DOCKET NO. A-0827-14T3
Anthony Merlino, Assistant Township Attorney, argued the cause for appellant (Kenneth B. Fitzsimmons, Township Attorney, attorney; Mr. Merlino, on the briefs). Thomas A. Cushane argued the cause for respondent (The Cushane Law Firm, LLC, attorneys; Mr. Cushane and David P. Hiester, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Leone and Whipple. On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-1864-14. Anthony Merlino, Assistant Township Attorney, argued the cause for appellant (Kenneth B. Fitzsimmons, Township Attorney, attorney; Mr. Merlino, on the briefs). Thomas A. Cushane argued the cause for respondent (The Cushane Law Firm, LLC, attorneys; Mr. Cushane and David P. Hiester, on the brief). PER CURIAM
Plaintiff appeals from the trial court's order confirming an arbitration award. The arbitrator ruled that the prescription drug co-pays for employees who retired between 2003 and 2012 were fixed for life. The arbitrator's ruling directly conflicted with the parties' governing agreement, which increased co-pays for all employees in 2013, including all those who retired after 1999. Because the arbitrator's interpretation is not reasonably debatable, we reverse and remand.
Defendant, the Fraternal Order of Police Lodge No. 156 ("the Union" or "the FOP"), represents certain police officers employed by plaintiff, the Township of Toms River, which before 2006 was known as the Township of Dover ("the Township" or "the employer"). The Union represents the Toms River Police Department's supervisory personnel, including sergeants, lieutenants, and captains, but excluding the police chief and specified other employees.
The Township and the Union have entered into a series of collective negotiation agreements, including an agreement with a term of July 1, 2003 to June 30, 2007 (the 2003 agreement), and an agreement with a term of July 1, 2007 to June 30, 2011 (the 2007 agreement). In 2010, the parties entered into a sidebar agreement, and then a memorandum of understanding, respectively extending the term of the 2007 agreement through December 31, 2011, and then December 31, 2012. The parties next entered into an agreement with a term of January 1, 2013 to December 31, 2015 (the 2013 agreement).
The 2003, 2007, and 2013 agreements addressed "Hospital and Medical Insurance" in Article XIII, and discussed prescription drug co-pays in its Section 3. In the 2003 agreement, Section 3 provided a co-pay of $5 for generic drugs and $10 for brand-name drugs so long as the employer remained with the Blue Cross Blue Shield Program, or $5 for all drugs if the employer changed insurance carriers. In the 2007 agreement, Section 3 provided a prescription co-pay of $5 for generic drugs and $20 for brand-name drugs under the Horizon Blue Cross Blue Shield Program. In the 2013 agreement, Section 3 provided that, under the Township's new prescription drug plan with Benecard, the co-pays for drugs procured "Over the Counter (30-day supply)" were $5 for generic drugs and $30 for brand-name drugs; for drugs procured by "Mail-in (90-day supply)" the co-pay for generic drugs was $0 in 2013 and 2014, and $5 in 2015, while the co-pay for brand-name drugs was $0 in 2013 and $30 in 2014 and 2015.
When the 2013 agreement became effective, fourteen former officers from the bargaining unit had retired (the retirees). Some of the officers had retired during the period covered by the 2003 agreement, and others had retired during the period covered by the 2007 agreement. On behalf of the retirees, the Union filed a grievance, and then an unfair practice charge with the Public Employment Relations Commission (PERC).
PERC referred the matter to binding arbitration and appointed an arbitrator, who resolved the matter on the briefs. In his May 27, 2014 award, the arbitrator sustained the Union's grievance, "find[ing] that the Township violated the parties' Collective Bargaining Agreement when it altered the Prescription co-pay schedule of retirees." The arbitrator ordered:
The Township is to revert to the prescription co-pays as provided in Article XIII, Section 3 of the 2007-11 agreement for all officers who retired prior to the establishment of the 2013-15 contract. The Employer will also reimburse any co-pays made by the retiree beyond the co-pays established in the 2007-2011 agreement.
The Township filed a complaint in the Law Division, seeking to vacate the arbitration award. After hearing argument, the court issued a fifteen-page opinion on August 22, 2014, finding the arbitrator's opinion to be reasonably debatable and granting the Union's motion for summary judgment. On September 5, 2014, the court filed a final judgment and order confirming the arbitrator's opinion and award. The Township appeals.
"We review the court's decision on a motion to vacate an arbitration award de novo." Bound Brook Bd. of Educ. v. Ciripompa, 442 N.J. Super. 515, 520 (App. Div. 2015). However, we, like the Law Division, must apply "[t]he well-established standard" of judicial review of public-sector arbitration awards, namely that "an arbitrator's award will be confirmed 'so long as the award is reasonably debatable.'" Policemen's Benevolent Ass'n v. City of Trenton, 205 N.J. 422, 428-29 (2011) (quoting Linden Bd. of Educ. v. Linden Educ. Assoc., 202 N.J. 268, 276 (2010)). We must hew to that standard of review.
"The public policy of this State favors arbitration as a means of settling disputes that otherwise would be litigated in a court." Badiali v. N.J. Mfrs. Ins. Group, 220 N.J. 544, 556 (2015) (citing Cty. Coll. of Morris Staff v. Cty. Coll. of Morris Staff Ass'n, 100 N.J. 383, 390 (1985)). Arbitration's "usefulness for labor-management issues is well-recognized in this state." Borough of E. Rutherford v. E. Rutherford PBA Local 275, 213 N.J. 190, 201 (2013). Accordingly, "courts grant arbitration awards considerable deference." Ibid. "'[T]o ensure finality, as well as to secure arbitration's speedy and inexpensive nature, there exists a strong preference for judicial confirmation of arbitration awards.'" Ibid. (citation omitted). "[A]rbitration of public-sector labor disputes, in particular, 'should be a fast and inexpensive way to achieve final resolution of such disputes and not merely "a way-station on route to the courthouse."'" Ibid. (quoting Policemen's Benevolent Ass'n, supra, 205 N.J. at 429). "Thus, arbitration awards are given a wide berth, with limited bases for a court's interference." Ibid.
Under the Arbitration Act, N.J.S.A. 2A:24-1 to -11, a "court shall vacate the award in any of the following cases:"
a. Where the award was procured by corruption, fraud or undue means;
b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;
c. Where the arbitrators were guilty of misconduct . . . ; [or]
d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.
[N. J.S.A. 2A:24-8.]
Here, the Township argues that the award was procured by undue means, that the arbitrator exceeded his authority, and that the award violated public policy. "[U]ndue means" encompasses a situation in which the arbitrator has made a mistake of law, "whereas an arbitrator exceeds his or her 'authority by disregarding the terms of the parties' agreement.'" Borough of E. Rutherford, supra, 213 N.J. at 203 (quoting Office of Emp. Relations v. Commc'ns Workers of Am., 154 N.J. 98, 111-12 (1998)).
We first examine if the arbitrator exceeded his authority by disregarding the terms of the parties' agreement. Ibid. Whether the arbitrator exceeded his authority "entails a two-part inquiry: (1) whether the agreement authorized the award, and (2) whether the arbitrator's action is consistent with applicable law." Id. at 212 (citing Commc'ns Workers v. Monmouth Cty. Bd. of Soc. Servs., 96 N.J. 442, 451-53 (1984)).
"[A]n arbitrator may not disregard the terms of the parties' agreement, nor may he rewrite the contract for the parties." Cty. College of Morris, supra, 100 N.J. at 391 (citing State v. State Troopers Fraternal Ass'n, 91 N.J. 464, 469 (1982)). Moreover, "the arbitrator may not contradict the express language of the contract." Linden Bd. of Educ., supra, 202 N.J. at 276. "Thus, our courts have vacated arbitration awards as not reasonably debatable when arbitrators have, for example, added new terms to an agreement or ignored its clear language." Policemen's Benevolent Ass'n, supra, 205 N.J. at 429-30 (citing Cty. Coll. of Morris, supra, 100 N.J. at 397-98).
Here, the question was whether officers who retired during the terms of the 2003 or 2007 agreements had to pay the increased prescription co-pays in the 2013 agreement. Article XIII of each agreement addressed the health insurance in Section 1, the prescription drug plan in Section 3, and benefits for retirees in Section 6.
In all of the agreements, Section 6 specified that the Township provided health, prescriptions, and other insurance coverage to retirees pursuant to N.J.S.A. 40A:10-23, which states that an "employer may, in its discretion, assume the entire cost or a portion of the cost of such coverage and pay all or a portion of the premiums for" retirees provided they meet certain conditions. The Township elected by ordinance to provide health and prescription insurance to retirees meeting certain conditions, "subject to co-pay provisions in the employment contract of the respective bargaining units." Twp. of Toms River Code § 104.14(I), (J).
The 2003 and 2007 agreements used effectively-identical language. Section 1 provided: "During the period of this contract, the Employer will provide health insurance coverage to employee, spouse and eligible dependent children[.]" Section 3 provided: "During the period of this contract the Employer . . . agrees to provide a prescription drug plan" with the co-pays specified above. Section 6 provided that "the employer agrees to provide such benefits enumerated in Sections 1 through 4 of this Article to all regular police officers who have retired." Section 6(A) specified: "All employees employed on or before September 2, 1999 and who thereafter retire shall be entitled to such benefits enumerated in Sections 1 through 4 of this Article," provided they met certain conditions. Section 6(B) specified: "All employees of the department employed by the employer after September 2, 1999 and who thereafter retire shall be entitled to such benefits enumerated in Sections 1 through 4 of this Article," provided they met certain conditions.
This citation is emphasized in the original 2003 and 2007 agreements as indicated here and below.
Section 1 in the 2013 agreement similarly provided: "The Township shall provide medical insurance coverage to Employees covered by this agreement, their spouses, and eligible dependent children[.]" Section 3 similarly provided: "The Township shall provide a prescription drug plan" with $0, $5 and $30 co-pays. Section 6 similarly provided that "the Township shall provide the benefits enumerated in Sections 1 through 4 of this Article to all regular police officers who have retired." Section 6(A) similarly specified: "All Employees employed on or before September 2, 1999, and who thereafter retire shall be entitled to the benefits enumerated in Sections 1 through 4 of this Article," provided they met certain conditions. Section 6(B) similarly specified: "Employees employed after September 2, 1999, and who thereafter retire shall be entitled to the benefits enumerated in Sections 1 through 4 of this Article," provided they met certain conditions.
Thus, by their plain language, Sections 1 and 3 of the 2003 and 2007 agreements only specified the benefits and prescription drug co-pays applicable "during the period of this contract." This limitation was clearly made applicable to retirees by Section 6's provision to retirees of "the benefits enumerated in Sections 1 through 4." The 2013 agreement similarly made its benefits and prescription drug co-pays applicable during the period of the 2013 agreement to all "officers who have retired" at any time after "September 2, 1999." Under the plain language of the 2013 agreement, during its term the applicable co-pays for employees and retirees alike were the co-pays set forth in the 2013 agreement.
Instead, the arbitrator posited that "each of the agreements noted provide the co-pays established for officers who retired during the life of said agreement." Specifically, the arbitrator found that the officers who retired during the terms of the 2003 and 2007 agreements were entitled to pay only the co-pays set forth in the 2007 agreement for the rest of their lives, despite the parties' subsequent 2013 agreement setting higher co-pays.
The arbitrator's interpretation disregarded and contradicted the plain language of the 2013 agreement. The arbitrator also effectively rewrote the 2013 agreement so that it determined the benefits only for "officers who will retire" during the term of the 2013 agreement, and only for officers who retired after December 31, 2012. Moreover, the arbitrator's interpretation also disregarded and contradicted the sections of the 2003 and 2007 agreements plainly providing benefits only "[d]uring the period of this contract." Indeed, the arbitrator effectively added a term to the 2007 agreement guaranteeing the benefits it provided during the lifetime of the retirees. Cf. Petersen v. Twp. of Raritan, 418 N.J. Super. 125, 129-30 (App. Div. 2011) (agreement provided that a retiree "shall continue to receive all health and medical benefits provided by the employer for the remainder of his life"). It was improper for the arbitrator to disregard, contravene, and rewrite the plain language of these provisions.
The arbitrator also disregarded the 2007 agreement's Article XXIX, which specified its limited "Duration": "The term of this agreement shall be from July 1, 2007 through June 30, 2011."
The impropriety of the arbitrator's misinterpretation of the agreements' plain language is illustrated by the cases our Supreme Court cited and reaffirmed in Policemen's Benevolent Ass'n, supra, 205 N.J. at 429-30. In Cty. Coll. of Morris, supra, the Court reversed an award where the arbitrator ignored the unambiguous meaning of a clause and added an extra term. 100 N.J. at 389-90, 396-97. We reversed an award where the arbitrator "ignor[ed] the clear language of the agreement" setting the timing of benefits in City Ass'n of Supervisors & Adm'rs v. State Operated Sch. Dist., 311 N.J. Super. 300, 308, 312 (App. Div. 1998). We also reversed the confirmation of an award that disregarded a term of the agreement and essentially "rewrote the agreement" in PBA Local 160 v. Twp. of N. Brunswick, 272 N.J. Super. 467, 475 (App. Div.), certif. denied, 138 N.J. 262 (1994). These opinions and others held that an arbitrator's interpretation was not reasonably debatable. See, e.g., State Troopers Fraternal Ass'n, supra, 91 N.J. at 472 (reversing an award where "the arbitrator disregarded an essential condition agreed upon by the parties"); Port Auth. Police Sergeants Benevolent Ass'n v. Port Auth. of N.Y. & N.J., 340 N.J. Super. 453, 461 (App. Div. 2001) (reversing an award where the arbitrator "inserted an additional contract provision").
Even if the language of the agreements was ambiguous, the arbitrator's interpretation is contradicted by the prior dealings of the parties. "The past practice of the contracting parties is entitled to 'great weight' in determining the meaning of ambiguous or doubtful contractual terms" in collective bargaining agreements. Hall v. Bd. of Educ, 125 N.J. 299, 306 (1991) (citation omitted).
When the 2007 agreement increased the co-pay for brand-name drugs from $10 to $20, no claim was made that officers who had retired under the 2003 agreement had a right to continue to pay the $10 co-pay provided in the 2003 agreement. Rather, those retired officers paid the 2007 agreement's $20 co-pay. Further, when the parties' 2010 memorandum of understanding extended the 2007 agreement, deleting the traditional health insurance plan in favor of preferred-provider-organization (PPO) and point-of-service (POS) plans, no claim was made that the co-pay should revert back to $5 under the 2003 agreement. Nor was such a claim made when the Township changed insurance plans in 2012. These "[p]ast dealings between the parties also belie [the Union's] claim." Petersen, supra, 418 N.J. Super. at 134.
When asked at appellate oral argument about its failure to raise any such claims, the Union responded that, after meeting with the retirees, it made a tactical decision to accept the 2007 agreement with its higher brand-name drug co-pays because the overall health benefits plan in the 2007 agreement was better. The Union's response does not explain away the course of dealing that indicated its concurrence that each agreement's prescription drug section governed only during the agreement's term. "Under long-settled principles, the secret, unexpressed intent of a party cannot be used to vary the terms of an agreement. 'A contracting party is bound by the apparent intention he or she outwardly manifests to the other party.'" Domanske v. Rapid-American Corp., 330 N.J. Super. 241, 246 (App. Div. 2000) (citation omitted). "In interpreting a contract, '[i]t is not the real intent but the intent expressed or apparent in the writing that controls.'" Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 168 N.J. 124, 135 (2001) (citation omitted).
The arbitrator's ruling also conflicted with its own rationale. Although the arbitrator reasoned that "each of the agreements noted provide the co-pays established for officers who retired during the life of said agreement," he illogically ruled that officers who retired during the life of the 2003 agreement would forever pay the prescription drug co-pays established in the 2007 agreement.
The arbitrator's interpretation also violated "ordinary principles of contract law." M&G Polymers USA, LLC v. Tackett, ___ U.S. ___, ___, 135 S. Ct. 926, 930, 190 L. Ed. 2d 809, 813 (2015). In M&G Polymers, the United States Supreme Court reversed a ruling that granted retirees lifetime contribution-free health care benefits under a prior collective bargaining agreement, despite a subsequent increase in required contributions. Id. at ___, 135 S. Ct. at 930-31, 190 L. Ed. 2d at 813-14. The prior agreement's retiree health benefits section, like the 2007 agreement here, referenced another section stating that the employer would provide health benefits to employees "for the duration of this Agreement." Id. at ___, 135 S. Ct. at 931, 190 L. Ed. 2d at 814.
The Court found that the ruling failed to consider "the traditional principle that courts should not construe ambiguous writings to create lifetime promises." Id. at ___, 135 S. Ct. at 936, 190 L. Ed. 2d at 820 (citing 3 A. Corbin, Corbin on Contracts § 553, p. 216 (1960)). The ruling also "failed to consider the traditional principle that 'contractual obligations will cease, in the ordinary course, upon termination of the bargaining agreement.'" Ibid. (quoting Litton Financial Printing Div. v. NLRB, 501 U.S. 190, 207, 111 S. Ct. 2215, 2226, 115 L. Ed. 2d 177, 198 (1991)). "[W]hen a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life." Ibid. The Court criticized the refusal "to apply general durational clauses to provisions governing retiree benefits," and found that requiring "a specific durational clause for retiree health care benefits . . . . distort[s] the text of the agreement and conflict[s] with the principle of contract law that the written agreement is presumed to encompass the whole agreement of the parties." Id. at ___, 135 S. Ct. at 936, 190 L. Ed. 2d at 819.
Here, Article XXXVI of the 2003, 2007, and 2013 agreements explicitly affirmed the "Completeness of [the] Agreement." Moreover, New Jersey follows the same "well-settled principles of law. Perpetual contractual performance is not favored in the law and is to be avoided unless there is a clear manifestation that the parties intended it." In re Estate of Miller, 90 N.J. 210, 218 (1982) (citing 3 Corbin, supra, § 553). Generally, "it is fundamental in the law of contracts that upon the expiration of the period thus prescribed the agreement ceased to exist and its provisions had no in futuro force and effect." Owens v. Press Publ'g Co., 20 N.J. 537, 550 (1956).
Our Supreme Court has reversed an award because the arbitrator "violated well-settled principles of contract law." Commc'ns Workers, supra, 96 N.J. at 452. Moreover, we have reversed an award where the arbitrator failed to follow a judicial interpretation by this court. In re Arbitration Between FOP Lodge #97 & Gloucester Cty. Sheriff's Office, 364 N.J. Super. 294, 300 (App. Div. 2003).
Here, the Township cited to the arbitrator a judicial interpretation by this court, but the arbitrator failed to follow it. In Petersen v. Twp. of Raritan, 418 N.J. Super. 125 (App. Div. 2011), the township's collective bargaining agreement provided that "[a]ny employee who retires . . . shall continue to receive all health and medical benefits provided by the employer for the remainder of his life." Id. at 129-30. After Petersen retired and elected a traditional health plan, the township and the union reached a new agreement eliminating the traditional plan in favor of a POS plan. Id. at 130.
We ruled Petersen had no right to receive a lifetime equivalent of the traditional plan once it was no longer offered to active employees. Id. at 132-34. We rejected his reliance on the agreement's provision that "[t]he employer agrees to continue all insurance currently in effect upon the signing of this agreement for employees and their dependents, at the same levels of coverage," because it fixed the level of benefits only "for the term of the agreement." Id. at 133-34. We stressed that the agreement and the past dealings between the parties showed that the coverage was "not 'immutable.'" Id. at 134-35.
In Petersen, we refused to add terms to the agreement or to "make a better contract for . . . the parties than the one which the[y] . . . created." Id. at 135 (quoting Maglies v. Estate of Guy, 193 N.J. 108, 143 (2007)). Rejecting Petersen's contention that he was "vested" in the traditional plan, we emphasized that he "remained entitled to the health care coverage as extended to all employees and retirees alike." Id. at 135-36.
As in Petersen, the agreements here provided the retirees would receive the same benefits provided to active employees. The agreements and the parties' course of dealing showed that those benefits "were not 'immutable'" and only "remained unaltered for a limited period" during "the term of the agreement." Id. at 134. Like Petersen, the retirees here "remained entitled to the health care coverage as extended to all employees and retirees alike." Id. at 136. If Petersen had no right to fixed lifetime benefits, despite an agreement providing that he would receive benefits "for the remainder of his life," id. at 130, then the retirees here clearly have no such right under the 2007 agreement, which provided benefits only "[d]uring the period of this contract."
The arbitrator unsuccessfully attempted to distinguish Petersen. First, he noted the 2007 agreement's Section 6 specifically granted retirees "the benefits enumerated in Sections 1 through 4 ," and Section 1 stated the benefits to be provided "[d]uring the period of this contract." However, as discussed above, that language limits the duration of the benefits to the term of the agreement.
Second, the arbitrator noted Petersen mentioned, but was not focused on, prescription drug co-pays. See id. at 129, 130 n.2, 134-35. Yet that did not justify ignoring the legal principle established in Petersen that a retiree cannot claim a right to fixed lifetime benefits, superior to the benefits given to active employees, based on contractual provisions similar to those involved here.
Third, the arbitrator tried to distinguish Petersen because Petersen sought to maintain a "specific insurance benefit plan." Id. at 128. However, Petersen also sought to maintain "the level and type of benefits," "the type and level of health benefits," "'the level of coverage,'" and "the coverage equivalent." Id. at 129, 132, 136. We found that the agreement did not grant him either "a particular plan or level of coverage," and that "the benefits were not restricted to the level offered at his retirement." Id. at 134-35.
Thus, the arbitrator's failure to follow Petersen further shows his interpretation was not "consistent with applicable law." Borough of E. Rutherford, supra, 213 N.J. at 212.
The arbitrator's other rationales also are not reasonably debatable. Rather than address the language of the agreements directly governing the applicability of the prescription drug co-pays, the arbitrator relied on other provisions. We recognize that if an arbitrator "'weav[es] together' all those provisions that bear on the relevant question," the award may be upheld "even if the arbitrator's decision appears to conflict with the direct language of one clause of an agreement, so long as the contract, as a whole, supports the arbitrator's interpretation." Policemen's Benevolent Ass'n, supra, 205 N.J. at 430 (citation omitted). However, neither the other provisions cited by the arbitrator nor the agreement as a whole supports his interpretation here.
First, the arbitrator noted that Article I, Section 1 of the agreements provided that the Union was "the sole and exclusive representative of all Employees in the negotiating unit as defined in Article I, Section 2," which in turn stated that "[t]he bargaining unit shall consist of all supervisory personnel including Sergeants, Lieutenants and Captains[.]" The arbitrator stated that this language allows the FOP to represent "the active employees within the defined bargaining unit," not the "retired members of the department," so "the FOP has no authority to negotiate for retired members" and "cannot negotiate new benefit levels or new co-pays for retired members." The arbitrator added: "As the Union had no contractual right in 2013 to negotiate for employees who retired in 2004 it is only logical that the co-pays in the 2013-15 agreement were not negotiated to apply to said retirees but to the active members of the department and any officer who retires during the term of said agreement."
The quoted words are from the 2003 and 2007 agreements. The 2013 agreement provided that the Union was "the sole and exclusive representative of all employees in the negotiating unit as defined in Article I, Section 2," which stated that "[t]he bargaining unit encompasses all supervisory personnel including sergeants, lieutenants, and captains[.]"
The arbitrator's rationale cannot logically explain why he allowed the officers who retired during the term of the 2003 agreement to get the benefits of the 2007 agreement. More importantly, the arbitrator's rationale was contradicted by the plain language of the agreements and the parties' past practices. Contrary to the arbitrator's reasoning, the express terms of Section 6, 6(A), and 6(B) of the 2013 agreement showed that the parties were establishing the health insurance and prescription drug benefits for all officers who retired after "September 2, 1999."
Indeed, the arbitrator misapprehended the law he cited to justify his rationale. The arbitrator cited a PERC decision which held the FOP could "enforce a contract on behalf of retired employees because it has a cognizable interest in ensuring that the terms of its collective negotiations agreements are honored." Twp. of Voorhees v. Voorhees Police Officers Ass'n, P.E.R.C. No. 2012-13 (Sept. 22, 2011), aff'd, No. A-1742-11 (App. Div. Aug. 28, 2012). The PERC decision did not hold that a union and employer cannot choose to negotiate about the benefits of persons already retired. Rather, it simply noted that an employer is not under an obligation to negotiate over benefits of already retired employees, citing Allied Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157, 92 S. Ct. 383, 30 L. Ed. 2d 341 (1971).
However, Allied Chemical & Alkali Workers made clear that "nothing in this opinion precludes" a union from "permissive bargaining over the benefits of already retired employees" "if the employer agrees." Id. at 171 n.11, 182 n.20, 92 S. Ct. at 393 n.11, 399 n.20, 30 L. Ed. 2d at 352 n.11, 359 n.20. In M&G Polymers, supra, the United States Supreme Court rejected reliance "on the premise that retiree health care benefits are not subjects of mandatory collective bargaining. Parties, however, can and do voluntarily agree to make retiree benefits a subject of mandatory collective bargaining. Indeed, the employer and union in this case [previously] entered such an agreement." ___ U.S. at ___, 135 S. Ct. at 936, 190 L. Ed. 2d at 819. Similarly, in the 2003 and 2007 agreements, the parties here had previously negotiated the benefits of officers who had already retired, just as they did in the 2013 agreement.
Second, the arbitrator hypothesized that
tying retiree benefits to those of active members could lead to a situation in which
the active members agree to a higher co-pay in return for a higher salary increase which higher co-pay would then under the Employer's argument be passed onto the retirees who would not benefit from the higher salary.
However, no one claims such a situation occurred here. In M&G Polymers, the Court found such predictions to be "too speculative and too far removed from the context of any particular contract to be useful in discerning the parties' intention." Id. at ___, 135 S. Ct. at 935, 190 L. Ed. 2d at 818-19 (overruling Int'l Union v. Yard-Man, Inc., 716 F.2d 1476, 1479, 1482 (1983)).
Third, the arbitrator cited Article XIII, Section 8, which stated that the "employer may change insurance carriers at its option, provided substantially similar benefits are provided." However, such a provision only "fix[es] the level of benefits for the term of the agreement." Petersen, supra, 418 N.J. Super. at 134; see, e.g., Borough of E. Rutherford, supra, 213 N.J. at 194-95, 198, 203-04 (upholding an award relying on a similar provision to bar the borough's unilateral, mid-term increase in medical co-pays). Here, the challenged co-pays were not the result of a unilateral mid-contract change by an employer, but of a negotiated agreement between the parties that did not view the 2007 agreement as precluding their new 2013 agreement.
The quoted words are from the 2003 and 2007 agreements. The 2013 agreement stated: "Employer may change insurance carriers at its option provided substantially equivalent benefits are provided." --------
Thus, none of the arbitrator's rationales justified the arbitrator's disregard of the express terms of the parties' agreements. We are mindful that "judicial interference with the role of the arbitrator is to be strictly limited. An arbitrator's award is not to be cast aside lightly." Cty. Coll. of Morris, supra, 100 N.J. at 390. "Moreover, where a collective bargaining agreement provides for binding arbitration, 'it is the arbitrator's construction that is bargained for,' and not a court's construction." Policemen's Benevolent Ass'n, supra, 205 N.J. at 429 (citation omitted).
However, "[t]hat is not to suggest that an arbitrator's award is impervious to attack." Ibid. "Indeed, it is axiomatic that an arbitrator's '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.'" Ibid. (quoting United Steelworkers v. Enter. Wheel & Car Corp., 363 U.S. 593, 597, 80 S. Ct. 1358, 1361, 4 L. Ed. 2d 1424, 1428 (1960)). Unfortunately, that is the case here. Therefore, we vacate the arbitrator's award because he exceeded his authority.
The Township argues the arbitrator also employed "undue means" by making a mistake of law. Borough of E. Rutherford, supra, 213 N.J. at 203. "When reviewing an arbitrator's interpretation of a public-sector contract, in addition to determining whether the contract interpretation is reasonably debatable, the court must also ascertain whether the award violates law[.]" Office of Emp. Relations, supra, 154 N.J. at 112 (citing Commc'ns Workers, supra, 96 N.J. at 448, 453, and PBA Local 160, supra, 272 N.J. Super. at 473). "[T]he concept of 'undue means' has been greatly enlarged in the public sector." Old Bridge Bd. of Educ. v. Old Bridge Educ. Ass'n, 98 N.J. 523, 527 (1985); PBA Local 160, supra, 272 N.J. Super. at 474. "[I]n a public-sector arbitration setting, a court can properly vacate an award because of a mistake of law." Tretina v. Fitzpatrick & Assocs., 135 N.J. 349, 364 (1994) (citing Commc'ns Workers, supra, 96 N.J. 442); cf. id. at 356-58 (distinguishing the former and current private arbitration standards). "That exception is necessary because public policy demands that a public-sector arbitrator, who must consider the effect of a decision on the public interest and welfare, issue a decision in accordance with the law." Id. at 364-65; accord N.J. Tpk. Auth. v. N.J. Tpk. Supervisors Ass'n, 143 N.J. 185, 198 (1996).
As set forth above, the arbitrator's award should be vacated because it "violated well-settled principles of contract law," as demonstrated by the subsequent decision in M&G Polymers. Commc'ns Workers, supra, 96 N.J. at 452. Furthermore, it should be vacated because the arbitrator failed to follow the judicial interpretation in Petersen. FOP Lodge #97, supra, 364 N.J. Super. at 295-300; see also Perez v. Am. Bankers Ins. Co., 81 N.J. 415, 420 (1979).
In addition to the grounds to vacate an arbitration award set forth in N.J.S.A. 2A:24-8(a), a court may vacate an award if "the award is contrary to public policy." Policeman's Benevolent Ass'n, supra, 158 N.J. at 400. The Township argues that the award violated public policy because of the recent enactment of the Pension and Health Care Benefits Act, L. 2011, c. 78 (Chapter 78). Chapter 78 requires county and municipal employees to pay a portion of the premiums for their health care benefits coverage. N.J.S.A. 40A:10-21.1.
"Chapter 78 generally serves a legitimate public policy goal" of addressing "the serious fiscal issues that confront the State." DePascale v. State, 211 N.J. 40, 63-64 (2012). Like its predecessor legislation, Chapter 78 reflects the "legitimate State interests" in "controlling the cost of providing health care benefits to public employees" in order "to ensure that health care programs remain viable for future as well as current public employees and retirees," and to ensure "that the State's taxpayers are not unduly burdened." See Teamsters Local 97 v. State, 434 N.J. Super. 393, 422-23, 429 (App. Div. 2014); see also In re City of Camden, 429 N.J. Super. 309, 334 (App. Div.) (vacating an award where the arbitrator "declin[ed] to be 'guided' by N.J.S.A. 40A:10-21.1"), certif. denied, 215 N.J. 485 (2013).
Here, the arbitrator found that the co-pay increases were not de minimis "[f]or an officer on a fixed pension," but did not address the economic burden on the Township.
Because the arbitrator adopted a construction of the parties' agreements which was not reasonably debatable and contrary to law, he exceeded his authority and used undue means. Thus, his award cannot stand. Accordingly, we need not reach whether the award also violated public policy.
Reversed and remanded to the Law Division for entry of an order vacating the arbitrator's award and denying the unfair practice charge, and for any additional necessary proceedings. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION