The opinion of the court was delivered by: Zazzali, J.
ON CERTIFICATION TO Appellate Division, Superior Court
Chief Justice Poritz PRESIDING
On certification to the Superior Court, Appellate Division.
In this matter an arbitrator awarded back pay to public- sector employees who were improperly denied overtime in violation of a collective negotiations agreement. The Appellate Division held that although the back pay award was explicitly authorized by the agreement, the award nevertheless violated the "no work, no pay" rule, a common law rule established in 1859, which prohibits payment to individuals for services they did not perform.
This appeal poses the "provocative question . . . whether the ?no work, no pay' rule retains its vitality." Heath v. Bd. of Managers, 92 N.J. 1, 6-7 (1983). We conclude that the "no work, no pay" rule is an anachronism in modern-day labor jurisprudence. We therefore abrogate that rule and reinstate the arbitration award in this case.
The collective negotiations agreement (Agreement) between the New Jersey Department of Corrections (DOC) and the International Federation Of Professional and Technical Engineers, Local 195 (Local 195 or Union), provides in pertinent part:
A. 1. Employees covered by this Contract will be compensated at the rate of time and one- half for overtime hours accrued in excess of the normal hours of the established work week. These compensation credits shall be taken in compensatory time or in cash.
B. 1. Overtime shall be scheduled and distributed by seniority on a rotational basis by occupational classifications within each functional work unit without discrimination provided it does not impair operations. Employees within their functional work unit who are qualified and capable of performing the work without additional training shall be called upon to perform such overtime work. To the extent that it is practical and reasonable to foresee, the State shall give the employee as much advance notice as possible relative to the scheduling of overtime work.
2. A list showing the rotational order and the overtime call status of each employee shall be maintained in the work unit. Such records shall be made available for inspection on request to Union Officers, Stewards and employees concerned.
On three occasions in 1997, the DOC assigned overtime to Ernie Guinta, a supervisor at a State correctional facility. Although Guinta's name appeared on the overtime rotation list, he should not have been included because he was not a member of the Local 195 bargaining unit. Because Guinta worked on those three occasions, the first member of the bargaining unit on the rotational list was not called for overtime. Local 195 filed a grievance for each incident, alleging that the DOC breached the Agreement's overtime provisions.
The parties submitted the grievances to arbitration. They stipulated that the sole issue was: "What is the contractual remedy in Article XII, Sections A, B, and C, [for] having a supervisor on the IFPTE, Local 195 overtime rotational list and . . . call[ing him] from that list on March 28, 1997, May 4, 1997 and May 25, 1997?" Article VII, Section F, Subsection 5 of the Agreement establishes the boundaries for an arbitrator's determination. It provides in pertinent part:
c. The arbitrator shall not have the power to add to, subtract from, or modify the provisions of this Contract or laws of the State, or any policy of the State or subdivision thereof or to determine any dispute involving the exercise of a management function which is within the authority of the State as set forth in Article II, Management Rights, and shall confine his [or her] decision solely to the interpretation and application of this Contract. . . . The arbitrator may prescribe an appropriate back pay remedy when he finds a violation of this Contract, provided such remedy is permitted by law and is consistent with the terms of this Contract. If the arbitrator renders a back pay award, then in accordance with State policy, appropriate benefits will be restored to the employee for the period of time covered by the back pay award. [Emphasis added.]
The arbitrator found that the appropriate remedy for the contractual violation was to award back pay to the Local 195 members at the top of the overtime rotational list on the three dates in question. The arbitrator concluded:
Absent any limitations on my authority, I would direct the State to compensate the senior person who was on the occupational overtime list on the three dates at the overtime rate for the number of hours worked by Mr. Guinta. That would be the only way to make these employees whole for the contractual violation . . . . Here, because the overtime was worked by a person who was not in the bargaining unit, that work was lost by the bargaining unit. The three employees who should have been called cannot get back what they should have gotten by working other overtime because that overtime would have to come at the expense of other employees who were entitled to work it and therefore this would violate their contractual right to the overtime. Only by directing that the three be compensated for the overtime worked by Mr. Guinta can the contractual breach be remedied.
The arbitrator rejected the State's contention that the no work, no pay rule precluded an award of back pay to remedy the violation. He concluded that Communications Workers, Local 1087 v. Monmouth County Board of Social Services, 96 N.J. 442 (1984), did not compel that result because the Court in that case reached its conclusion based on the absence of contractual authority for an award of back pay, and explicitly refused to address whether the rule precluded such an award. The arbitrator reasoned that he had the authority to make a back pay award against the State:
In my view, given the overall purpose of the New Jersey Employer-Employee Relations Act in the prevention and prompt settlement of disputes, given the general negotiability of terms and conditions of employment including overtime, given the absence of statutory or regulatory constraints on the State regarding payment for overtime, given the fact that these parties have specifically agreed in their negotiated agreement that an arbitrator can award back pay for a contractual violation, and given the fact that such an award is the standard remedy in such cases, there is no public policy prohibition against an award of back pay in this case.
The Law Division vacated the arbitrator's award. The court concluded that Communications Workers, although not explicitly resting its holding on the no work, no pay rule, demonstrated that the rule still exists, and that the rule therefore prohibited the arbitrator's back pay award. The Appellate Division affirmed the judgment of the Law Division, reiterating that the no work, no pay rule controlled the case. The court noted that "[a]ccording to the agreement, a back pay remedy may only be awarded ?provided such remedy is permitted by law,'" and that "[t]he arbitrator's authority was expressly circumscribed by the agreement by denying to the arbitrator the ?power to add to, subtract from, or modify the . . . laws of the State, or any policy of the State.'" The panel stated that "[i]n Communications Workers, the court made it clear, even though the agreement did not provide for the remedy of back pay under the facts there presented, ?that the public policy of not paying individuals for services they did not perform (the ?no work-no pay' rule) is to be respected.'" (quoting Communications Workers, supra, 96 N.J. at 455). We granted certification, 165 N.J. 604 (2000).
"Arbitration is ?a substitution, by consent of the parties, of another tribunal for the tribunal provided by the ordinary processes of law.'" Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86 N.J. 179, 187 (1981) (quoting E. Eng'g Co. v. Ocean City, 11 N.J. Misc. 508, 510-11 (Sup. Ct. 1933)). The object of arbitration is "the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner, of the controversial differences between the parties." Ibid. (quoting E. Eng'g Co., supra, 11 N.J. Misc. at 511). Because this Court views favorably the settlement of labor-management disputes through arbitration, County Coll. of Morris Staff Ass'n v. County Coll. of Morris, 100 N.J. 383, 390 (1985), the role of the courts in reviewing arbitration awards is extremely limited and an arbitrator's award is not to be set aside lightly. Kearny PBA Local # 21 v. Town of Kearny, 81 N.J. 208, 221 (1979). Generally, courts will accept an arbitrator's interpretation so long as the interpretation is "reasonably debatable." Old Bridge Bd. of Educ. v. Old Bridge Educ. Ass'n. (In re Old Bridge Bd. of Educ.), 98 N.J. 523, 527 (1985) (quoting Kearny, supra, 81 N.J. at 224). Federal labor jurisprudence, which we look to for guidance, Galloway Township Bd. of Educ. v. Galloway Township Ass'n of Educ. Secretaries, 78 N.J. 1, 10 (1978), explains the justification for that substantial deference:
Under well-established standards for the review of labor arbitration awards, a federal court may not overrule an arbitrator's decision simply because the court believes its own interpretation of the contract would be the better one. When the parties include an arbitration clause in their collective-bargaining agreement, they choose to have disputes concerning constructions of the contract resolved by an arbitrator. Unless the arbitral decision does not "dra[w] its essence from the collective bargaining agreement," a court is bound to enforce the award and is not entitled to review the merits of the contract dispute. This remains so even when the basis for the arbitrator's decision may be ambiguous. [W.R. Grace & Co. v. Local Union 759, Int'l Union of the United Rubber, Cork, Linoleum and Plastic Workers, 461 U.S. 757, 764, 103 S. Ct. 2177, 2182, 76 L. Ed. 2d 298, 306 (1983) (quoting United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S. Ct. 1358, 1361, 4 L. Ed. 2d 1424, 1428 (1960)) (citations omitted).]
"Regardless of what [a court's] view might be of the correctness of [the arbitrator's] contractual interpretation, the Company and the Union bargained for that interpretation. A . . . court may not second-guess it." Id. at 765, 103 S. Ct. at 2183, 76 L. Ed. 2d at 306. Thus, if the arbitrator's contractual interpretation is "reasonably debatable," we must defer to that interpretation.
A court, however, may vacate an arbitration award in cases of corruption, fraud, "evident partiality," and "[w]here the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made." N.J.S.A. 2A:24-8. A court also may vacate an award if it is contrary to existing law or public policy. State, Office of Employee Relations v. Communications Workers, 154 N.J. 98, 112 (1998); South Plainfield Bd. of Educ. v. South Plainfield Educ. Ass'n ex rel. English, 320 N.J. Super. 281, 288 (App. Div.), certif. denied, 161 N.J. 332 (1999).
New Jersey courts have emphasized the importance of arbitration to public sector employees. See, e.g., Neptune City Bd. of Educ. v. Neptune City Educ. Ass'n, 153 N.J. Super. 406, 409 (App. Div. 1977). In Neptune, the court noted that arbitration
is clearly a matter of special imperative in labor disputes involving public employees from whom the right to strike has been withheld and for whom, accordingly, negotiation and arbitration constitute their primary recourse for the settlement of their disputes with management. [Neptune, supra, 135 N.J. Super. at 409.]
Both the trial court and the Appellate Division relied on Communications Workers, supra, 96 N.J. at 453-55, which discussed the no work, no pay rule in the context of an arbitration award. In Communications Workers, the Department of Civil Service announced a promotional examination for the position of an "income maintenance specialist" with the Monmouth County Welfare Board. Id. at 445. The job description stated that a bachelor's degree was a prerequisite, but the examination announcement did not include that requirement. Ibid. After several applicants who did not have degrees passed the test, the Board protested and the Department removed those names from the employment list. Ibid. The Civil Service Commission ruled on appeal that work experience satisfied that requirement, and ordered the Department to replace those names on the list. Id. at 446. The Appellate Division affirmed that determination. Ibid. The Department did not provide for a back-pay differential for the period between the actual promotion and the date that the candidates' names had first appeared on the list. Ibid. The employees subsequently demanded back pay, and their union submitted the claim to arbitration. Ibid. The arbitrator awarded back pay, but the Law Division vacated the award, applying the no work, no pay doctrine. Id. at 447. The Appellate Division reversed, holding that an "income maintenance specialist" was not a public "officer" for purposes of the no work, no pay doctrine. Id. at 448.
In Communications Workers, the Court applied a three-tiered analysis. The first question was whether the contract gave the arbitrator the authority to award the back-pay differential for failure to promote that the union sought in that case, in light of the principle that the arbitrator's authority to provide a particular remedy stems solely from the contract and the arbitrator cannot exceed that authority. Communications Workers, supra, 96 N.J. at 448. The second question, according to the Court, was whether the arbitrator's action conformed with applicable law. Id. at 450. The Court addressed that question in part because the contract explicitly provided that the arbitrator's remedy must be "permitted by law." Id. at 451. Finally, in the case of a public sector dispute, the Court noted that the arbitrator's action must conform with principles of public policy. Id. at 450.
The arbitration clause in this case is substantively identical to the clause in Communications Workers. The clause provides, like the clause in Communications Workers, that "[t]he arbitrator shall not have the power to add to, subtract from, or modify the provisions of this Contract or laws of the State, or any policy of the State or sub-division thereof." The clause also provides, as in Communications Workers, that "[t]he arbitrator may prescribe an appropriate back pay remedy when he [or she] finds a violation of this Contract, provided such remedy is permitted by law and is consistent with the terms of this Contract." Based on the similarities of that language and the fact that the governing principles are the same, the three-tiered analysis the Court used in Communications Workers is appropriate in this case. We must consider, then,(1) whether the parties intended to give the arbitrator the authority to award back pay for a violation of the agreement's overtime provisions; (2) whether such an award is "permitted by law;" and (3) whether, because this case involves public employees, public policy precludes such an award.
In his decision, the arbitrator noted that the contract explicitly provides that the "arbitrator may prescribe an appropriate back pay remedy when he [or she] finds a violation of this contract." He also noted that the DOC "essentially conceded" that it violated the contract. Based on that explicit authorization, the arbitrator concluded that he had the contractual authority to award back pay in this matter. We must defer to that interpretation because it is, without a doubt, "reasonably debatable." Even if we could construct an alternate interpretation of the contractual language, we are without authority to do so. The parties bargained for the arbitrator's contractual interpretation, and we cannot upset that legitimate interpretation based on our own interpretation. Although we defer to the arbitrator's conclusion, we also note that, on the merits, we agree with his conclusion and find that the contract authorized an award of back pay as a remedy for a contract violation.
The dissent contends that Communications Workers demonstrates that the arbitrator incorrectly interpreted the contract. However, as we have discussed, we must defer to the arbitrator's contractual interpretation, but even in the absence of that deference, we would agree with that interpretation. Moreover, in Communications Workers, the contract did not allow for an award of back pay; as we have discussed, the contract here has no such infirmity.
In Communications Workers, the employees sought a back pay differential for the period between the date they were improperly removed from a promotional list and the date they actually received the promotions. The agreement provided that "[a]ny employee who is promoted . . . to another title with a higher salary range shall have his [or her] . . . salary adjusted so that it provides an increase in pay of one increment of the present salary range plus the amount (if necessary) to adjust and equalize the employee's salary to the proper step of the new salary range." Id. at 451-52. The agreement also provided that "[t]he arbitrator shall not have the power to add to, subtract from, or modify the provisions of this Agreement," id. at 449, and that the arbitrator may "prescribe an appropriate back pay remedy" only when there is a violation of the agreement, and "provided such remedy is permitted by law and is consistent with the terms of [the] Agreement, except that [he or she] may not make an award which exceeds the Welfare Board's authority." [Id. at 451.]
The Court concluded that "[t]he terms of the negotiated agreement [did] not expressly provide for back pay for failure to promote." Id. at 451. Because the agreement stated that "[a]ny employee who is promoted" was entitled to a salary increase, the agreement there "provide[d] by its terms for an increase in salary only from the date that an employee is actually promoted." Id. at 451-52 (emphasis added). Thus, the plain language of the contract precluded an award of a back-pay differential for the period prior to the date of actual promotion. Because the award was contrary to that language, and because "there was no evidence that when the contract was made, the parties intended that back pay should be awarded for . . . failure to promote," the Court concluded that "the arbitrator had no authority under the negotiated agreement to award back pay under th[o]se circumstances." Id. at 452. The award to that effect was therefore an improper expansion of the agreement, contrary to the provision that denied the arbitrator that authority. Although there is some equivocal language in Communications Workers, a fair reading of that opinion reveals that the interdiction against back pay flowed not from the absence of a specific statement of remedy available for each and every breach, but from a contract provision that specifically prohibited back pay in the circumstances presented.
As we have noted, the arbitration clause in this case is substantively identical to the clause in Communications Workers. With regard to overtime, however, section A.1. of Article XII, entitled "OVERTIME," provides that "[e]mployees covered by this Contract will be compensated at the rate of time and one-half for overtime hours accrued in excess of the normal hours of the established work week. These compensation credits shall be taken in compensatory time or in cash." The contract thus provides that employees are entitled to "credits" for overtime hours "accrued." Unlike the agreement in Communications Workers, the agreement in this case contemplates an award of back pay as a remedy for a violation of the contractual provision regarding overtime. In Communications Workers, the explicit language of the agreement provided for payment of increased salary after a promotion starting from the date of actual promotion. An award of back pay for the period before the actual promotion was not contemplated by the parties. However, in this case, the agreement provides that employees will be compensated for "overtime hours accrued." "Accrue" means "to increase; to augment; to come to by way of increase; to be added as an increase . . . . Acquired; . . . received . . . ." Black's Law Dictionary 20 (6th ed. 1990); Webster's Third New International Dictionary 13 (1971) (defining "accrue" to mean "to come by way of increase or addition . . . to be periodically accumulated in the process of time . . . . Gather, collect, accumulate."). "Accrue" does not necessarily mean that the time must be "worked." Instead, "accrue" only speaks to the fact that the hours are collected, not to the manner in which the employee becomes entitled to those hours. That understanding is further supported by the fact that the agreement refers to the "overtime hours accrued" as "compensation credits." Simply put, the agreement provides that "[e]mployees . . . will be compensated at the rate of time and one-half for overtime hours accrued in excess of the normal hours of the established work week;" it does not provide that "[e]mployees . . . will be compensated at the rate of time and one-half for overtime hours worked in excess of the normal hours of the established work week." Had the parties intended to use the term "worked," they certainly could have, as they did three subsections below when referring to "[h]ours worked on a holiday." That choice of language demonstrates that the parties did not intend to preclude back pay awards for overtime violations by imposing a prerequisite of actual work under the overtime provisions. As a result, the arbitrator's back pay award was entirely "consistent with the terms of th[e] Contract" in this case, as the contract requires.
The dissent states that the contracting parties must "tie the provision of back pay as a remedy to a particular violation." Ante at __ (slip op. at 8-9). The dissent's approach, however, does violence to the deference we must show to the arbitrator's contractual interpretation. If that interpretation is "reasonably debatable," as it is, we cannot brush it aside and substitute our own interpretation as the dissent would. The award is entitled to deference.
In any event, the dissent's proposed interpretation of the agreement is flawed. The agreement here specifically provides that the arbitrator "may prescribe an appropriate back pay remedy" for a contract violation. Presumably, then, the dissent would require the parties to enumerate, in the agreement, all of the possible contractual violations that may occur and whether those violations can be compensated by an award of back pay. The dissent points to no precedent that supports that requirement. Certainly, there is no legal prohibition on contracting parties agreeing that a back pay remedy is available for any and all contractual violations, and, conversely, no requirement that parties specify every possible contract violation and state that each of them may entitle an aggrieved party to an award of back pay. The dissent's requirement that the power to award back pay be conditioned on an itemization of the contract violations subject to back pay is simply unrealistic. It would be virtually impossible to list every possible violation that is arguably subject to a back pay remedy. Yet that is what the dissent suggests. It is said that, because the contract does not provide for back pay as a remedy for lost overtime opportunity, the arbitrator has no power to award such back pay since there is "nothing to indicate that that is what the parties intended." Ante at __ (slip op. at 8). That is precisely what the parties intended when they agreed that the arbitrator "may prescribe an appropriate back pay remedy when he [or she] finds a violation of this Contract." That is more than sufficient.
As noted, federal labor jurisprudence provides valuable guidance for our own labor jurisprudence. Galloway, supra, 78 N.J. at 10. With that in mind, we note that the United States Supreme Court has addressed the need for a flexible approach to an arbitrator's authority with regard to remedies:
When an arbitrator is commissioned to interpret and apply the collective bargaining agreement, he is to bring his informed judgment to bear in order to reach a fair solution of a problem. This is especially true when it comes to formulating remedies. There the need is for flexibility in meeting a wide variety of situations. The draftsmen may never have thought of what specific remedy should be awarded to meet a particular contingency. [Steelworkers, supra, 363 U.S. at 597, 80 S. Ct. at 1361, 4 L. Ed. 2d at 1428 (emphasis added).]
Communications Workers, supra, 96 N.J. at 449, cites one of the classic texts on arbitration, Elkouri & Elkouri, How Arbitration Works (Marlin M. Volz & Edward P. Goggin eds., 5th ed. 1985), also relevant here. Under the section entitled "Principles of Damages," Elkouri also states:
In empowering the arbitrator to resolve their dispute, the parties generally are considered to have given authority to grant adequate monetary relief where the arbitrator finds that the grievance has merit. Arbitrators are considered to have the authority to award monetary damages for contract violations even though the contract does not specifically provide such remedy, since the parties have empowered the arbitrator to resolve their dispute. In this regard, Arbitrator [and former United States Secretary of Labor] W. Willard Wirtz emphasized that arbitrators have authority to award money damages for contract violations even though the contract does not specifically provide such remedy. To restrict arbitrators to remedies specifically set forth in the contract would negate arbitration as a method of dispute settlement or would result in cluttering contracts with numerous liquidated damages provisions that would invite more trouble than they could prevent. [Id. at 579-80 (footnotes omitted) (emphasis added).]
Another recognized treatise, Fairweather's Practice and Procedure in Labor Arbitration (Ray J. Schoonhoven ed., 4th ed. 1999), opens the discussion on "Back-Pay Awards" with the observation that "[e]ven in the absence of specific contractual authority, arbitrators have the power to decide whether back pay should be awarded to remedy the wrong." Id. at 458. Former Solicitor General Archibald Cox, when serving as a labor arbitrator, succinctly set forth the philosophy undergirding back pay:
When the employer causes the loss, however innocently, it is more just that he should bear the cost of making the employee whole than that the employee should be forced to suffer a denial of contract rights without a remedy. [Electric Storage Battery Co., AAA Case No. 19–22 (1960) (Cox, Arb.).]
The dissent correctly notes that the arbitrator's authority to resolve a dispute depends on whether the parties have delegated that power to him or her. Ante at __ (slip op. at 4). Clearly, in this case they have. The contract says that the arbitrator "may prescribe an appropriate back pay remedy when he [or she] finds a violation of this Contract." In sum, our precedent, federal labor jurisprudence, and the works of learned commentators make clear that the agreement in this case authorizes an award of back pay in this appeal. Moreover, although we need not reach the question, the commentators suggest that the award may have been permissible even without that contractual authorization.
Because the arbitrator's interpretation was reasonably debatable, we therefore must proceed to the second tier of the Communications Workers analysis, and determine whether the arbitrator reasonably concluded that the back pay award in this case is "permitted by law." The dissent concludes that an award of back pay for a specific contract violation is only "permitted by law" if there is a statute or regulation that specifically provides for a back pay award in that particular situation. Because there is no statute or regulation specifically authorizing an arbitrator to award back pay as a remedy ...