Argued: April 10, 2019
from the Order of the Commonwealth Court entered February 13,
2018 at No. 187 CD 2017, reversing the Order of the Court of
Common Pleas of Erie County entered January 30, 2017 at No.
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY,
case, we review whether the Commonwealth Court disregarded
the law when it vacated a grievance arbitration award based
on its independent interpretation of the parties'
collective bargaining agreement ("CBA"). Pursuant
to this Court's decisions under the Public Employee
Relations Act, 43 P.S. §§
1101.101-1101.2301 ("PERA"), a reviewing court must
apply the highly deferential two-prong "essence
test" to grievance arbitration awards: first, the court
must decide whether the issue is encompassed by the CBA;
second, the court must uphold the arbitrator's award if
the arbitrator's interpretation can rationally be derived
from the CBA. Westmoreland Intermediate Unit #7 v.
Westmoreland Intermediate Unit #7 Classroom Assistants Educ.
Support Pers. Ass'n, 939 A.2d 855, 863 (Pa. 2007)
(plurality) (quoting State Sys. of Higher Educ. (Cheyney
University) v. State Coll. Univ. Prof'l. Ass'n.,
743 A.2d 405, 413 (Pa. 1999)). As discussed in more detail
herein, subject to a narrow exception for awards that violate
a dominant public policy, proper application of the essence
test prohibits a court from vacating an arbitrator's
award unless "the award indisputably and genuinely is
without foundation in, or fails to logically flow from, the
[CBA]." Id. Because we have no trouble
concluding that the award in the instant matter draws its
essence from the CBA and because no public policy will be
violated by its enforcement, we reverse the decision of the
Township Educational Support Personnel Association (the
"Association") and Millcreek Township School
District (the "District") are parties to a CBA that
became effective on July 1, 2011, and was set to expire on
June 30, 2016. The bargaining unit represented by the
Association consists entirely of custodians for the
District's properties. As pertinent to this appeal, the
CBA provides that "[n]o work of the bargaining unit
shall be subcontracted for the life of the Agreement."
CBA, Art. III, ¶ H (hereinafter, the "no
subcontracting provision"). The CBA further provides
that "the rights and privileges of the Association and
its representatives as set forth in the [CBA] shall be
granted only to the Association as the exclusive
representative of the employees and to no other
organization." Id., Art. III, ¶ E
(hereinafter, the "exclusivity provision").
for a successor CBA commenced on January 26, 2016 when the
Association offered its initial proposal to the District.
Approximately one month later, the District presented a
counter proposal in which it sought, among other items, to
eliminate the no subcontracting provision. N.T., 8/16/2019,
at 24-25; Arbitration Decision, 11/7/2016, at 4. The
Association rejected this proposal. N.T., 8/16/2019, at
March 29, 2016, with successor CBA negotiations ongoing
between the Association and the District, the District issued
a request for proposals ("RFP") seeking quotes from
prospective bidders for the provision of custodial labor
services. See RFP Cover Letter, 3/29/2016, at 1.
Specifically, the RFP sought quotations for guaranteed
pricing during a three-year contract period to begin the day
after the current CBA was set to expire, namely from July 1,
2016, through June 30, 2019. Id. Bids were due by
11:00 a.m. on May 2, 2016, at which point they would be
publicly opened. Id. All bids were to be submitted
to the District in an envelope clearly marked "RFP
CUSTODIAL SERVICES LABOR CONTRACT," and all prospective
bidders were required to attend a pre-bid meeting on April
28, 2016. Id. Bidders were required to conduct site
visits at the District's buildings. Id. The
District advertised the RFP announcement in at least two
April 7, 2016, upon learning that the District had issued an
RFP to subcontract the bargaining unit's work, the
Association filed a grievance with the
District. Grievance, 4/7/2016. As set forth in the
grievance, the Association alleged that the District
"[had] violated the [CBA] by placing in several papers
… a Legal Notice that the District [was] accepting
bids for custodial labor services" and by announcing the
pre-bid meeting scheduled for April 28, 2016. Id.
According to the Association, "these actions directly
violate[d] the [CBA], and in particular the provision that
there will be no subcontracting."
Id. The Association requested that the
District "cease and desist efforts to subcontract the
custodial labor force" and "withdraw all present
and scheduled Legal Notices." Id. It further
requested that the District "inform any party contacting
[it] with questions or actual proposals that there is no
subcontracting of custodial labor services" and
additionally sought "any other specific relief that the
arbitrator deems appropriate." Id.
a grievance hearing on May 11, 2016, before the
District's Board of Education (the "Board"),
the Board issued a brief decision wherein it stated, "we
do not believe that [Mr. Revell] demonstrated that [the
District] violated the [CBA] by soliciting RFPs from outside
vendors. No member of the bargaining unit lost work hours nor
was any work done by an outside vendor. Request for …
RFPs [sic] is not the same as outsourcing actual work."
Decision of Board, 5/19/2016. The Board also explained its
belief that the District "has an obligation to the tax
payers to manage its budget and ensure it is paying a
competitive price for the services provided."
Id. It concluded that "the only way to
determine what pricing options are available to [the
District] is to ask," and opined that the District did
not demonstrate bad faith in its negotiations with the
Association by issuing the subcontracting RFP. Id.
11, 2016, the District advised the Association that
Facilities Management Systems ("FMS") had been
selected as the successful bidder. Arbitration Decision,
11/7/2016, at 4. The District provided the Association with
the bid information it received from FMS but did not in fact
enter into a contract with that bidder or any other.
to the grievance procedure set forth in the CBA, the
Association appealed its grievance to arbitration, consistent
with section 903 of PERA. See CBA, Art. I, ¶ C.
Following a hearing before an arbitrator selected by the
parties and briefing, the arbitrator granted the
Association's grievance in a written decision dated
November 7, 2016. See Arbitration Decision,
11/7/2016, at 15. The arbitrator stated that the issue before
him was whether "the District violate[d] the CBA by its
issuing of a[n RFP] for custodial services in the
District," and if so, what the remedy should be.
Id. at 8. He also noted that "the primary
factor to be determined" was when subcontracting begins.
forth by the arbitrator, the District believed that it was
acting within its managerial rights to investigate
alternatives when it issued the RFP, conducted building
walkthroughs and received bids. The District was also of the
view that using this research in CBA negotiations with the
Association, either to modify the CBA or to reach impasse and
subsequently enter into a subcontract for custodial services,
was both permissible under the terms of the CBA and in the
best interest of taxpayers. Id. The arbitrator,
however, did not credit the District's position because,
in his view, it would have been possible to conduct due
diligence and compare costs without formally requesting bids,
advertising in newspapers, conducting building walkthroughs,
and holding a public meeting to open bids. He characterized
the District's conduct as a bad faith tactic that had a
chilling effect on the negotiation process, noting that
"the only step remaining in the outside contracting
scheme of the District was to declare 'impasse,' sign
the contract of the successful RFP bidder and have them
commence work." Id. at 14. He indicated that
those "final acts" would merely be the culmination
of the subcontracting process which began, at the latest, on
March 29, 2016, when the District issued its RFP.
arbitrator reached this conclusion based on testimony
regarding the parties' long history together.
Specifically, the arbitrator made the following findings of
• The parties' history includes the prior
subcontracting of school bus drivers' work, which
eliminated that work from the bargaining unit;
• this conduct "created raw nerves" and
lasting wounds within the Association;
• the Association was aware of this history and its
effect on employees;
• this history was the driving force, pursuant to
testimony, behind the Association negotiating for the current
and former CBA to include the no subcontracting provision.
Id. at 10.
the specific question of whether the District had
subcontracted work in the instant situation, the arbitrator
first concluded that the question was "definitely within
the confines of the CBA." He then explained his
interpretation of the CBA, as informed by the parties'
testimony and history, that subcontracting "begins when
the District decides to pursue that outside contracting
avenue and then advises the Association and advertises
through the use of RFPs." Id. Accordingly, he
held that the District's actions had violated the
CBA's no subcontracting provision. As relief, he ordered
that "the RFPs cannot be used in bargaining with the
Association to secure an advantage." Id. He
also proscribed the use of "outside contracts which
eliminate the Bargaining Unit … unless or until the
parties are at a legal impasse" and directed that
"any formal selection of prior RFPs are therefore
considered to be null and void." Id.
District filed a petition to vacate the arbitrator's
award in the court of common pleas. That court affirmed the
award. Applying this Court's two prong essence test, the
trial court concluded that (1) "the issue of
subcontracting is within the terms of the CBA" and (2)
the arbitrator's interpretation of the subcontracting
clause was "derived rationally from the CBA." Trial
Court Order, 1/30/2017, at 1; Trial Court Opinion, 4/12/2017,
at 4 (pointing to both the no subcontracting provision and
the exclusivity provision). The trial court further held that
the arbitration award did not pose an unacceptable risk of
undermining public policy and would not cause the District to
breach its lawful obligations or public duty under PERA.
Trial Court Order, 1/30/2017, at 2 (applying the Commonwealth
Court's three-step analysis for determining whether an
arbitration award that satisfies the essence test nonetheless
violates public policy, as set forth in City of Bradford
v. Teamsters Local Union No. 110, 25 A.3d 408, 413 (Pa.
District appealed and the Commonwealth Court reversed.
Millcreek Twp. Sch. Dist. v. Millcreek Twn. Educ. Support
Pers. Ass'n, 179 A.3d 1167 (Pa. Commw. 2018). It
explained that the issue before the arbitrator was whether
the issuance of the RFP violated the CBA, not whether the
District had subcontracted out work. Id. at 1172. It
then found that because the plain language of the CBA
provided that "[n]o work of the bargaining unit shall be
subcontracted for the life of the Agreement," and
because the CBA is "completely silent" as to RFPs
or any other part of the "process" of
subcontracting, it was constrained to hold that the issue
before the arbitrator did not fall within the terms of the
CBA. Id. Based on this same analysis, the
Commonwealth Court further concluded that the
arbitrator's award was not rationally derived from the
CBA and therefore failed the essence test. Id. at
the Commonwealth Court held that even assuming arguendo that
the arbitrator's award passed the essence test, it must
nonetheless be vacated pursuant to that test's public
policy exception. Id. at 1173-74. Tracking it's
City of Bradford's three-step analysis, the
Commonwealth Court concluded that (1) the conduct leading to
the grievance was the District's issuance of an RFP for
custodial services; (2) the conduct implicates a
"well-defined, dominant" public policy because
section 701 of PERA mandates parties to "confer in good
faith with respect to wages, hours and other terms and
conditions of employment, or the negotiation of an agreement
…"; and (3) the arbitrator's award poses an
unacceptable risk of undermining the implicated public policy
because directing that the RFPs cannot be used in bargaining
with the Association contravenes the notion that "such
solicitations [are] prerequisites for intelligent
bargaining," rather than "inherently
coercive." Id. at 1176 (quoting PLRB v.
Sch. Dist. of the Twp. of Millcreek, 9 PPER ¶ 9136
(No. PERA-C-10, 439-W, June 7, 1978)).
The Association appealed and we granted allocatur to review:
(1) Whether the Commonwealth Court panel grossly departed
from this Court's accepted practices regarding review of
labor arbitration awards and abused its discretion when it
failed to give proper deference to the arbitrator's
factual findings and contractual interpretation.
(2) Whether the Commonwealth Court panel's decision
conflicts with numerous decisions of both this Court and the
Commonwealth Court applying the deferential essence test and
defining the authority of the arbitrator.
(3) Whether the panel erroneously held that the award
violated public policy despite the fact that it specifically
acknowledges and accounts for the District's legal duty
Millcreek Twn. Sch. Dist. v. Millcreek Twn. Educ. Support
Pers. Ass'n, 195 A.3d 562 (per curiam).
begin by addressing the first two issues on review, the
resolution of which requires us to probe how much deference
is expected of a reviewing court pursuant to the essence
test. In particular, we must decide the extent to which the
essence test requires deference to an arbitrator's
interpretation of a contractual provision. As an initial
matter, we observe that while the parties do not dispute that
the essence test (including its public policy exception) is
the governing standard of judicial review, they disagree as
to whether the Commonwealth Court properly applied it here.
Association argues that the Commonwealth Court failed to give
proper deference to the arbitrator's interpretation in
applying the essence test and erroneously engaged in a merits
review of the award, re-evaluating the evidence and
substituting its own judgment. Association's Brief at
19-20. Specifically, the Association argues that an
arbitrator is authorized to make findings of fact and to
interpret undefined terms in the CBA. The Association posits
that a reviewing court is not authorized to undertake an
independent factual analysis because an arbitrator's
factual findings are unreviewable so long as the arbitrator
was "even arguably construing or applying the
contract interpretation, the Association urges that an
arbitrator is entitled to rely on the CBA's
"language, its context, and any other indicia of the
parties' intention" and, importantly, that an
arbitrator's interpretation of the parties' intent is
not cognizable on appeal because it too is considered a
finding of fact. Id. (citing Cmty. Coll. of
Beaver Cnty v. Cmnty. Coll. of Beaver Cnty., Soc'y of
Faculty (PSEA/NEA), 375 A.2d 1267, 1275 (Pa. 1977))
("Beaver County"). In the
Association's view, because the arbitrator here
considered the no subcontracting provision together with
other provisions of the CBA as well as the parties'
previous subcontracting dispute and the inherently
destructive effect of the District's actions, his
conclusion that the parties intended the no subcontracting
provision to prohibit the entire process of subcontracting
drew its essence from the CBA. Id. at 22.
District urges that because the CBA makes no mention of the
issuance of RFPs, and because the term "no
subcontracting" unambiguously prohibits "nothing
other than the act of removing work from the bargaining unit
via entering into a contract with a third party, which the
parties agree has not happened," the issue is not
within the terms of the CBA. District's Brief at
In the District's view, the arbitrator impermissibly
ignored the plain and unambiguous language of the CBA, adding
new provisions that appear nowhere in the contract.
Id. at 13-14. For this reason, according to the
District, the Commonwealth Court did not err in vacating the
award, which derived not from the CBA itself but from these
manufactured provisions. Id.
this Court's articulation of the essence test has evolved
over time, we first formally adopted the deferential standard
of review more than forty years ago in Beaver
County. There, we explained that the standard of review
applicable to grievance arbitration awards was consistent
with the standard of review under federal labor law.
Beaver County, 375 A.2d at 1272. In that regard, we
discussed with approval the "Steelworkers Trilogy,"
explaining that the United States Supreme Court had
established therein "that arbitration under the
collective bargaining agreement is the preferred manner of
resolving labor disputes and that the less judicial
participation, the better." Id. at 1272
we adopted the policy as articulated in United Steelworks
v. Enterprise Wheel and Car Corp., 363 U.S.
593, 596 (1960):
The refusal of courts to review the merits of an arbitration
award is the proper approach to arbitration under collective
bargaining agreements. The federal policy of settling labor
disputes by arbitration would be undermined if courts had the
final say on the merits of the awards.
An arbitrator is confined to interpretation and application
of the collective bargaining agreement; he does not sit to
dispense his own brand of industrial justice. He may, of
course, look for guidance from many sources, yet his
award is legitimate only so long as it draws its essence from
the collective bargaining agreement. When the
arbitrator's words manifest an infidelity to this
obligation, courts have no choice but to refuse enforcement
of the award.
Beaver County, 375 A.2d at 1272.
particular relevance to the case at bar, this Court in
Beaver County explained that because the task of
interpreting a CBA involves determining the intention of the
contracting parties, as evidenced by their agreement and the
circumstances surrounding its execution, "the
arbitrator's award is based on a resolution of a question
of fact and is to be respected by the judiciary if 'the
interpretation can in any rational way be derived from the
agreement, viewed in light of its language, its context, and
any other ...