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American Federation of State, County and Municipal Employees v. City of Philadelphia

July 5, 2012

AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES (AFSCME) DISTRICT COUNCIL 47, APPELLANT
v.
CITY OF PHILADELPHIA



The opinion of the court was delivered by: P. Kevin Brobson, Judge

ORDER

NOW, this 2nd day of October, 2012, upon consideration of the Appellee's Motion to Publish said Motion is granted. It is hereby ordered that the Memorandum Opinion filed July 5, 2012 shall be designated OPINION and it shall be reported.

Argued: May 15, 2012

BEFORE: HONORABLE ROBERT SIMPSON, Judge, HONORABLE P. KEVIN BROBSON, Judge HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge

This is an appeal from an order of the Court of Common Pleas of Philadelphia County (trial court), denying AFSCME District Council 47, Local 2187's (AFSCME) motion to vacate an arbitrator's award. The award determined that pay increases are not part of the status quo, and, therefore, the City of Philadelphia (City) did not violate its collective bargaining agreement (CBA) with AFSCME when it did not provide the increases. AFSCME then filed with the trial court a motion to vacate the arbitrator's award, arguing that the award failed to meet the essence test. The trial court denied AFSCME's motion, and this appeal followed. For the reasons set forth below, we affirm.

As background, AFSCME and the City entered into a CBA, which was effective from July 1, 1992 to June 30, 1996. (Reproduced Record (R.R.) at 135a.) Thereafter, the parties executed four memoranda of agreement, with the final agreement covering the period of July 1, 2008, through June 30, 2009 (2008-2009 CBA). (R.R.at 224a.) The 2008-2009 CBA, through its reference to the initial CBA, incorporated the City's Civil Service Regulations (Regulations) into the agreement between the parties. The Regulations also set forth a pay plan for employees with multiple ranges and steps, outlined in Regulations 6.01-6.10. (Id.at 226a, 274a.) Under the 2008-2009 CBA, if an employee showed satisfactory performance over the course of the year, that employee would move to the next step in pay on the anniversary of the first day of employment, until the employee reached the last step in that position. (Id. at 37a.) The 2008-2009 CBA also incorporated provisions of the Regulations allowing employees who have remained employed with the City for extended periods to be eligible for longevity increments every five years. (Id. at 37a, 155a.) The 2008-2009 CBA provided that if there is a conflict between the Regulations and the contract language, the contract language controls. (Id. at 144a.)

In 2009, the City found itself in severe financial straits. In an attempt to relieve the City's budget deficit, the City began negotiating for a new agreement with AFSCME in April 2009. During those negotiations, the City proposed a freeze in step payments and elimination of longevity payments. (Id. at 35a.) AFSCME rejected the proposals, and, ultimately, the parties could not reach an agreement upon the expiration of the 2008-2009 CBA. Thereafter, the City circulated a memorandum to all City employees, indicating that there was a temporary suspension of earned pay step increases and longevity payments. (Id. at 259a, 352a.) The City's Civil Service Commission then enacted Interim Regulation 31.23. (Id. at 351a, 353a.) Interim Regulation 31.23, effective July 6, 2009, provided that no earned pay step increase or increase in longevity payment would be paid to any non-represented employee until the Mayor declares that the City's fiscal situation is sufficiently stable to allow for the reinstatement of such payments.*fn1 (Id. at 353a.) Interim Regulation 31.23 further provided that the rights of represented employees were to be determined by "the applicable collective bargaining agreement and state law." (Id.) AFSCME filed a grievance against the City on July 7, 2009, alleging that the elimination of longevity payments and step increases violated the expired CBA. (Id. at 253a-255a.)

Arbitration hearings were held in front of Joseph Loewenberg (the Arbitrator). The issues before the Arbitrator were (1) whether the grievance itself was arbitrable, and (2) whether the City violated the CBA by eliminating step increases and longevity payments. (Id. at 12a.) At the hearings, the president and chief executive officer and negotiator for AFSCME, Catherine Scott, discussed the nature of the negotiations between the parties. (Id. at 32a.) Ms. Scott noted that the negotiations between AFSCME and the City were, generally, in hiatus as the parties could not reach an agreement regarding the freeze of step increases and longevity payments. (Id. at 35a.) Ms. Scott testified that, historically, when negotiations continued beyond the expiration of the CBA, the parties have entered into a contract extension. (Id.) During this particular negotiation period (2008-2009), however, the City declined to extend the contract past June 30, 2009. (Id. at 36a.) Ms. Scott also explained the pay plan and range of positions. With regard to step increases, Ms. Scott testified that if an employee receives at least a satisfactory performance evaluation each year, the employee would move to the next pay step on the anniversary of his start date. (Id. at 37a.) Concerning the longevity schedule, Ms. Scott noted that, prior to 1992, employees received a longevity increase initially after three years of service, again at ten years of service, then every five years thereafter. (Id.) However, in 1992, AFSCME negotiated with the City to receive a longevity increase after every five years of service up and until forty years of service. (Id.) This pay system is consistent with the pay rate in the Regulations, which were incorporated into the 2008-2009 CBA. (Id. at 39a-40a.) Finally, Ms. Scott testified that AFSCME filed a grievance against the City upon notice that it was freezing pay step increases and longevity payments. (Id. at 44a.)

Joseph Tolan, the director of the Mayor's Office of Labor Relations, also testified at the arbitration hearings. Mr. Tolan testified that, at the outset of Mayor Michael Nutter's administration, the City encountered serious financial problems. (Id. at 77a-78a.) The City froze all City employees' longevity payments and pay step increases in order to cope with the City's financial issues until a new agreement between the parties could be reached. (Id. at 84a.) Mr. Tolan noted that employee salaries were not decreased; rather, periodic salary adjustments were simply not made. (Id. at 85a.) Mr. Tolan reiterated Ms. Scott's testimony regarding the longevity payments and pay step increases. (Id. at 116a-117a, 120a.) Further, Mr. Tolan noted that the Regulations are incorporated into the CBA between the City and AFSCME, and to the extent there is a conflict between the Regulations and the CBA, the CBA controls as per the contract language. (Id. at 96a, 533a.) Further, Mr. Tolan testified that the Regulations take their authority from the contract language of the CBA. (Id. at 89a.) Finally, Mr. Tolan noted that, as part of the City's relationship with AFSCME, the City is required to maintain the status quo. (Id. at 108a.)

At the outset, the City maintained that the grievance was not arbitrable as it was an allegation of an unfair labor practice, a complaint in the exclusive jurisdiction of the Pennsylvania Labor Relations Board. The City also argued that it was not required to award pay step increases and longevity payments when the parties are in a state of status quo. AFSCME argued that, because the Regulations are incorporated into the CBA, the City is required to pay the salary increases in order to remain compliant with the Regulations.

The Arbitrator held that the grievance was arbitrable and further that the City did not violate the CBA by failing to award pay step increases and longevity payments. Specifically, the Arbitrator determined that nothing in the Public Employe Relations Act,*fn2 rulings of the Pennsylvania Labor Relations Board, or court cases prohibits an arbitrator from determining whether an employer violated the status quo upon the expiration of a CBA. (Arbitrator's Opinion, attached to AFSCME's Brief as "Exhibit B" at 5.) In addition, the Arbitrator relied on the Supreme Court's Opinion in Hollinger v. Department of Public Welfare, 469 Pa. 358, 365 A.2d 1245 (1976), for the proposition that courts can entertain suits for breach of contract even if the breach was arguably an unfair labor practice. (Arbitrator's Opinion, attached to AFSCME's Brief as "Exhibit B" at 5.) With respect to the status quo, the Arbitrator initially concluded that because the agreement between the parties covered a period from July 1, 2008 through July 30, 2009, and no contract extension had been awarded, the parties were in a state of status quo. Such being the case, the Arbitrator determined that increases are not part of the status quo and are essential to collective bargaining, based on established precedent. (Id.) See Fairview Sch. Dist. v. Unemployment Comp. Bd.of Review, 499 Pa. 539, 454 A.2d 517 (1982). Accordingly, the Arbitrator reasoned that the City did not violate the status quo by failing to award pay step increases and longevity payments.

AFSCME filed a motion to vacate the Arbitrator's award with the trial court on February 1, 2011. (R.R. at 541a.) AFSCME argued that the Arbitrator's award failed to meet the essence test. Specifically, AFSCME argued that the Regulations were incorporated into the CBA and those Regulations provided for the step increases and longevity payments. Because those Regulations remained in full effect subsequent to the expiration of the 2008-2009 CBA, AFSCME argued that the Arbitrator's award disallowing those payments changed the plain meaning of the terms of the 2008-2009 CBA, which was the most recent and uncontested CBA. (Id. at 547a.) AFSCME also argued that the award violated public policy, as it permitted the City to ignore the Regulations. (Id.) The trial court dismissed AFSCME's motion to vacate.

On appeal, AFSCME argues that the Arbitrator's award failed to meet the essence test because a freeze on pay step increases and longevity payments are not rationally derived from the CBA. When reviewing an arbitrator's interpretation of a collective bargaining agreement, the proper standard of review for an appellate court is the deferential essence test. Coatsville Area Sch. Dist. v. Coatsville Area Teachers' Ass'n/Pennsylvania State Educ. Ass'n, 978 A.2d 413, 415 n.2 (Pa. Cmwlth. 2009), appeal denied, 605 Pa. 677, 989 A.2d 10 (2010). An exceptionally deferential standard is applied because binding arbitration is a highly favored method of dispute resolution. Id. "The essence test is a two prong test under which an award should be upheld if (1) the issue as properly defined is within the terms of the collective bargaining agreement, and (2) the arbitrator's award can be rationally derived from the collective bargaining agreement." Id. (citing State System of Higher Educ. (Cheyney Univ.) v. State College Univ. Prof'l Ass'n, 560 Pa. 135, 743 A.2d 405 (1999)). An arbitrator's findings of fact are not reviewable by an appellate court, "and as long as he has arguably construed or applied the collective bargaining agreement, an appellate court may not second-guess his findings of fact or interpretation." Coatsville, 978 A.2d at 415 n.2. A reviewing court may only vacate an award when it is indisputably without foundation or fails to logically flow from the agreement. Id. Based on our narrow scope of review, we are compelled to affirm the trial court's order.

We first note that because the 2008-2009 CBA expired, we must consider this matter in terms of the status quo following expiration of the 2008-2009 CBA. See Coatsville, 978 A.2d at 417-418. Generally, a public employer must maintain the status quo of the expired contract until a new contract is negotiated. Id. at 417 (citing Northeast Area Sch. Dist. v. Northeast Area Educ. Ass'n, 954 A.2d 111 (Pa. Cmlwth. 2008)). The status quo has been defined as the last actual, peaceable, and lawful noncontested status which preceded the controversy. Fairview Sch. Dist., 499 Pa. at 544, 454 A.2d at 520 (citing Valley Forge Historical Soc'y v. Washington Memorial Chapel, 493 Pa. 491, 426 A.2d 1123 (1981); Commonwealth v. Coward, 489 Pa. 327, 414 A.2d 91 (1980); Roberts v. Sch. Dist. of Scranton, 462 Pa. 464, ...


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