The Watertown and Indian River school districts entered into separate collective bargaining agreements ("CBA") with their respective district teachers and staff. Both districts acquired health insurance coverage for their employees through the same agreement. A non-party health insurance provider raised the co-payment cap and the teachers and staff of each school district filed a grievance. The parties agreed that the districts may bind themselves to arbitration of this dispute, pursuant to the Taylor Law (N.Y. Civ. Serv. Law, Art.14) The parties differ, however, on whether the districts agreed to arbitrate this matter by the language of the CBA.
The Watertown and Indian River Education Associations each sought to compel the districts to commence arbitration regarding the increased co-payments. The districts sought to stay the demands for arbitration on the grounds that the disputes were not covered by the CBA. The Supreme Court granted a stay for the districts. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal on both disputes.
Whether a court may consider the nature of the dispute, and decide the scope of an arbitration clause, in determining the arbitrability of a disagreement between public employers and employees.
No. The court's role is limited to determining whether a reasonable relationship exists between the subject matter of the dispute and the general subject matter of the collective bargaining agreement. If such a reasonable relationship exists, then the court shall order arbitration, and let the arbitrator decide on the merits of the arbitration clause. If such a reasonable relationship does not exist, the issue is not arbitrable as a matter of law.
New York courts have previously examined the issue of whether a particular grievance is arbitrable using the Taylor Law. The most notable discussion was found in the Court of Appeal's decision in Acting Superintendent of Schools of Liverpool Central School District, 42 N.Y.2d 509 (N.Y. 1977). Under Liverpool, a two-step test determines whether the grievance is subject to arbitration. The first step requires the court to determine whether the subject matter of the particular arbitration is authorized by the Taylor Law. The second step requires a determination of whether the arbitration clause covers the matter in dispute.
The Liverpool court expressly distinguished a private sector grievance from its counterpart in the public sector. That court refused to apply the blanket "presumption of arbitrability" approved by the Supreme Court for private sector grievances in United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1987). The courts after Liverpool, however, employed a less restrictive version of the two-step test. They overwhelmingly have found that private sector grievances fall within the scope of permissible arbitration.
In Watertown, the Court reaffirmed the two-step test set out in Liverpool. The Court, however, clarified that decision's relationship to the United Steelworkers presumption of arbitrability. Liverpool did not create an anti-arbitrational presumption for public sector grievances. Instead, since public sector arbitration at the time was relatively new, the Liverpool Court adopted a "wait and see" attitude. The Court finds that public sector arbitration is now an accepted and widespread reality. Therefore, the United Steelworkers presumption of arbitrability applies equally to private and public sector arbitration.
The decision also expressly prohibits any analysis of the merits, even where there are apparent weaknesses, of a case during a court's application of the first step of Liverpool. The meritoriousness of the claim is determined by the arbitrator. In determining whether the parties intended the disputed matter to be arbitrable, the court directs use of a reasonable relationship test. If a reasonable relationship exists between the subject matter at issue and the subject matter found in the CBA, it is arbitrable. If not, the court must find that the matter is not arbitrable.
Next a court must proceed to determine whether the parties agreed to arbitrate the grievance. This second step of the Liverpool test triggers a traditional judicial analysis of the agreement's wording.
The Court proclaims that it will preserve the Liverpool two-step test in considering the arbitrability of public sector disputes, but that such analysis shall be "free of any presumptions." The opinion then proposes the use of a reasonable relationship test in determining whether the subject matter of a dispute is within the scope of the arbitration clause of the governing contract. It remains to be seen how courts will apply the reasonable relationship test differently from a presumption in favor of arbitrability.
The Court explains how the "Cutler-Hammer" rule prohibits courts from considering the merits of a case in determining its arbitrability. It then concludes that a reasonable relationship analysis is the proper test, implying that any further examination into the facts violates the Cutler-Hammer rule. The Court, however, does not set out specific guidelines for where courts should draw the line between substantive review and mere subject matter analysis. Can a court look beyond the claim to find a reasonable relationship to the contract language? If so, how will courts prevent plaintiffs from wording their complaints to fit within the contract language in order to compel arbitration?
The court's analysis in United Transportation Union, AFL/CIO v. Southern California Rapid Transit District, 7 Cal. App. 4th 804 (1992) parallels the New York court's Liverpool format. In United, the court examined plaintiff's petition to mandate defendant's compliance with a collective bargaining agreement calling for arbitration in controversies involving full-time employees. Because a dispute arose surrounding the resignation of a part-time worker, defendant refused to arbitrate the matter. The court applied a two-prong test to determine whether this situation required arbitration. First, it determined whether a duty to arbitrate existed (i.e., whether an agreement provided for such), and second, whether the issue at bar fell within such agreement's terms. The court supported application of a broad interpretation of the terms since requiring explicit inclusion of every possible disputable issue would be unreasonable. In applying this broad standard, the court determined that the issue under contention was within the existing agreement's terms and therefore, it mandated arbitration. The same two factor test applies in New York. Also similar to New York law, the court stated that merit is not a factor in deciding the suitability of arbitration.
Massachusetts statutorily addresses judicial enforcement of arbitration agreements. Chapter 150C, 2(b) of Massachusetts General Law Annotated states: "[T]he superior court may stay an arbitration proceeding commenced or threatened if it finds, (1) that there is no agreement to arbitrate, or (2) that the claim sought to be arbitrated does not state a controversy covered by the provision for arbitration and disputes concerning the interpretation or application of the arbitration provision are not themselves made subject to arbitration." Again, these factors are akin to New York law.
Similar to the above treatments, the Illinois Uniform Arbitration Act specifies that a court should resolve arbitration issues by first determining the existence of an arbitration agreement. Second, the court should determine if the issue referred to in the dispute is arbitrable under the agreement. There is no merit review. Moreover, Illinois common law bestows a "presumption in favor of arbitration in collective bargaining agreements containing arbitration clauses, and in case of doubt, the court should decide in favor of arbitration." Champaign Police Benevolent & Protective Ass'n. Unit No. 7 v. City of Champaign, 569 N.E.2d 275 (App. Ct. Ill. 1991).