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Gordon v. Thor Power Tool Co.

MARCH 2, 1965.




Appeal from the Circuit Court for the 16th Judicial Circuit, Kane County; the Hon. CHARLES G. SEIDEL, Judge, presiding. Judgment affirmed.


Plaintiffs filed this suit as a class action on behalf of all the members of Lodge 236 of District No. 108 International Association of Machinists, herein called "Union," against the Thor Power Tool Company, herein called "Company," seeking an accounting and a payment over to plaintiffs of their share of certain premium refunds received by the Company from the insurer carrying the group insurance plan for the Company's employees. The Company moved to dismiss the complaint on the ground that the substance of the suit was subject to arbitration under the collective bargaining agreement entered into between the Company and Union, and that plaintiffs could not bring this suit without first exhausting the grievance and arbitration procedures provided in the collective bargaining agreement. The trial court agreed, dismissed the complaint and this appeal followed.

The complaint, motion to dismiss and affidavit attached thereto, and the several exhibits, reflect the following facts: The Union, at all times since 1950, has been the bargaining agent for plaintiffs and has been a party to a collective bargaining agreement, on behalf of the plaintiffs, with the Company. Pursuant to this agreement, the Company has always provided group life and accident insurance for its employees, and paid a portion of the insurance premiums. During the policy years ending May, 1951, through May, 1960, the employees contributed 40% of the premiums for their own insurance, and thereafter, 25% of the total premium. The employees paid all of the premiums for the coverage for their dependents.

The portion paid by the employees was governed by the collective bargaining agreement, Article X of which provided: "The Company will pay 75% of the employee premiums for the group insurance benefits set forth in Appendix DD attached hereto." The Company at all times paid the insurance premiums to the insurer and obtained the employees' share of the premiums through payroll deductions. At the end of each policy year the insurer reviewed the loss experience and, when warranted, refunded a portion of the premiums by applying a retroactive rate credit. During each of the policy years, beginning with the year ending May 31, 1951 through the year ending May 31, 1961, a retroactive rate credit was given and a portion of the premium ultimately refunded.

The total refunded premiums during this period was $113,064.70. The employees' share (40% of refunds for the years 1951 through 1961 and 25% of the refund for the year 1961) totaled $38,847.34. The Company at no time paid over to the employees their share of the refunds received. Nor does it appear that the Company at any time, until this dispute arose, advised the employees, or the Union, of the amount of refunds received, or of the employees' share. The Company apparently deposited these refunds with its general corporate funds.

The Company did, however, keep records of the premiums refunded and the employees' share thereof; and while it did not pay over these refunds when received, it accumulated them, and from time to time paid them over by crediting the payroll deductions otherwise made for the employees' share of premiums. The result, of course, was that the payroll deductions made for insurance premiums were at those times, thus reduced. Of the $38,847.34, the sum of $18,871.68 was used to pay the employees' share of subsequent premiums and $19,975.66 remained to be distributed at the time of this dispute.

The insurance company determined that for the year ending May 31, 1962, there would be no premium refund and that there was a retroactive rate debit, rather than credit, in the sum of $15,373.05. For this reason the insurer increased the annual premium and, on September 5, 1962, advised the Company of this increase, and that the new premium rates were to be retroactive to the beginning of the policy year, June 1, 1962. The Company did not inform the employees or the Union of the premium increase until November 28, 1962. At this time, it advised the Union and the employees of the retroactive premium increase, of the $19,975.66 accumulated for the employees' benefit by reason of premium refunds, and that a portion of this sum would be used to defray the employees' share of their monthly premiums, including their retroactive increase, thereby reducing the employees' share of refunded premiums to $8,188.94.

A series of letters ensued between the Company and the Union. In these letters, the Union advised the Company that the November 28 notice was the first information furnished by the Company to the Union that the Company possessed unused premiums belonging to the employees; that the employees were not liable for any of the increased premiums for the period between June 1, 1962 and December 31, 1962, but would thereafter pay their share of the increased premiums; and that the employees' share of the refunded premiums should be immediately refunded to them. The Company, throughout the correspondence, requested that the entire matter be submitted to arbitration under the collective bargaining agreement. The Union, throughout, denied that the matter was arbitrable.

While several peripheral questions arise in the decision of this case, the ultimate questions to be determined by the Court are: whether the subject matter of this suit is within the scope of those things to be arbitrated under the collective bargaining agreement between the Union and the Company, and, if so, may the plaintiffs bring this suit without first exhausting their remedies under the agreement.

The law is settled that a court, not an arbitrator, should determine the arbitrability of this dispute under the collective bargaining agreement. Section 301(a) of the Labor Management Relations Act (1947-61 Stat 156, 29 U.S.C. § 185(a)), so provides: "Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce . . . may be brought in any district court of the United States. . . ." Also see United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 4 L Ed2d 1409, 1417; Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 8 L Ed2d 462, 466 (1962); Piano and Musical Instrument Workers Union Local 2549 v. W.W. Kimball Co., 333 F.2d 761, 765 (CA 7th, 1964).

[2-4] Section 301(a) is not merely jurisdictional. In addition to assigning to federal district courts jurisdiction in controversies that involve labor organizations in industries affecting commerce, it authorized federal courts to fashion a body of federal substantive law for the enforcement of collective bargaining contracts. Textile Union of America v. Lincoln Mills of Ala., 353 U.S. 448, 451, 1 L Ed2d 972, 977 (1957). By virtue of this section, if a suit involves the construction, interpretation, application or enforcement of a collective bargaining agreement, these matters are to be determined in accordance with the federal substantive law as opposed to state law. Whether one has a duty to arbitrate, as well as what issues one must arbitrate, under the provisions of a collective bargaining agreement, is to be decided under this body of federal substantive law. United Steel Workers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 578, 579, 4 L Ed2d 1409, 1414, 1415 (1960); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241, 8 L Ed2d 465, 466 (1962); Zdanok v. Glidden Co., Durkee Famous Foods Division, 327 F.2d 944, 950 (CA.2d, 1964).

Section 301 did not preempt to federal district courts jurisdiction over actions involving the construction or enforcement of collective bargaining agreements. The various state courts exercise concurrent jurisdiction with the federal courts in suits involving collective bargaining agreements, but, by virtue of Section 301, the state courts, when exercising such jurisdiction, apply the federal substantive law. Packinghouse Workers v. Needham Packing Co., 376 U.S. 247, 250, 11 L Ed2d 680, 683 (1964); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 246, 8 L Ed2d 462, 468 (1962).

The duty of this court to apply federal substantive law when interpreting a collective bargaining agreement does not depend on which party raises the issue or in what manner it is brought before the court. There need not be a recitation that the suit is brought under, or involves, Section 301 of the Labor Management Relations Act. Humphrey v. Moore, 375 U.S. 335, 343, 344, 11 L Ed2d 370, 378 (1964).

Nor does it matter that the employee members of the Union, rather than the Union, are parties to the suit. To remove individual claims involving the interpretation and enforceability of collective bargaining agreements from the ambit of Section 301 "would stultify the congressional policy of having the administration of collective bargaining contracts accomplished under a uniform body of federal substantive law." If state law were to apply when individual union members, as opposed to the union itself, are parties to the litigation, the uniformity, in interpretation and meaning of collective bargaining ...

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