United States: Court Upholds Last Chance Agreement

Last Updated: March 1 1999


A last chance agreement will ordinarily supplant the terms of a collective bargaining agreement, and an arbitrator's award that fails to defer to a valid last chance agreement may be vacated by the courts. So rules the U.S. Court of Appeals in a recent case, International Union of Operating Engineers v. Cooper Natural Resources, 163 F.3d 916 (5th Cir. 1999).

The employer had instituted a comprehensive drug and alcohol policy, which it had negotiated with the union and incorporated into the parties' collective bargaining agreement ("Agreement"). During a random drug screening, employee Gates tested positive for barbiturates. The employer discharged Gates as a result, but later agreed to reinstate him with no back pay under a last change agreement ("LCA") negotiated with the union representing Gates. Pursuant to the terms of the LCA, Gates agreed: (1) to abstain from using drugs in violation of the drug policy; and (2) to submit to regular drug testing for twelve months. The LCA provided that Gates' failure to comply with its terms would result in his immediate termination.

Almost immediately after execution of the LCA, the union filed a grievance demanding that the LCA be set aside. The union contended that Gates should not have been disciplined because he was not aware of the drug policy. The employer denied the grievance, and the union demanded arbitration. Under the parties' Agreement, an arbitrator could interpret and apply the Agreement, but had no authority to change, modify, amend or supplement it.

After a hearing, the arbitrator ruled that the employer did not have grounds to discipline Gates because it had failed to prove that Gates had notice of the drug policy. The arbitrator sustained the union's grievance and ordered that the LCA be set aside and that Gates receive full back pay for the time he was out of work. The employer sued in Federal court to vacate the arbitrator's award. The Federal court ruled that the arbitrator had exceeded his authority under the Agreement, and it set aside the award. The union appealed.

The U.S. Court of Appeals had no difficulty finding that Gates had notice of the drug policy since: (1) it was part of the parties' Agreement, which Gates had ratified; (2) the employer had distributed two memos to all employees regarding the drug policy; and (3) by consenting to a urine sample after being informed that it would be screened for drugs, Gates was again effectively put on notice that there was a drug policy.

The Court of Appeals sharply criticized the arbitrator's disregard of the LCA. The court stated that the LCA was a binding contract that was a supplement to the Agreement and was "just as binding upon the arbitrator." Therefore, the court stated, an arbitration award that ignores the explicit terms of an LCA is owed no deference and would be closely scrutinized by the courts. The court emphasized that this rule is necessary because an LCA constitutes a formal settlement that reflects the parties' own understanding of their collective bargaining agreement. The court agreed with the employer that the LCA was a final resolution by all parties of their dispute regarding Gates' discharge. Because the arbitrator had disregarded his obligation to enforce the terms of the LCA, the arbitrator's award was properly vacated.

This case reflects the increasing willingness of courts to examine arbitration decisions closely to ensure that the arbitrator has not exceeded the authority that the parties have granted him or her. This case also highlights the value of a well-drafted last chance agreement in settling a discharge grievance and returning an employee to work. If we may be of assistance in answering questions regarding any of the above, please feel free to contact us by telephone or e-mail as set forth below.

The information provided herein is for general guidance on matters of interest only. While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of information without first consulting an Epstein Becker & Green professional.

Elliot Mandel
Epstein Becker & Green
250 Park Avenue
New York
10177-0077
USA
Tel: 212 351 4500
Fax: 212 661 0989
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