By Lee Hornberger
This article discusses Michigan AFSCME Council 25 v Wayne Co, unpublished opinion of Court of Appeals (COA), issued April 21, 2022, Docket Nos 356320 and 356322, lv app pdg, in light of Steelworkers Trilogy [Steelworkers v Warrior Gulf Navigation Co, 363 US 574 (1960); Steelworkers v Am Mfg Co, 363 US 564 (1960), Steelworkers v Enterprise Wheel & Car Corp, 363 US 593 (1960)], Michigan Family Resources, Inc v SEIU, 475 F3d 746 (6th Cir 2007), Detroit Auto Inter-Ins Exch v Gavin, 416 Mich 407 (1982), and Michigan case law concerning court review of labor arbitration awards. Michigan courts have repeatedly stated that labor arbitration awards are to be given more deference than other arbitration awards.
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Michigan AFSCME Council 25 v Wayne Co
Michigan AFSCME is a COA split decision which affirmed the vacatur of a labor arbitration award. On the verge of discharge, the employee took a cash-in retirement while awaiting the outcome of a disciplinary action. The retirement application required the employee to agree to a “separation waiver,” which stated he was terminating his employment and not seeking reemployment. The employer discharged the employee the following day. The employee allowed his retirement application to proceed. He filed a grievance pursuant to the collective bargaining agreement (CBA), seeking reinstatement. The County Retirement System approved the retirement. The employee then transferred his retirement funds to a private IRA. The grievance proceeded to arbitration. The arbitrator found there was no just cause for the discharge and reinstated the employee with a suspension in spite of background IRS issues and the waiver issue. The Circuit Court vacated the award. The COA majority decision affirmed the Circuit Court applying the arbitration award review standard enunciated in Gavin.
The COA dissent stated that because the arbitrator did not exceed his or her authority in issuing the award the Circuit Court should have confirmed the award.
The union filed an application for leave to appeal. On September 28, 2022, the Supreme Court ordered oral argument on the application. The oral argument will address: (1) whether the standard set forth in Gavin, applies to labor arbitration cases, see Bay City Sch Dist v Bay City Ed Ass’n, Inc, 425 Mich 426, 440 n 20 (1986), and Port Huron Area Sch Dist v Port Huron Ed Ass’n, 426 Mich 143, 150 (1986); and (2) whether the Circuit Court erred in vacating the arbitrator’s awards.
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Detroit Auto Inter-Ins Exch v Gavin, 416 Mich 407 (1982)
Gavin involved an arbitration conducted pursuant to an arbitration clause in an insurance policy. The issue was whether the arbitrator erred by finding that automobile no-fault insurance policies could be stacked to allow the insured party to receive the maximum benefit under all policies, contrary to anti-stacking provisions in the policies. The Supreme Court framed the issue as whether an arbitrator’s plainly erroneous contractual interpretation was subject to correction by the courts.
Gavin held,
“The character or seriousness of an error of law which will invite judicial action to vacate an arbitration award under the formula we announce today must be error so material or so substantial as to have governed the award, and but for which the award would have been substantially otherwise. Id. at 443.” Emphasis added.
Gavin stated “[J]ust as a judge exceeds his power when he decides a case contrary to controlling principle of law, so does an arbitrator.” Id.
Significantly, Gavin footnote 11 and related language stated:
“While we announce today a broader role for the judiciary in statutory arbitration cases than is generally assumed in other jurisdictions,[fn 11] we are confident that in doing so we not only properly define the function of courts of equity in such cases, but we secure to litigants who come to the courts for judicial confirmation and enforcement of arbitration results, that which we believe they agreed to: an arbitration award rendered according to the law which governs their dispute.
“[fn 11] There is a large body of case law from other jurisdictions, including the federal courts, construing the federal arbitration act a statute substantially the same as our statute and court rule which professes a very limited judicial review of arbitration awards. … Raytheon Co v Rheem Mfg Co, 322 F2d 173 (CA 9, 1963) (arbitration award cannot be set aside for misinterpretation of law); … ; Associated Teachers of Huntington, Inc v Huntington Bd of Ed, … 306 NE2d 791 (1973) (even where arbitrators state intention to apply correct law and then misapply it, award will not be set aside). Id. at 445.” Emphasis added.
In Michigan AFSCME, the union argues that Gavin applies only to statutory arbitration and not to public sector labor arbitration. Arguably, if Gavin had involved a CBA rather than an insurance contract, the award would not have been vacated. Gavin discussed the importance of insurance anti-stacking provisions. Gavin did not discuss labor-management arbitration or Supreme Court decisions that have reviewed labor-management arbitration.
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Bay City Sch Dist v Bay City Ed Ass’n, Inc, 425 Mich 426 (1986)
Bay City, regardless of its allusion to Gavin, held that the pendency of Michigan Employment Relations Commission (MERC) unfair labor practice charges does not preclude arbitration of breach of contract claims where the statutory claims submitted to MERC and the contractual claims submitted to arbitration arise out of the same controversy. Bay City is a pro-labor arbitration case.
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Port Huron Area Sch Dist v Port Huron Ed Ass’n, 426 Mich 143 (1986)
Port Huron, while reversing a decision upholding an award on the specific facts, restated the narrow grounds for setting aside an award. Port Huron stated,
“The United States Supreme Court expressed the federal policy of judicial deference in the context of labor arbitration in the celebrated Steelworkers’ Trilogy. This Court expressed its general acceptance of such a policy, similarly, in … Kaleva-Norman-Dickson School Dist v KND Teachers’ Ass’n, 393 Mich 583 (1975).
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U.S. Supreme Court 1960 Steelworkers Trilogy
In 1960, the United States Supreme Court issued the Steelworkers Trilogy concerning labor arbitration awards. Steelworkers v Am Mfg Co, 363 US 564 (1960), held that, if the CBA provided that a dispute should be submitted to arbitration, the underlying “question of contract interpretation [is] for the arbitrator,” even though the claim appears to be “frivolous.” “The courts 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 Enterprise Wheel Car Corp, 363 US 593 (1960), considered the role of the federal courts in enforcing awards. “The refusal of courts to review the merits of an arbitration award is the proper approach to arbitration under” CBAs because the “federal policy of settling labor disputes by arbitration would be undermined if courts had the final say on the merits of the awards.” Id. at 596.
Commercial arbitration is a substitute for court litigation. Labor arbitration is a substitute for industrial strife, strikes, and work stoppages. Labor arbitration is the result of collective bargaining. In labor arbitration, there is an ongoing relationship between the parties. Commercial arbitration and labor arbitration serve completely different purposes. Abrams, “Inside Arbitration” (2013), pp. 17 and 333.
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Michigan Family Resources, Inc v SEIU, 475 F3d 746
(6th Cir 2007)(en banc)
Michigan Family discussed the standard for reviewing labor arbitration awards in light of the Trilogy. Michigan Family leaves the parties to what they bargained for — an arbitrator’s decision, not a COA decision — unless the arbitrator (1) committed fraud or other dishonesty, (2) resolved a dispute the parties did not submit to the arbitrator, or (3) did not arguably interpret and apply the CBA. As long as the arbitrator does not go against these requirements, the request for judicial intervention should be denied even though the arbitrator made serious, improvident, or silly errors. It was the “arbitrator’s construction,” not three layers of Federal judicial review, that the parties “bargained for,” and that delegation of decision-making authority must be respected even when time and further review show that the parties in the end have bargained for nothing more than error.
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How Michigan appellate courts have viewed labor arbitration
Lichon v Morse, 507 Mich 424, 467-468 (2021), involved an agreement to arbitrate in an employee manual. Lichon stated,
“… Michigan’s public policy favors arbitration. … In Kaleva …, in the context of [CBA]s, we held that it was appropriate to apply United States Supreme Court precedent regarding the National Labor Relations Act … to contracts entered into under the state’s public employment relations act … . ... This is not a rule we have adopted outside of the context of collective bargaining agreements, and we decline to do so now.” Emphasis added.
Beck v Park West Galleries, Inc, 499 Mich 40 (2016), considered whether arbitration clauses in invoices applied to disputes arising from prior purchases when the invoices for prior purchases did not refer to arbitration. Beck held the arbitration clause in later invoices cannot be applied to disputes arising from prior sales. Beck recognized the policy favoring arbitration of disputes arising under CBAs but said this does not mean an arbitration agreement between parties outside of the collective bargaining context applies to any dispute arising out of any aspect of their relationship. Beck is an example of the Supreme Court treating arbitration within collective bargaining process differently from outside collective bargaining process.
In 36th Dist Ct v Mich Am Fed of State Co and Muni Employees, 493 Mich 879 (2012), the Supreme Court said MCR 3.106 does not preclude reinstatement and back pay where the CBA has a just cause standard for discharge.
Kaleva–Norman–Dickson School District No 6 v Kaleva–Norman–Dickson School Teachers’ Ass’n, 393 Mich 583, 591 (1975), stated,
“The policy favoring arbitration of disputes arising under [CBA]s, as enunciated by … in the Steelworkers’ Trilogy, is appropriate for contracts entered into under the PERA.”
Rembert v Ryan’s Family Steak Houses, Inc, 235 Mich App 118, 163 fn 35 (1999), stated “… judicial review of an arbitral award under a [CBA] is very limited.” Rembert recognizes that labor arbitration awards are given more deference than other arbitration awards.
Ferndale Education Ass’n v School Dist for the City of Ferndale, 67 Mich App 637, 642–643 (1976), stated,
“Questions concerning the scope of judicial review of … awards … in labor disputes have been almost a plague on … courts for years, but the eminently proper attitude that we have taken is one of ‘hands off’. The party that ends up holding the short end of an arbitrator’s award may try desperately to fit the facts within the narrow doorway to the courts, but the judicial policy is clear. In the Steelworkers Trilogy, the United States Supreme Court held that the merits of … the arbitration award are irrelevant when a Federal court is asked to enforce an arbitration … award … . Judicial review is limited to whether the award ‘draws its essence’ from the contract, whether the award was within the authority conferred upon the arbitrator by the collective bargaining agreement. Once substantive arbitrability is determined … judicial review effectively ceases. The fact that an arbitrator’s interpretation of a contract is wrong is irrelevant.” Emphasis added.
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Conclusion
Michigan courts have held that labor arbitration awards are to be given more deference than other arbitration awards. Michigan AFSCME split decision was incorrect in applying Gavin standard rather than Trilogy standard in reviewing a labor arbitration award.
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Lee Hornberger has a national arbitration practice. He is former chair of Alternative Dispute Resolution Section of State Bar of Michigan, Editor Emeritus of The Michigan Dispute Resolution Journal, former member of State Bar’s Representative Assembly, former president of Grand Traverse-Leelanau-Antrim Bar Association, and former chair of Traverse City Human Rights Commission. He is a member of Professional Resolution Experts of Michigan (PREMi), and Diplomate Member of The National Academy of Distinguished Neutrals. He is Fellow of American Bar Foundation and a Fellow of Michigan State Bar Foundation. He received Distinguished Service Award from ADR Section in recognition of significant contributions to field of dispute resolution. He received George N. Bashara Jr. Award from ADR Section in recognition of exemplary service. He has received Hero of ADR Awards from ADR Section. He is in Best Lawyers of America 2018-19 for arbitration, and 2020-23 for arbitration and mediation. He is in 2016-2022 Michigan Super Lawyers for alternative dispute resolution. He received First Tier ranking in Northern Michigan for Mediation by U.S. News – Best Lawyers® Best Law Firms 2022-23; Second Tier ranking in Northern Michigan for Arbitration by U.S. News – Best Lawyers Best Law Firms 2022-23; Second Tier ranking in Northern Michigan for Mediation by U.S. News – Best Lawyers Best Law Firms 2020; and First Tier ranking in Northern Michigan for Arbitration by U.S. News – Best Lawyers Best Law Firms 2019. He earned his B.A. and J.D. from University of Michigan and his LL.M. in Labor Law from Wayne State University. He can be contacted at leehornberger@leehornberger.com. His website is www.leehornberger.com.
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