Independent School Dist. 88 v. Local 284

Citations: 490 N.W.2d 431; 1992 WL 208576Docket: C8-92-589

Court: Court of Appeals of Minnesota; October 28, 1992; Minnesota; State Appellate Court

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Independent School District No. 88 appeals a decision denying its motion to vacate an arbitration award related to the termination of five food service employees following the district's decision to subcontract this operation. The employees were represented by the School Service Employees Union Local #284, which has a collective bargaining agreement in place from July 1, 1987, to June 30, 1988, with provisions that extend the agreement until modifications are made with proper notice.

On February 18, 1988, the union expressed its intent to modify the agreement, leading to negotiations throughout 1988 and 1989. The school district's proposed changes included waiving rights under the comparable-worth statute, imposing a three-year wage freeze, and eliminating holiday and vacation benefits. The union rejected these proposals and sought interest arbitration, which the school district also rejected. Subsequently, the school district contracted with Taher, Inc. for food services and terminated the five employees, who were informed they could be hired by Taher. However, these employees lost health insurance, with two obtaining costly alternatives and three remaining uninsured, along with the loss of accumulated sick leave and funds from the Public Employees Retirement Association.

On August 4, 1989, the union filed a grievance claiming unjust termination and violation of the agreement, seeking reinstatement and back pay. The school district refused to arbitrate, arguing that subcontracting was a nonarbitrable managerial decision and that the agreement was no longer effective. The court ultimately affirmed the denial of the motion to vacate the arbitration award.

The district court initially ruled that the duration clause of the employment agreement was subject to arbitration but declined to compel arbitration regarding the subcontracting decision, viewing it as an inherent management right of the school district. However, the appellate court reversed this decision, stating that the issue of subcontracting was reasonably debatable and should be addressed by an arbitrator. The court rejected the school district's argument that it had terminated jobs rather than employees, concluding that the action was indeed a termination of the employees. 

The matter proceeded to arbitration, where the arbitrator ruled that the school district's decision to subcontract the food service operation was arbitrable. The arbitrator found that this decision effectively terminated union employees, stripped them of benefits, and eliminated the union's role as their representative. Additionally, the arbitrator noted that the food service program had improved financially. Importantly, the agreement did not explicitly reserve the right to subcontract for the school district, nor did it prevent the union from grieving this issue. Consequently, the arbitrator determined that the school district had terminated the employees without just cause and awarded their reinstatement with back pay.

The district court upheld the arbitrator's decision, leading to an appeal by the school district. The legal analysis included the assertion that judicial interference with the arbitration process falls under the Uniform Arbitration Act. The school district argued that the collective bargaining agreement was no longer effective at the time of subcontracting; however, the agreement continued to govern the relationship between the parties, as it contained no expiration clause, and modifications had not been made under the Public Employment Labor Relations Act (PELRA). The court concluded that the agreement was in effect during the termination and subcontracting events and that the question of subcontracting's arbitrability should not be limited by the school district's assertions.

The key issue is whether the termination of employees due to subcontracting falls under arbitration. The arbitrator's authority is based on the parties' intent as shown in their contract. If arbitrability is closely linked to the merits of a dispute, the arbitrator's decision on arbitrability can also address the merits, provided it is derived from the agreement. A grievance is defined as a dispute regarding the application or interpretation of employment terms within the agreement. The agreement grants the arbitrator jurisdiction over disputes under the Public Employment Labor Relations Act (PELRA), which limits grievances to issues certified and submitted by the board, excluding matters outside employment terms unless agreed upon by the employer. Employment terms include hours, compensation, fringe benefits, and personnel policies. The agreement also preserves the school district's managerial rights, including budget and personnel decisions.

If subcontracting relates to employment terms, the dispute is arbitrable, necessitating a merit resolution to determine arbitrability. The arbitrator concluded that the decision to subcontract impacted the employment terms and that terminating five employees violated the contractual requirement for just cause, compromising their wage and benefit rights. The arbitrator also found that the food service program was profitable, contrary to claims of a deficit. Thus, the school district's actions were deemed to undermine the employees' rights under the agreement, aligning with Minnesota case law that views job termination due to subcontracting as a negotiable employment term, not merely an inherent managerial decision.

The decision to subcontract is subject to negotiation regarding employment terms and conditions. Case law indicates that if the arbitrability of subcontracting effects is "reasonably debatable," it should favor arbitration, aligning with legislative policies that support arbitration in disputes related to employment conditions. The U.S. Supreme Court has ruled that broad arbitration clauses cover disputes not explicitly addressed in contracts, emphasizing that any doubts about arbitrability should lean towards arbitration. A federal appeals court similarly held that even without explicit subcontracting provisions, disputes may still be arbitrable due to implied covenants in the contract.

The school district's argument that compliance with notification and negotiation provisions absolves it from liability is rejected; such actions do not excuse contract violations. While the school district can subcontract, it must adhere to existing contract terms, making arbitration appropriate if violations occur, and reinstatement with back pay is a valid remedy. 

In dissent, Judge Harten contends that the majority's ruling implies that any management decision to subcontract will be treated as a grievance, despite the absence of language in the collective bargaining agreement limiting the school board’s right to subcontract. The dissent argues that the focus of General Drivers is on negotiating the effects of subcontracting, not the decision itself, suggesting that the subcontracting decision should not be treated as arbitrable.

The management's right to subcontract becomes ineffective if the decision to subcontract is influenced by existing subcontracting practices, as it is subject to the grievance procedure outlined in the General Drivers agreement. The language regarding subcontracting consequences indicates that subcontracting leads to job losses within the bargaining unit, which in turn affects employment terms and conditions, all of which are grievable under the agreement. Consequently, the management's purported right to subcontract is rendered meaningless. An arbitrator found that the decision to subcontract violated the agreement, leading to an order for the reinstatement of discharged employees with back pay, effectively nullifying the subcontracting decision. The speaker would reverse the trial court's approval of the arbitrator's ruling. Although typically, such orders are not appealable, this specific order is interpreted as equivalent to a confirmation of the arbitration award, making it appealable under Minnesota law.