to be saddled with this obligation absent an unambiguous intent and mandate to do so. The company contended that, furthermore, if the union really believed that the information in Mr. Fulgham’s posting was inaccurate, it should have clarified its position before all other retroactive payments were made. In this case, the company asserted that there is no such clear obligation as the Contingent Agreement on Contract Extension signed by the parties applies the wage and benefit terms of the new agreement retroactive to October 30, 2005. This eliminates any obligation to provide holiday pay for George Washington’s birthday in 2006.

The company argued that the union seeks to have it both ways by:

■Allowing the retroactive application of other wages and benefits at considerable expense

■The payment of an extra ninth holiday

Such a result is just too much of “having your cake and eating it, too.”

As noted in the sixth edition of How Arbitration Works by Elkouri and Elkouri (BNA, Washington, D.C.):

When an interpretation of an ambiguous contract would lead to harsh, absurb or nonsensical results, while an alternative interpretation, equally plausible, would lead to just and reasonable results, the latter interpretation will be used. (pp. 470–471)

The company strongly contended that the terms of the Contingent Agreement on Contract Extension are unambiguous when read reasonably and nullify the George Washington’s birthday holiday for 2006. The equitable application of normal contract interpretation rules would not allow the double rewards sought by this grievance.

For the reasons stated previously, the company concluded that this grievance should be denied.