Supreme Court: LA Must Arbitrate Furlough Decision

City of Los Angeles v. Superior Court (Engineers and Architects Association) (Supreme Court Case No. S192828) (Issued on 6/20/11)

In a 4-3 opinion, the California Supreme Court ruled today that the City of Los Angeles must arbitrate its decision to furlough employees in 2009.

Facts:

Facing a $500 million deficit, the City of Los Angeles (City) passed an ordinance furloughing civilian employees for up to 26 days per fiscal year. Many of the furloughed employees filed grievances under their union contracts arguing that the furloughs were impermissible. After the grievances were denied, the Engineers and Architects union requested arbitration. When the City refused to arbitrate, the union filed a petition to compel arbitration of over 400 such grievances.

The trial court granted the petition to compel arbitration finding that the grievances were arbitrable. The City appealed. The Court of Appeal found there to be legitimate questions as to whether the furloughs are arbitrable under the parties’ Memorandum of Understanding (MOU). However, the court nevertheless ruled in the City’s favor by finding that any agreement to arbitrate the furloughs constituted an improper delegation of discretionary policymaking power vested in the City Council.

Decision:

The Supreme Court granted review and issued its decision today. The majority opinion first addressed the issue of delegation of authority. The Court held that, “[T]he Court of Appeal was incorrect in its conclusion that arbitration of the furloughs dispute here would involve a surrender or delegation by the City of those discretionary powers.” The Court cited as support its decision 34 years ago in Taylor v. Crane (1979) 24 Cal.3d 442 in which it held that, “Grievance arbitration does not involve the making of general public policy. Instead, the arbitrator’s role is confined to interpreting and applying terms which the employer itself has created or agreed to and which it is capable of making more or less precise.”

Next, the Court considered whether the City has a contractual duty to arbitrate the furlough dispute pursuant to the MOU. The Court found that, “without question,” the dispute concerned the interpretation of the MOU and therefore was arbitrable. The Court rejected the City’s argument that the management rights clause in the MOU allowed for the furloughs because the clause was subject to “ambiguities.” The majority opinion was authored by Justice Kennard, joined by Chief Justice Cantil-Sakauye, and Justices Wergegar and Liu.

Justice Corrigan, along with Justices Chin and Baxter, dissented. The dissent argued that the management rights clause in the MOU was “unmistakable” and reserved fundamental management rights to the City. Among the rights reserved was the right to relieve employees from duty due to a lack of funds. The dissent noted that the union could have bargained a narrower management rights clause, but did not. The dissent concluded:

Like any party to a contract, it ought to be bound by the terms to which it agreed. The majority’s failure to enforce this agreement is unfortunate. An important question of public policy and a matter of considerable budgetary significance is committed to the discretion of an unelected arbitrator, whose decision is unreviewable.

Comments:

I may have more comments after I’ve had a chance to thoroughly digest this case. I note initially that this Supreme Court has been remarkably united in its decisions in the area of labor/employment law. It’s been a while since we had a 4-3 decision in this field.
If you’re starting point is the Taylor v. Crane decision, the Court’s holding today on delegation is not that surprising.
However, the Court’s decision on arbitrability is much more interesting. Basically, both the majority and dissent agree that there is a presumption in favor of arbitrability in labor disputes. Both sides also appear to agree that disputes can be expressly exempted from arbitration if that’s the clear intent of the parties. The disagreement is over how “clear” that language has to be. The dissent felt that the MOU clearly allowed the City to implement the furloughs; and the majority obviously disagreed.