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Miller Brewing Co. v. Brewery Workers Local Union No. 9

June 25, 1984


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 82 C 925 -- John W. Reynolds, Judge.

Posner and Flaum, Circuit Judges, and Nichols, Senior Circuit Judge.*fn*

Author: Posner

Posner, Circuit Judge.

Miller Brewing Company sued Local 9 of the Brewery Workers Union under section 301 of the Taft-Hartley Act, 29 U.S.C. § 185, to set aside an arbitrator's award to the union. The award was based on the union's complaint that Miller had violated a collective bargaining agreement with it. The union filed a counterclaim to Miller's suit.The counterclaim, which was based both on section 301 and on section 9 of the United States Arbitration Act of 1925, 9 U.S.C. § 9, sought enforcement of the arbitration award. On the union's motion for summary judgment, the district court entered an order enforcing the award. 562 F.Supp. 1368. It also ordered Miller to pay the union a reasonable attorney's fee, on the ground that Miller's challenge to the arbitration award had been frivolous. Miller appeals both orders.

For many years all the brewers in Milwaukee had bargained with Local 9 in a multi-employer bargaining unit, but by 1979 the unit had only three members -- Miller, Schlitz, and Pabst. The successive collective bargaining agreements between the union and the brewers' association contained a union-shop clause requiring every new employee to join the union within 30 days after beginning work and a hiring-preference clause entitling regular employees laid off by any of the brewers to "preference" (not defined) in hiring by any other brewery in the unit.The preference was both over new applicants for employment with the brewery and over any of the brewery's laid-off temporary employees who might be seeking to be recalled or rehired.

Early in 1981 Schlitz announced that it was withdrawing from the multi-employer unit and would negotiate separately with Local 9. The union's president told the two remaining members of the unit, Miller and Pabst, that Schlitz had agreed to include in the separate collective bargaining agreement that it was negotiating with the union the same hiring-preference clause that the multi-employer agreement contained, and Miller and Pabst agreed to a modification of that agreement that would preserve to Schlitz's employees the rights they had had when Schlitz had been a party to it. But matters did not develop as anticipated. The bargaining between the union and Schlitz broke down. The union called a strike, Schlitz closed its Milwaukee brewery permanently, and Schlitz and the union then entered into a shutdown agreement that provided for the "permanent layoff and termination of seniority and employment relationship from the Company of all employees" in the Milwaukee brewery. About 200 workers were affected.

Several months later Miller recalled 39 temporary employees who had been laid off. This recall precipitated the filing of a grievance against Miller by one of the terminated Schlitz workers, Gene Pearson, who claimed that Miller was required by the hiring-preference clause in the multi-employer collective bargaining agreement to give him preference over Miller's own temporary workers. As required by the agreement, the grievance was referred to an arbitrator after it could not be settled informally. He interpreted the reference in the clause to "regular employees laid off from . . . those Employers signatory to the 1979-81 agreement" to include those employees of Schlitz who had been "permanently laid off" as a result of the shutdown agreement with the union. He therefore concluded that Miller had violated the collective bargaining agreement in failing to give Pearson preference. He ordered Miller "to hire Gene Pearson . . . and any other employees similarly situated who had applications on file at the Company and who were not given hiring preference over temporary Miller employees. . . ."

The union sought enforcement of the arbitrator's award under both the Arbitration Act, which has its own standards for the validity of arbitration awards, see 9 U.S.C. § 11, and section 301 of the Taft-Hartley Act, which is the source of federal common law principles governing the validity of labor arbitration awards. But the parties quite properly make no separate point about the Arbitration Act's standards. We may assume that a multi-employer collective bargaining agreement with Milwaukee brewery workers sufficiently involves interstate commerce to come within the reach of 9 U.S.C. § 2, which we construed broadly just the other day in Snyder v. Smith, 736 F.2d 409 (7th Cir. 1984). And the Act's exclusion of "contracts of employment of . . . workers engaged in foreign or interstate commerce," 9 U.S.C. § 1, is inapplicable; it has been held to be limited to workers employed in the transportation industries. See Pietro Scalzitti Co. v. International Union of Operating Engineers, 351 F.2d 576, 579-80 (7th Cir. 1965); Signal-Stat Corp. v. Local 475, United Electrical, Radio & Machine Workers of America, 235 F.2d 298, 301-03 (2d Cir. 1956); Tenney Engineering, Inc. v. United Electrical Radio & Machine Workers of America, (U.E.). Local 437, 207 F.2d 450 (3d Cir. 1953) (en banc). But section 301 was enacted long after the Arbitration Act and deals specifically, as the Arbitration Act does not, with labor contracts; it therefore supersedes, within its domain, the standards of the earlier act. Shearson Hayden Stone, Inc. v. Liang, 653 F.2d 310, 312 n. 3 (7th Cir. 1981).

Miller's first ground for attacking the arbitrator's award is that it does not "draw its essence" from the collective bargaining agreement. This somewhat curious, but canonical, see, e.g., W.R. Grace & Co. v. Local Union 759, Int'l Union of Rubber Workers, 461 U.S. 757, 103 S. Ct. 2177, 2183, 76 L. Ed. 2d 298 (1983), wording derives from the statement in United Steelworkers of America v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 4 L. Ed. 2d 1424, 80 S. Ct. 1358 (1960), that an arbitrator's award under a collective bargaining agreement "is legitimate only so long as it draws its essence from the collective bargaining agreement." The surrounding language makes clear that what is meant is that the award is valid provided it is an attempt to interpret the collective bargaining agreement rather than to apply the arbitrator's own ideas of right and wrong: "an arbitrator is confined to interpretation and application of the collective bargaining agreement; he does not sit to dispense his own brand of industrial justice. He may of course look for guidance from many sources, yet his 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." (For a recent application of this standard by this court see Young Radiator Co. v. U.A.W. Local Union No. 37, 734 F.2d 321 (7th Cir. 1984).) The liability as distinct from remedial aspect of the award in this case -- that is, the finding that Miller improperly failed to give preferential consideration to the former employees of Schlitz's Milwaukee brewery -- passes this not very demanding test. The arbitrator purported to be interpreting the language of the collective bargaining agreement in finding that the clause had been violated. His interpretation may very well have been incorrect, but that is none of our business. Our function is complete when we are satisfied that the arbitrator was not dispensing qadi justice but was construing the collective bargaining agreement.He was doing that when he held that the Schlitz employees had been "laid off" within the meaning of the collective bargaining agreement, if not within the usual meaning of the term which connotes a temporary rather than permanent cessation of employment.

But we do not think that the remedy he meted out for the violation was based on an interpretation of the collective bargaining agreement, as distinct from the arbitrator's private notions of equity. The agreement provides that laid-off employees of signatory employers are entitled to "preference" over recalled temporaries. The term is not defined in the collective bargaining agreement but Miller's counsel told us at argument (without demur from the union's counsel) that it meant that if a preferred employee and a temporary employee were competing for a job opening the preferred employee would get the job if -- but only if -- he had a satisfactory work record. Nevertheless the arbitrator did not merely order Miller to give preferential consideration to the laid-off Schlitz employees, or (what would have been the same thing) to hire 39 of those employees if their work records were satisfactory; he ordered Miller to hire Pearson and 38 other former Schlitz employees who had applied for the jobs, period. We might have assumed that it was implicit in this order that the former Schlitz employees have satisfactory work records and thus be entitled to a hiring preference under the agreement, were it not for the fact that the arbitrator ordered Pearson hired unconditionally even though there was no evidence that his work record was satisfactory.We can find nothing in the collective bargaining agreement that gives a hiring preference to a worker who has an unsatisfactory work record; nor can the union; most important, nor could the arbitrator.

Therefore, this part of the award cannot have been based on the hiring-preference clause itself. If it has any basis in the collective bargaining agreement it must be in the agreement's implicit or explicit authorization to the arbitrator to devise remedies for violations of the agreement. Collective bargaining agreements often say little or nothing about the arbitrator's remedial powers; yet it cannot be that he has none; and since he derives all his powers from the agreement, the agreement must implicitly grant him remedial powers when there is no explicit grant.See Hill & Sinicropi, Remedies in Arbitration 20-26 (1981); Feller, The Remedy Power in Grievance Arbitration, 5 Indus. Rel. L.J. 128 (1982) 5 Indus. Rel. L.J. 128 (1982). This clearly is the Supreme Court's view.The passage we quoted earlier from the Enterprise Wheel opinion about the arbitrator's being confined to interpreting the agreement is immediately preceded by the observation that "The draftsmen [of the collective bargaining agreement] may never have thought of what specific remedy should be awarded to meet a particular contingency," 363 U.S. at 597; and the Court went on to uphold the arbitrator's remedy -- an award of back pay after the expiration of the collective bargaining agreement -- even though the remedy had not been mentioned in the agreement. There are many similar court of appeals decisions; in this circuit alone see, e.g., International Union of Operating Engineers, Local No. 139 v. Carl A. Morse, Inc., 529 F.2d 574, 580 (7th Cir. 1976); United Electrical Radio & Machine Workers of America v. Honeywell Inc., 522 F.2d 1221, 1226-27 (7th Cir. 1975); Mogge v. District 8, Int'l Ass'n of Machinists, 454 F.2d 510, 514-15 (7th Cir. 1971).

Here all the collective bargaining agreement said about the arbitrator's remedial powers was that, "Should the arbitration award order reinstatement, the employee shall receive pay in accordance with the findings of the impartial arbitrator." This makes it clear that the arbitrator has the power to order reinstatement of an improperly laid off or fired employee, and seems to make an award of back pay in the amount calculated by the arbitrator automatic in such a case. But the arbitrator did not order reinstatement. Pearson and the others had never been employed by Miller and therefore could not be "reinstated" by it. The arbitrator ordered Miller to hire former employees of other brewers. Any authority to do this was implicit rather than explicit.

Although there is unavoidable tension between saying on the one hand that the arbitrator may not go outside the agreement and on the other hand that he may exercise remedial powers not expressly granted in the agreement, it is not always hard to tell whether an arbitrator when he formulates a particular remedy is interpreting his implied remedial authority or implementing some personal notion of justice. In this case, for example, the hiring-preference clause implies that the arbitrator can order the company to give preference to one worker over another if the clause requires such preference, even though the remedies section in the collective bargaining agreement speaks only of reinstatement. We can go further and say with some confidence that the agreement implicitly authorizes the arbitrator to order Miller to hire a worker who by virtue of a hiring preference is entitled to be hired to fill a vacancy. But we have no textual guide to the question whether in ordering the hiring of the 39 laid-off Schlitz workers without ascertaining whether they were qualified and therefore entitled to be hired, the arbitrator was exercising remedial powers implicitly conferred on him by the agreement or simply devising what he thought, without reference to the agreement or anything fairly implied in it, would be an equitable remedy.

In these circumstances we must consider whether it is at all plausible to suppose that the remedy he devised was within the contemplation of the parties and hence implicitly authorized by the agreement. Only if we think it clearly was not may we reverse. Bacardi Corp. v. Congreso de Uniones Industriales, 692 F.2d 210, 214 (1st Cir. 1982). But that is what we think. It is almost unimaginable that if the question had come up in the collective bargaining negotiations Miller and Pabst would have agreed that the arbitrator could force Miller or Pabst, as a remedy for breach of the preference clause (the breach here consisting of failing to consider whether the former Schlitz employees had satisfactory work records and should therefore have been offered jobs ahead of the Miller temporaries), to hire workers who might be unqualified because they had unsatisfactory work records. This would go beyond making the victims of the breach of the preference clause whole, and would give unqualified workers windfall gains; and by reducing the efficiency of Miller's operations it might impose greater costs on Miller than the benefits it conferred on thos victims. It would be a punitive sanction. Now arbitrators are rarely thought authorized to award punitive damages. It is not the kind of remedy that the parties probably would have agreed to authorize if they had thought about the matter, because of the great power it would ...

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