Fifth Circuit Holds Court Must Decide Issue of Arbitrability in Labor Contract Dispute

The United States Court of Appeals for the Fifth Circuit has reversed a district court’s order allowing an arbitrator to determine the issue of arbitrability in a labor contract dispute. In Houston Refining, L.P. v. United Steel, Paper and Forestry, Rubber, Mfg., No. 13-20384 (August 25, 2014), a company, Houston Refining, filed for bankruptcy. Not long after, the company stopped matching its workers’ contributions to their personal 401(k) retirement accounts. Houston Refining then entered into a settlement agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“the Union”) over the company’s decision to suspend matching funds. After that, the company and the workers engaged in arbitration pursuant to the terms of the settlement agreement along with the provisions included in the parties’ collective bargaining agreement (“CBA”).

Following a hearing, an arbitrator determined that the company violated its 2006 CBA with the workers when it ceased matching employee retirement contributions. Houston Refining then asked a district court to vacate the arbitration award. In response, the Union asked the court to enforce the arbitrator’s decision. Both parties moved for summary judgment and the court granted the Union’s motion in part. The district court also remanded the case back to the arbitrator for clarification regarding the appropriate remedy in the case. Houston Refining then appealed the court’s decision to the nation’s Fifth Circuit.

According to Houston Refining, it was unclear whether a valid CBA existed when the dispute arose because the Union never signed a 2009 amendment to the 2006 CBA. The company argued that arbitration was improper if no CBA existed between the parties. Houston Refining further claimed that whether or not a valid CBA requiring the parties to engage in arbitration existed was a question of fact for a court to decide. Finally, the company stated the arbitral award should be vacated if no CBA was in effect at the time the matching funds dispute arose.

The Fifth Circuit first analyzed Section 301(a) of the Labor Management Relations Act to determine whether the existence of a labor contract was required in order to provide the federal court with subject-matter jurisdiction. After examining the relevant case law, the court held “the alleged violation of a labor contract is both necessary and sufficient to invoke federal subject-matter jurisdiction under section 301(a) of the Labor Management Relations Act, 29 U.S.C. § 185(a).” The Court of Appeals stated that requirement was “easily satisfied” in the case at hand because two violations of the labor contract were alleged in the case.

Next, the appellate court discussed Houston Refining’s claim that the district court committed error when it deferred “to the arbitrator’s determination of the grievance’s arbitrability.” According to the court, it was up to the Union to demonstrate that the arbitrator had the “authority to decide arbitrability” in the case. Because the Union failed to clearly and unequivocally demonstrate that the parties agreed to submit the issue of arbitrability to an arbitrator, the Fifth Circuit held “that the district court erred as a matter of law in failing to decide arbitrability just as it would decide any other question that the parties did not submit to arbitration.”

The appeals court then stated,

We decline today to decide whether the Union’s grievance was arbitrable. This appeal presents three distinct arbitrability inquiries, and the district court is better positioned to assess the parties’ arguments in the first instance and develop the record as necessary.

After addressing the arguments made by the dissent, the Fifth Circuit Court of Appeals reversed the decision of the district court and remanded the case.

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