Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 83 C 741-James E. Noland, Judge.
Before CUDAHY and POSNER, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.
POSNER, Circuit Judge. The steelworkers union appeals from a judgment setting aside a labor arbitrator's award. The appeal requires us once again to consider the scope of judicial review of labor arbitration awards.
In 1980 the union signed a collective bargaining contract with Ethyl Corporation to govern employment at a chemical plant in Indiana. The contract contained a provision that an employee with one or more years' service who had worked 1,040 hours during a calendar year and was "on the payroll of the Company on December 31" of that year would have a "vested right" to a paid vacation the following year. A worker who was "terminated for any reason" before December 31 and was later "reemployed" would become entitled to a full paid vacation upon working 200 hours in the year in which he was reemployed.
On October 15, 1981, the company announced that it would close the plant, which had 33 workers, in mid-November. The company discharged eleven of the workers on October 18, ten in November, and eight on December 4, which was when the plant actually closed; the other four workers had not been working on October 15, because of disability. Although all 33 workers had worked more than 1,040 hours in 1981, the company refused to give vacation pay to 33 of them-the 29 active workers plus a disabled worker whose disability ended on December 22. Only the three who were still disabled on December 31 got vacation pay.
The union filed a grievance on behalf of the 30, asserting that everyone who had been on the payroll when the shutdown was announced on October 15, 1981, was entitled to vacation pay for 1982. Pursuant to the collective bargaining agreement, the dispute was referred to an arbitrator, who on December 22, 1982, issued an award that stated, "The grievance is hereby sustained." In an accompanying opinion that arbitrator explained that although the workers would have had no right to vacation pay in 1982 if they had been laid off before December 31, 1981, because none of them worked 200 hours in 1982 (they worked no hours that year-the plant was closed), the parties had not intended the provision for layoffs to apply to a plant closing. Having (by closing the plant) made it impossible for the workers to earn a paid vacation for 1981 by working 200 hours in 1982, the company could not use the requirement that workers be on the payroll on December 31 to deny them vacation pay. Therefore, "employees who were actively working at the time of the plant closing on December 4, 1981, are entitled to vacation pay for 1982."
Although the collective bargaining contract does not make specific provision for paying workers who are denied their vacation rights in violation of the contract, Ethyl does not dispute that if the company violated the collective bargaining contract the workers are entitled to such pay. However, the arbitrator's award does not specify the amount. If the award is limited to the eight workers who were actually working on December 4, when the plant closed, the amount due would be $15,115.68. Which amount the arbitrator meant to award is in dispute, as we shall see anon.
At the time of the hearing before the arbitrator, in August 1982, there was some possibility that the plant would reopen. The arbitrator considered the possibility too speculative to figure in his decision. But in May 1983, five months after he issued his award, the plant did reopen and the workers were rehired. Presumably, by working 200 hours in 1983 the workers could earn a paid vacation for 1983 on the basis of their work in 1981-unless the arbitrator's award is sustained and the workers get vacation pay for 1982 based on that work. But the company's position is that the workers had lost all right to a vacation (or pay in lieu thereof) in 1982; since the plant was closed throughout the year, none of the workers worked 200 hours that year to make up for having been off the payroll on December 31, 1981.
The company sued in federal district court, under section 301 of the Taft-Hartley Act, 29 U.S.C. § 185, to set aside the arbitrator's award, and the union counterclaimed to enforce it. On cross-motions for summary judgment the district court set aside the award on the ground that "the arbitrator's award did not draw its essence from the agreement. The award is outside the powers conferred on the arbitrator by the terms of the collective bargaining agreement. It imposes upon Ethyl obligations not contained in the agreement and therefore not bargained for by Ethyl."
Ever since federal courts began enforcing arbitration awards, the scope of judicial review of the award has been extremely narrow. "Arbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal. As a mode of setting disputes it should receive every encouragement from courts of equity. If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court of equity will not set it aside for error either in law or fact. A contrary course would be a substitution of the judgment of the Chancellor in place of the judges chosen by the parties, and would make an award the commencement, not the end, of litigation." Burchell v. Marsh, 58 U.S. (17 How.) 344, 349, 15 L. Ed. 96 (1855). To this we add that for judges to have taken upon themselves to determine the correctness of the arbitrator's award would inevitably have judicialized the arbitration process, in much the same way that judicial review, even of a deferential sort, tends to judicialize the administrative process. The administrative agency must (at least when its proceedings resemble adjudication) find facts like a court, and reason like a court, if it is to withstand correction by the court. And so it would be with arbitrators if their decisions were subject to the kind of review that courts give agencies. Yet the idea of arbitration, as of administrative decision-making but more strongly since there is no counterpart in arbitration to the Administrative Procedure Act, is to provide an alternative to judicial dispute resolution, not an echo of it. If the parties to an arbitration want appellate review of the merits of the arbitrator's decision, they can establish appellate arbitration panels, though they rarely do. But they cannot get such review from the federal courts-which would mean, first from the district court, and then, on appeal from the court of appeals. This would make arbitration a three-tiered, rather than as in normal adjudication a two-tiered, process; it would make arbitration more judicial than adjudication.
Section 301 of the Taft-Hartley Act does not establish standards for the review of arbitration awards. It does not mention arbitration. It is only because section 301 establishes a federal remedy for breaches of collective bargaining contracts, and because many such contracts (including, of course, the one in this case) contain an arbitration, clause, that the refusal to comply with an arbitrator's award becomes a breach of contract upon which a section 301 suit can be founded. But in a famous trio of cases involving the same union as in this case, the Supreme Court made clear that the courts in such cases must give the arbitrator his customary deference; the arbitrator's award is enforceable so long as it "draws its essence from the collective bargaining agreement," even if the court thinks the arbitrator misconducted the contract. United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 4 L. Ed. 2d 1424, 80 S. Ct. 1358 (1960); see also United Steelworkers v. American Mfg. Co., 363 U.S. 564, 568-69, 4 L. Ed. 2d 1403, 80 S. Ct. 1343 (1960).
It might in retrospect have been better if the Court had not said "draws its essence from the collective bargaining agreement," arresting as this formulation is (it has displaced all its rivals in the marketplace of judicial formulas), but instead had made the test simply whether the arbitrator had exceeded the powers delegated to him by the parties. That is the test in the federal arbitration statute, see 9 U.S.C. § 10(d), and the Railway Labor Act is quite similar, see 45 U.S.C. § 153 First (q). In meaning if not in words, the test is the same under all three statutes. See, e.g., Loveless v. Eastern Air Lines, Inc., 681 F.2d 1272, 1276 (11th Cir. 1982). The problem with the expression, "draws its essence from the collective bargaining agreement," is that it invites the kind of error that the district judge fell into in this case, of setting aside an arbitration award because the judge is not satisfied that the award has a basis in a particular provision of the contract.
Whenever an arbitrator misreads a contract, it is possible to say that his award fails to draw its essence from the contract; that the ground of the award is not the contract but the arbitrator's misreading. But so long as the award is based on the arbitrator's interpretation-unsound though it may be-of the contract, it draws its essence from the contract. See, e.g., F.W. Woolworth Co. v. Miscellaneous Warehousemen's Union, Local No. 781, 629 F.2d 1204, 1214-16 (7th Cir. 1980); Manhattan Coffee Co. v. International Brotherhood of Teamsters, Local No. 688, 743 F.2d 621, 623-24 (8th Cir. 1984); Super Tire Engineering Co. v. Teamsters Local Union No. 676, 721 F.2d 121, 122-24 (3d Cir. 1983)-the last a particularly good example of deference to a highly improbable reading of the collective bargaining agreement by the arbitrator. It is only when the arbitrator must have based his award on some body of thought, or feeling, or policy, or law that is outside the contract (and not incorporated in it by reference, either, see Jones Dairy Farm v. Local No. P-1236, United Food Workers, 760 F.2d 173, 176 (7th Cir. 1985)) that the award can be said not to "draw its essence from the collective bargaining agreement," as in our recent decisions in Young Radiator Co. v. International Union, U.A.W., 734 F.2d 321, 325 (7th Cir. 1984), and Miller Brewing Co. v. Brewery Workers Local ...