CAUSE v. State of Cal. Dept. of Pers. Admin.

Filed 3/28/07 CAUSE v. State of Cal. Dept. of Pers. Admin. CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

A state employee labor union appeals from the denial of its petition to compel arbitration of a dispute over retirement benefits. We reverse.

Background

CAUSE Statewide Law Enforcement Association (CAUSE) is the union representing state employees in the Protective Services and Public Safety bargaining unit, Unit 7. The Director of the Department of Personnel Administration (DPA) is the negotiating representative for the state. CAUSE and DPA negotiated a contract effective July 1, 2001 to July 2, 2003. During all times relevant to this appeal, the contract continued in effect (even after its termination date) because the parties had neither agreed on a new contract nor reached impasse in bargaining. (Gov. Code, 3517.8, subd. (a).)[1]

The contract includes a grievance and arbitration procedure, Article 6. Under that article, a grievance is defined as a dispute of one or more employees, or a dispute between the State and CAUSE involving the interpretation, application, or enforcement of the express terms of this Contract. If a grievance is not resolved in discussions with an employees supervisor or after appeals to higher management, CAUSE has the right to submit the grievance to final and binding arbitration.

As of the adoption of the 2001-2003 contract, some Unit 7 employees were eligible for retirement in the miscellaneous retirement category, which paid two percent benefits at age 55, and some in the safety retirement category (Safety Retirement), which paid 2.5 percent at age 55. On March 11, 2002, CAUSE and DPA signed a written agreement (March Agreement) providing that as of July 1, 2004, most Unit 7 job classifications in the miscellaneous retirement category would be moved to the Safety Retirement category. The agreement did not expressly address the issue of prior service credit; specifically, the agreement did not address whether the classifications moved to Safety Retirement would earn credit for years of service before the move at the miscellaneous or Safety Retirement rate. CAUSE cites evidence that the parties intended the employees to receive prior service credit. DPA cites evidence to the contrary.

In April 2002, legislation was introduced to increase retirement benefits for Unit 7 members. (Senate Bill No. 183, amended April 18, 2002.) The legislation was enacted in June 2002. (Stats. 2002, ch. 56.) As relevant here, the legislation added section 19816.21 and amended section 20405.1. Section 19816.21 provides, Notwithstanding Sections 18717 and 19816.20, effective July 1, 2004, the following officers and employees, who are in the following classifications or positions on or after July 1, 2004, shall be state safety members of the Public Employees Retirement System: [] State employees in State Bargaining Unit 7 (Protective Services and Public Services) whose job classifications are subject to state miscellaneous membership in the Public Employees Retirement System, unless otherwise excluded by a memorandum of understanding. ( 19816.21, subd. (a)(1).) Section 20405.1 was amended to read in relevant part: [T]his section shall apply to state employees in state bargaining units that have agreed to these provisions in a memorandum of understanding  . . . (a) On and after the effective date of this section, state safety members shall also include . . . officers and employees whose classifications or positions . . . have been designated as subject to state safety membership pursuant to Section 19816.21. . . . (b) The department shall notify the board as new classes or positions become eligible for state safety membership, as specified in subdivision (a), and specify how service prior to the effective date shall be credited. ( 20405.1, subds. (a), (b).) An existing statute, section 20068, provided,  State safety service, with respect to a member who becomes a state safety member pursuant to subdivision (b) of Section 20405.1, shall also include service rendered in an employment in which persons have since become state safety members, as determined by the Department of Personnel Administration pursuant to that section. ( 20068, subd. (g).)

On July 15, 2004, DPA issued a memorandum stating it had the sole discretion pursuant to sections 20405.1 and 20068 to determine how the employees prior service would be treated and concluding that Unit 7 employees who were moved to Safety Retirement pursuant to section 19816.21 would not receive prior service credit. CAUSE filed a grievance alleging the state violated the March Agreement, which required the move to Safety Retirement to include credit for prior service.[2] CAUSE argued the violation of the March Agreement violated Article 20 (Entire Agreement) and Article 20.3 (Contract Modification) of the contract. When 30 days elapsed without a response from DPA, the union demanded arbitration. DPA refused to submit the issue to arbitration, arguing the issue of prior service credit was not arbitrable. DPA argued the dispute arose over the interpretation of a statute, section 19816.21, not a term of the contract or a side letter modifying the contract. Even if the March Agreement was a contract modification, DPA argued, it was superseded by section 19816.21, which was enacted after the March Agreement was made.

CAUSE filed a petition to compel arbitration pursuant to Code of Civil Procedure section 1281.2. After briefing and oral argument, the trial court issued a summary order denying the petition.

Discussion

A court must order arbitration of a dispute if it determines an agreement to arbitrate the controversy exists. (Code Civ. Proc.,  1281.2; United Public Employees v. City and County of San Francisco (1997) 53 Cal.App.4th 1021, 1025 (UPE).) To decide arbitrability, the court must examine and, to a limited extent, construe the parties agreement, in particular the agreements arbitration provision. (UPE, at p. 1026.) The court may not refuse to compel arbitration on the ground that the petitioners grievance lacks substantive merit. (Code Civ. Proc.,  1281.2; UPE, at p. 1026.) Issues of contract interpretation are questions of law subject to de novo review on appeal. (UPE, at p. 1026.)

These two principlesthat the court must determine arbitrability but must not evaluate the merits of the parties disputecomplicate the issue of contract interpretation. We must construe the arbitration provision in the parties contract and any other provisions that directly bear on the scope of arbitration. We may not affirm the denial of the petition to compel arbitration on the ground that CAUSEs interpretation of the substantive terms of the parties contract is meritless. The parties do not confine their arguments on appeal to interpretation of the scope of arbitration under the contract. Their briefs include considerable argument on the merits of CAUSEs grievance. We do not assess the merits of CAUSEs grievance. The sole question we decide is whether CAUSE has brought a grievance that falls within the scope of the arbitration provision in the parties contract.

It is particularly difficult in the instant case to maintain the distinction between the arbitrability question and the merits of the parties dispute. The parties arbitration provision is limited to disputes over express terms of the contract. DPA argues that the absence of an express contract term addressing prior service credit renders CAUSEs grievance both nonarbitrable and nonmeritorious. We may properly address the first argument but not the second. We will decide whether CAUSEs grievance is arbitrable pursuant to an arbitration provision that is limited to the express terms of the contract. We express no opinion about whether CAUSE is correct in contending that, even though the March Agreement contains no express terms guaranteeing prior service credit, it nevertheless includes such a guarantee.

We first apply generally applicable labor arbitration principles to the question of whether CAUSEs grievance is arbitrable. After concluding that those principles require an order compelling arbitration, we consider whether the limitation of this particular arbitration provision to express terms of the contract alters our conclusion. We conclude it does not. Finally, we consider whether DPAs statutory preemption (supersession) argument should be decided before the parties are compelled to arbitrate their dispute. We conclude it should not. We will reverse the trial courts denial of the petition to compel arbitration.

I.                    Generally Applicable Labor Arbitration Principles

As a matter of public policy, contractual arbitration remains a highly favored means of dispute resolution even for public sector collective bargaining units. [Citations.] Thus, a strong presumption in favor of arbitrability applies and all doubts must be resolved in favor of coverage. [Citation.] A party to a collective bargaining agreement containing an express grievance and arbitration mechanism can bypass arbitration only if it can be said   with positive assurance   the clause is not susceptible to an interpretation that covers the asserted dispute. (Charles J. Rounds Co. [v. Joint Council of Teamsters No. 42 (1971)] 4 Cal.3d [888,] 892.) (Service Employees International Union, Local 1000 v. Department of Personnel Admin. (2006) 142 Cal.App.4th 866, 870 (SEIU Local 1000).)

California courts follow the federal labor arbitration principles announced by the United States Supreme Court in the Steelworkers Trilogy (United Steelworkers v. American Mfg. Co. (1960) 363 U.S. 564; United Steelworkers v. Warrior & Gulf Co. (1960) 363 U.S. 574; United Steelworkers v. Enterprise Corp. (1960) 363 U.S. 593). (United Transportation Union v. Southern Cal. Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 809, 813-814 (United Transportation Union).)[3] As expressed by the Supreme Court, Whether arguable or not, indeed even if it appears to the court to be frivolous, the unions claim that the employer has violated the collective-bargaining agreement is to be decided, not by the court asked to order arbitration, but as the parties have agreed, by the arbitrator. The courts, therefore, have no business weighing the merits of the grievance, considering whether there is equity in a particular claim, or determining whether there is particular language in the written instrument which will support the claim. . . . [Steelworkers v.] American Mfg. Co., 363 U.S. [564,] 568 (footnote omitted). (AT&T Technologies v. Communications Workers of America (1986) 475 U.S. 643, 649-650 (AT&T Technologies), emphasis added.)

Here, the collective bargaining agreement requires arbitration of unresolved grievances, which are defined as disputes involving the interpretation, application, or enforcement of the express terms of this Contract. CAUSEs grievance presents a contract dispute: CAUSE cites four contract provisions DPA allegedly violated by denying prior service credit to the employees moved to Safety Retirement. Even if this contract grievance is frivolous, well established labor arbitration law requires arbitration of the dispute. The union claimed . . . that the company had violated a specific provision of the contract. The company took the position that it had not violated that clause. There was, therefore, a dispute between the parties as to the meaning, interpretation and application of the collective bargaining agreement. Arbitration should have been ordered under the generally applicable policy favoring arbitration of labor disputes. (Steelworkers v. American Mfg. Co., supra, 363 U.S. at p. 569.)

DPA argues the dispute does not arise under the contract because the contract contains no term promising prior service credit. This argument requires us to evaluate the merits of CAUSEs grievance, which we cannot do. CAUSE has made a plausible showing that by providing in the March Agreement that the classifications shall be moved to Safety Retirement, the parties intended that their previous years of service be moved to the new retirement category. In other words, pursuant to the memorandum of understanding, all of their previous years of service would be subject to the 2.5% at 55 service retirement formula. If the arbitrator concludes that the contractual language is reasonably susceptible to such an interpretation, the arbitrator may admit extrinsic evidence to elucidate the parties intent when they negotiated the language. (See Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.) CAUSE has cited some extrinsic evidence that would support its interpretation. It may be that the parties intended prospective service credit only, as DPA argues, or it may be that the parties never reached an agreement about the treatment of prior service credit. These are all contract interpretation issues that must be decided by the arbitrator. We cannot say with positive assurance that the retroactivity dispute does not involve the interpretation, application and enforcement of the contract.

II.                 Limitation of Particular Arbitration Provision to Express Terms of Contract

DPA argues the issue of prior service credit is not arbitrable because the parties arbitration provision is limited to disputes over the express terms of the contract and no express contract term specifically addresses how prior service should be treated. This argument has superficial appeal. In AT&T Technologies, the Supreme Court held the presumption of arbitrability is particularly applicable where the [arbitration] clause is as broad as the one employed in this case, which provides for arbitration of any differences arising with respect to the interpretation of this contract or the performance of any obligation hereunder . . . .  (AT&T Technologies, supra, 475 U.S. at p. 650.) Where, as here, the arbitration provision is more restrictive, the policy of resolving all doubts in favor of arbitration might not so liberally apply.

Upon closer examination, the case law cited by DPA fails to support its narrow interpretation that the specific subject matter of the grievance (here, prior service credit) must be expressly mentioned in the contract. DPA cites Independent Union of Pub. Service Employees v. County of Sacramento(1983) 147 Cal.App.3d 482 (IUPSE) for the proposition that the parties dispute over the employers meet and confer duties was not within the arbitration provision because there were no such express terms in the [memorandum of understanding]. Although the arbitration clause in IUPSE was limited to the express terms of the contract, that limitation was irrelevant. (IUPSE, at p. 490.) The dispute was nonarbitrable not because there was no express meet and confer term in the contract, but because the dispute did not arise under the contract under any interpretation. The dispute arose over the employers statutory duty to meet and confer with the union over changes in working conditions. (Id. at pp. 486, 490-491.) IUPSE sheds no light on the extent to which the scope of arbitration is restricted by language limiting arbitration to disputes over the express terms of the contract.

DPAs reliance on Teamsters Local 315 v. Union Oil Co. of California (9th Cir. 1988) 856 F.2d 1307 (Teamsters) is not persuasive.[4]Teamsters narrowly construed an arbitration clause limited to express contract terms. In Teamsters, the extent of the contract provisions restricting the scope of arbitration is markedly different than the contract provision we are reviewing. The collective bargaining agreement included at least five provisions that restricted arbitration to violations of express or specific contract terms: grievances were defined as violations of any of the express terms or provisions of this Agreement and the subjects of general rates of pay, work hours and working conditions were expressly excluded from the definition; arbitration was limited to a bona fide question concerning the interpretation or application of any express provision of this Agreement and covered [o]nly actions by the Company which are alleged to be violations of duties or obligations expressed in one or more of the written provisions of this Agreement; and the management rights clause reserved all management rights except as abridged by a specific provision of this Agreement and provided that the express provisions of this Agreement shall be the sole source of any rights which may be asserted against the Company in arbitration. (Id. at p. 1310, italics omitted.) A divided court held that the language of the contract taken as a whole demonstrated that the company retained the right to determine whether employees may return to work after disability and never agreed to arbitrate disputes regarding implied contract terms. (See id. at pp. 1310-1311.)

Other federal courts have disagreed with Teamsters, supra, 856 F.2d 1307. In Local 371 v. Logistics Support Group (7th Cir. 1993) 999 F.2d 227 (Local 371), the union contract defined an arbitrable grievance as an allegation that the company violated an express provision of [the] Agreement. (Id. at p. 229.) The union sought arbitration of an employees termination, but the contract did not include the typical union contract provision that bars termination except for just cause. (Ibid.) The court declined to follow the Ninth Circuits conclusion in Teamsters that  [a]llowing arbitration of any implied contractual terms would violate the specific limits of the agreement.  (Ibid., quoting Teamsters, at p. 1311, emphasis added.) The Seventh Circuit chose not to adopt such a mechanical approach. (Local 371, at p. 229.) Rather, the court held, What we demand . . . in excluding certain matters from the reach of an arbitration provision[] is specificity. [Citation.] We would not be going too far in saying that a finding of nonarbitrability requires an absolutely undeniable reservation of unfettered managerial authority. (Id. at p. 231.) The court held that the termination was not subject to arbitration because the management rights clause in the contract expressly reserved to the company the right to discharge and discipline employees. (Id. at pp. 229-230.)

Similarly, in Mobil Oil v. Local 8-766, Oil, Chemical & Atomic (1st Cir. 1979) 600 F.2d 322 (Mobil Oil), the union contract required arbitration of a grievance alleging a violation or misapplication of the express terms of this Agreement and limited the arbitrators power to resolving the grievance by interpreting the express provisions of this agreement. (Id. at p. 327.) The union sought arbitration of a grievance involving subcontracting of bargaining unit work, even though the contract included no express provision addressing subcontracting. (Id. at pp. 323-324.) The union argued subcontracting violated the recognition clause and the seniority, wage and classification provisions. (Id. at p. 324.) The court found the grievance arbitrable. (Id. at p. 328.) The contract contained only a slightly modified version of the standard arbitration clause, the court explained. The reference to express contract terms simply required the union to identify contract provisions plausibly violated by the companys conduct and the union satisfied that condition. (Ibid.) In accord with Mobil Oil, the Second Circuit held a grievance was arbitrable under a contract limiting arbitration to disputes about the interpretation of this agreement or the alleged violation of the express terms of this agreement, even though the grievance relied on the interpretation or enforceability of an agreement separate from the contract. (Socony Vacuum Tanker Mens Assn v. Socony Mobil Oil Co. (2d Cir. 1966) 369 F.2d 480, 481-482.)

In sum, federal case law does not support DPAs argument that the phrase express terms precludes arbitration of any implied contract term. In the absence of clear evidence excluding a dispute from the scope of arbitration, doubts should be resolved in favor of sending a dispute to arbitration. We note that our rejection of the Teamsters approach does not render the phrase express terms meaningless in the arbitration provision. Under a typical broadly worded arbitration clause, terms may be inferred from the parties bargaining history or past practice or from industry practices without relying on specific written terms of the contract. (See Chicago Web Printing v. Chicago Newspaper Publish. (1985) 772 F.2d 384, 387; Ethyl Corp. v. United Steelworkers of America (1985) 768 F.2d 180, 186.) Under an arbitration clause limited to disputes over the express terms of the contract, the union must identify written contract provisions that were arguably violated by the employer. (Mobil Oil, supra, 600 F.2d at p. 329.)

The other cases cited by DPA are easily distinguishable. Several involve arbitration clauses that expressly excluded the parties dispute from the scope of arbitration. (See, e.g., Los Angeles Police Protective League v. City of Los Angeles (2001) 94 Cal.App.4th 77, 84-85; Engineers & Architects Assn. v. Community Development Dept., supra, 30 Cal.App.4th at pp. 653-657.) Others involved disputes that did not arise under the contract at all: a government agencys statutory duty to negotiate about changes in working conditions (Vernon Fire Fighters v. City of Vernon (1980)107 Cal.App.3d 802, 822-832, 826) and an employees application for employment with a city agency that was not a party to the collective bargaining agreement (Service Employees Internat. Union v. City of Los Angeles, supra, 24 Cal.App.4th at pp. 138, 144). Service Employees International Union v. County of Napa, supra, 99 Cal.App.3d 946, also cited by DPA, adopted a restrictive interpretation of arbitration provisions that has since been rejected by California appellate courts. (Compare id. at pp. 952-954 with United Transportation Union, supra, 7 Cal.App.4th at pp. 812-815.)

The limitation of the parties arbitration provision to disputes over the express terms of the contract does not alter our conclusion that CAUSEs grievance was arbitrable. CAUSE tethered its grievance to express terms of the contract, citing four contract provisions allegedly violated by DPAs failure to award prior service credit to the Unit 7 employees moved to Safety Retirement. Nothing in the contract expressly excludes CAUSEs particular grievance from the scope of the arbitration provision. Under the majority view in the relevant federal cases, CAUSEs grievance is arbitrable. DPA argues the contract terms cited by CAUSE cannot mean what CAUSE claims they mean. This argument, however, goes to the merits of the grievance. It is for the arbitrator rather than the court to decide the merits of the grievance.

III.               Statutory Supersession

DPA further argues that the dispute over prior service credit is not subject to arbitration because state statutes grant DPA the authority to unilaterally determine whether to award prior service credit, and those statutes supersede any conflicting provisions in the union contract.

We need not decide at this time whether the statutes cited by DPA supersede the provisions of the March Agreement or union contract. If the arbitrator concludes that the contract requires the DPA to award prior service credit to the Unit 7 members who were moved to Safety Retirement on July 1, 2004, the DPA may then challenge the award in superior court based on statutory supersession. (See Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 277.) If the arbitrator decides that the parties agreed service credit would be prospective only or that the parties never reached agreement on the treatment of prior service, there will be no need for the courts to address the preemption issue. (See SEIU Local 1000, supra, 142 Cal.App.4th at pp. 874-875 [compelling arbitration because arbitrators construction of contract may obviate need to decide statutory and constitutional claims].) In the interests of judicial economy, we decline to address the issue in this appeal.

Disposition

The order denying the petition to compel arbitration is reversed.

GEMELLO, J.

We concur.

SIMONS, Acting P.J.

NEEDHAM, J.

Publication courtesy of San Diego pro bono legal advice.

Analysis and review provided by Poway Property line attorney.

[1] All statutory references are to the Government Code unless otherwise indicated.

[2] The grievance sets out the controversy: CAUSE contends it reached an agreement with DPA on March 11, 2002 to provide CalPERS safety retirement for numerous additional classifications of Unit 7 employees. CAUSE also contends the parties[] agreement included the States purchase of all prior service credit for those employees who receive safety retirement as of July 1, 2004 pursuant to the agreement (retroactivity). The State has reneged on the agreement with respect to retroactivity and violated Article 20 (Entire Agreement) and Article 20.3 (Contract Modification) of the labor contract between CAUSE and the State.

[3]United Transportation Union has been followed in several published opinions. (UPE, supra, 53 Cal.App.4th at p. 1026; SEIU Local 1000, supra, 142 Cal.App.4th at p. 870; Service Employees Internat. Union v. City of Los Angeles (1996) 42 Cal.App.4th 1546, 1553; Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 652-653; Service Employees Internat. Union v. City of Los Angeles (1994) 24 Cal.App.4th 136, 143.) In Service Employees International Union v. County of Napa (1979) 99 Cal.App.3d 946 (SEIU Local 614), a divided panel ruled that the Steelworkers Trilogy, and specifically the liberal policy favoring arbitration of labor disputes, is inapplicable to public sector collective bargaining agreements in California. (Id. at pp. 953-954; but see id. at pp. 958-966 (dis. opn. of Grodin, J.).) SEIU Local 614 has not been followed in any published opinion. In 1992, the Second District analyzed and rejected the reasoning of SEIU Local 614. (United Transportation Union, supra, 7 Cal.App.4th at pp. 812-815.)

[4] As noted above, California courts follow federal labor arbitration principles in California public employee labor cases. (See United Transportation Union, supra, 7 Cal.App.4th at pp. 809, 813-814.) Therefore, federal cases discussing the scope of labor arbitration clauses are relevant authority.