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Employers May Be Required to Arbitrate Disputes Under an

July 1, 1992

It is a fundamental rule of labor law that arbitration is a matter of contract and that a party may be required to submit a dispute to arbitration only if it has agreed to do so. Thus, when a collective bargaining agreement containing an arbitration provision expires, an employer generally cannot be compelled to arbitrate grievances arising out of facts that occur after the agreement's expiration. The U.S. District Court for the Southern District of New York recently limited the application of this principle. The court ruled, in Maxwell MacMillan Co., Inc. v. District 65, United Auto Workers, No. 90 Civ. 2594 (S.D.N.Y., May 11, 1992), that an employer may be required to arbitrate disputes arising after the expiration of a collective bargaining agreement when, following an impasse in negotiations, an employer implements its final contract offer and the union "accepts" the offer by refraining from striking.

Under the National Labor Relations Act (the "NLRA"), the parties to a collective bargaining agreement which expires are required to negotiate in good faith to conclude a new agreement. In the event the parties are unable to reach agreement, and provided the employer has negotiated in good faith and the negotiations have reached an impasse, the employer may implement, even over the union's objection, new terms and conditions of employment consistent with the last offer made to the union.

This was the context in which the Maxwell case arose. Collective bargaining between the employer and District 65, UAW, AFL-CIO (the "Union") reached an impasse, and the employer proceeded to implement its final offer. That offer included various changes in the expired agreement, but did not include any modification of the agreement's grievance procedure, which provided for the arbitration of all disputes arising under the agreement. Although the Union never formally accepted the implemented offer, it did not call a strike and the employees continued to work. Over one year after the implementation, three employees were laid off and the Union filed a grievance, claiming that the layoffs violated the seniority provision of the parties' collective bargaining agreement.

The employer refused to arbitrate the grievance on the grounds that the collective bargaining agreement had expired and that there was therefore no contract requiring arbitration in effect. The Union filed an action in federal district court to compel arbitration, arguing that notwithstanding the absence of a formal written acceptance by the Union of the terms implemented by the employer, the Union's conduct in refraining to call a strike manifested an acceptance of the employer's final offer. Since that offer had not purported to modify the expired agreement's arbitration provision, the Union contended, an enforceable contractual obligation to arbitrate existed.

The court agreed, and ordered arbitration of the grievance. The court reasoned that "[The Union] manifested its acceptance of [the employer's] final offer not by words, but by conduct." The final offer, therefore, became a legally enforceable interim agreement, under which the employer was obligated to arbitrate.

The court noted that this issue has not yet been decided by the U.S. Court of Appeals for the Second Circuit in New York, and that other courts have reached differing results on the issue. For example, the U.S. Court of Appeals for the Tenth Circuit has held that the provisions in a final offer can never be legally enforceable unless there is a written acceptance. See United Food & Commercial Workers v. Gold Star Sausage Co., 897 F.2d 1022 (10th Cir. 1990). The Eleventh Circuit Court of Appeals, on the other hand, like the Maxwell court, has ruled that a contractual obligation is created if the union accepts the employer's terms by continuing to work. See United Paperworkers v. International Paper Co., 920 F.2d 852 (11th Cir. 1991).

Ultimately, the issue of the obligation to arbitrate under terms of employment unilaterally implemented by an employer will likely be decided by the U.S. Supreme Court. In the meantime, an employer which intends to implement new terms and conditions of employment after an impasse in negotiations may wish to advise the union that the employer will not arbitrate disputes arising after the expiration of the collective bargaining agreement or, alternatively, that it will decide, on a case by case basis, whether to arbitrate such disputes. Otherwise, if an arbitration provision was part of the expired agreement and was not modified by the employer's final offer, the employer may be compelled to arbitrate post-contract disputes under an "interim agreement" theory.