On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Justice LaVECCHIA
SYLLABUS (This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interest of brevity, portions of any opinion may not have been summarized).
Borough of East Rutherford v. East Rutherford PBA Local 275 (A-24-11) (068872)
Argued September 24, 2012 -- Decided March 19, 2013
LaVECCHIA, J., writing for a majority of the Court.
In this appeal, the Court considers the propriety of a public-sector arbitration award.
This matter concerns the provision of health benefits under a collectively bargained agreement (CBA) between the Borough of East Rutherford (Borough) and the East Rutherford Policemen's Benevolent Association, Local 275 (PBA). The Borough enrolled in the State Health Benefits Plan (SHBP) effective January 2002 for the purpose of providing healthcare coverage to its employees. Pursuant to the then-existing SHBP medical coverage programs, PBA members paid a $5.00 co-payment for each doctor's office visit. Effective January 1, 2007, the State Health Benefits Commission (Commission) increased the co-payment requirement to $10.00 per office visit. The Borough passed along the increase to members covered by the existing CBA, which was effective for the period of January 1, 2005, through December 31, 2009. Several provisions of the CBA are pertinent to this appeal. Article 29, Section 29.01 (Medical and Insurance Coverage) stated that any "change in carrier or source of coverage shall result in equal or better coverage." Section 29.02 provided that all "increases in premiums during the term of this Agreement shall be borne entirely by the Borough pursuant to present practice." Article 7, Section 7.03 (Preservation of Rights) stated that benefits, terms, and conditions of employment not specifically set forth in the CBA shall be maintained at the highest standard in effect at the time that the CBA took effect. Finally, Article 5, Section 5.01 (Existing Law) provided that the "provisions of this Agreement shall be subject to [and] subordinate to and shall not annul or modify existing applicable provisions of State or Federal Laws."
The PBA filed a grievance challenging the increased co-payment and ultimately demanded arbitration. The Borough filed a scope of negotiations petition with the New Jersey Public Employment Relations Commission (PERC) arguing that reimbursement of the co-payment increase was preempted by a 2007 amendment to an SHBP statute, which states in part: "The contract or contracts purchased by the [Commission] . . . shall include the following provisions regarding reimbursements and payments: (1) In the successor plan, the co-payment for doctor's office visits shall be $10 per visit with a maximum out-of-pocket of $400 per individual and $1,000 per family for in-network services for each calendar year." N.J.S.A. 52:14-17.29(C). PERC denied the Borough's request to restrain arbitration and the matter proceeded to arbitration. The Arbitrator determined, consistent with PERC's determination, that the grievance was arbitrable because there was no preempting statute or regulation. The Arbitrator concluded that the CBA was violated when PBA members were required to pay the increased co-payment. She found that under Section 29.01, "the Borough remained contractually obligated to provide its employees the medical insurance benefits, including the required co-payments, that it was providing in 2005." In addition, in light of the Preservation of Rights in Article 7, the Arbitrator rejected the Borough's argument that the CBA would have specifically provided that it was responsible for co-payment increases if that were the case, as Section 29.02 provided for premium increases. Although the Arbitrator determined that it was beyond the scope of her authority to restore the $5.00 co-payment, she found "no legal or contractual reason" that prevented her from "direct[ing] the Borough to reimburse the employees for the amount of the [increased] co-payments" for the duration of the contractual period.
The trial court vacated the Arbitrator's award, concluding that it was contrary to N.J.S.A. 52:14-17.29(C), violated public policy, exceeded the Arbitrator's authority, was procured by undue means, and was not reasonably debatable. The Appellate Division reversed and reinstated the arbitration award in favor of the PBA. The panel was more deferential to the arbitration process, concluding that the award was not contrary to existing law or public policy as it did not undermine the Commission's decision to increase the co-payment, and the award was a reasonably debatable interpretation of the CBA. The Court granted the Borough's petition for certification. 208 N.J. 371 (2011).
HELD: The arbitration award is sustained because it was not procured by undue means, the Arbitrator did not exceed her authority, the award was not contrary to existing law or public policy, and the award was a reasonably debatable interpretation of the CBA.
1. There is a strong preference for judicial confirmation of arbitration awards. Arbitration of public-sector labor disputes, in particular, should be a fast and inexpensive way to achieve a final resolution. The "reasonably debatable" standard controls the review of public-sector arbitration awards. Under that standard, if the correctness of the award is reasonably debatable, judicial intervention is unwarranted. Courts are not to second-guess an arbitrator's interpretation of the CBA regardless of the court's view of the arbitrator's position. That said, a court may vacate an award on statutory grounds, including if it was "procured by corruption, fraud or undue means" or "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) and (d). Additionally, a court may vacate an award if it is contrary to existing law or public policy. However, even when the award implicates a clear mandate of public policy, the deferential "reasonably debatable" standard still governs. (pp. 14-17)
2. According to the Borough, the arbitration award was procured by undue means and the Arbitrator exceeded her authority. The Borough's statutory arguments are without merit. "Undue means" ordinarily encompasses a situation in which the arbitrator has made an acknowledged mistake of fact or law or a mistake that is apparent on the face of the record, whereas an arbitrator exceeds her authority by disregarding the terms of the parties' agreement. In interpreting and applying the plain language of Article 7.03, the Arbitrator determined that the prior existing co-payment obligation must be maintained. The Arbitrator reasonably characterized the former level of co-payment required of PBA members as a past practice between the Borough and the PBA. The Arbitrator's ultimate conclusion was not an unfair or unreasonable interpretation of the agreement. The Arbitrator also recognized that she lacked the authority to order the Borough to restore the $5.00 co-payment, but concluded that there was no legal or contractual bar to her directing the Borough to reimburse the employees for the amount of the co-payments in excess of $5.00, as damages for the contractual violation. When considering the specific make-whole remedy developed, the award was not inconsistent with any of the CBA's provisions, individually or taken as a whole. Therefore, the award was not procured by undue means and the Arbitrator did not exceed her authority. Finally, the outcome here was at least reasonably debatable under the CBA's language. (pp. 17-22)
3. The reasonably debatable standard also applies to the Borough's arguments that the arbitration award violates existing law and public policy. The Arbitrator's make-whole remedy does not directly conflict with existing law or public policy. Under the award, employees covered by the CBA were still required to make the $10.00 co-payment, thus meeting the literal SHBP requirement. The 2007 amendment did not include any language addressing application of changed plan conditions to local employers who were in the midst of contracts containing Preservation of Rights clauses, among others, that the arbitrator here was called on to interpret and apply. The Arbitrator strove to interpret the CBA within the bounds set by law, and neither her interpretation of the CBA nor the remedy she fashioned was unreasonable. Therefore, the award survives scrutiny under the reasonably debatable standard. (pp. 22-27)
The judgment of the Appellate Division is AFFIRMED.
JUSTICE PATTERSON, dissenting, expresses the view that the arbitrator's award was not a "reasonably debatable" interpretation of the CBA because it exceeded the arbitrator's authority and was contrary to clear mandates of public policy.
CHIEF JUSTICE RABNER and JUSTICES ALBIN and HOENS join in JUSTICE LaVECCHIA's opinion. JUSTICE PATTERSON filed a separate, dissenting opinion.
Argued September 24, 2012 --
JUSTICE LaVECCHIA delivered the opinion of the Court.
In this appeal, the Court reviews a public-sector arbitration award. The subject matter of the grievance that led to the award concerns the provision of health benefits under a collectively bargained agreement (CBA) between the Borough of East Rutherford (Borough) and the East Rutherford Policemen's Benevolent Association, Local 275 (PBA), effective for the period of January 1, 2005, through December 31, 2009. The Borough furnished healthcare coverage for its employees through the State Health Benefits Plan (SHBP). Prior to and at the commencement of the CBA's effective period, the SHBP's pertinent medical coverage plans required a $5.00 co-payment from plan participants for doctor's office visits. Effective January 1, 2007, the State Health Benefits Commission (Commission) increased the co-payment requirement to $10.00 per office visit. The Borough passed along the increase to members covered by the CBA.
The PBA filed a grievance disputing the increase, claiming among other things that the Preservation of Rights Article of the CBA precluded imposition of the higher co-payment obligation on employees covered by the existing CBA. The matter proceeded to arbitration. With only days remaining before the CBA's effective period expired, the Arbitrator found a violation of the CBA and ordered a remedy. The Arbitrator stated that employees covered by the CBA were required to comply with the increased co-payment instituted by the Commission. However, she concluded that from the effective date of the co-payment increase through the duration of the CBA's term, the employer had to maintain the past practice that required employees to pay only a $5.00 co-payment per doctor visit. Thus, the arbitration award ordered the employer to reimburse employees for the incremental increase in co-payments through the end of the contract period.
This appeal comes to us from the Appellate Division's reversal of the Law Division's vacation of the arbitration award. The Appellate Division held that the Arbitrator's construction of the CBA was reasonably debatable and rejected the Borough's additional claims that the award was illegal.
We affirm the Appellate Division judgment. Because judicial review of an arbitration award is deferential to an arbitrator's conclusions, the instant award must be sustained. The interpretation reached by the Arbitrator of this contract was within the range of what is reasonably debatable. Furthermore, the remedy ordered by the Arbitrator to effectuate her interpretation was neither contrary to existing law nor beyond the scope of what was reasonably debatable. We agree with the appellate panel's conclusion that the additional arguments advanced to overturn the award lack merit.
The facts relevant to this appeal can be concisely summarized. The Borough enrolled in the SHBP effective January 2002 for the purpose of providing healthcare coverage to its employees. Pursuant to the then-existing SHBP medical coverage programs, from 2002 through the end of 2006, PBA members participating in the SHBP's NJ Plus or HMO medical coverage plans paid a $5.00 co-payment for each doctor's office visit. On September 14, 2006, Horizon Blue Cross Blue Shield of New Jersey, Administrator of the SHBP, notified the Borough of rate changes for 2007. The notice stated that, effective January 1, 2007, the co-payment requirement was increased by action of the Commission to $10.00 per office visit.
When that increase was put into effect, the existing CBA between the PBA and the Borough covered the period from January 1, 2005, through December 31, 2009. Several provisions of the CBA pertinent to this appeal are included here in their entirety.
Article 29 addresses "Medical and Insurance Coverage" and provides in part:
29.01 The Borough will continue to provide and pay for existing Medical and prescription plans and coverage for Employees covered by this Agreement and their families. Any change in carrier or source of coverage shall result in equal or better coverage.
29.01 (a) A Three ($3.00) Dollar Co-Payment will be attached to the Prescription Insurance Plan, per prescription.
29.02 All increases in premiums during the term of this Agreement shall be borne entirely by the Borough pursuant to present practice.
Article 7 covers "Preservation of Rights." It specifies in pertinent part:
7.02 Nothing contained herein shall be construed to deny or restrict the Borough of its rights, responsibilities and authority, under R.S. 11.40 and 40A, or any other national, state, country, or other applicable laws.[*fn1 ]
7.03 The Borough agrees that all benefits, terms and conditions of employment relating to the status of Employees, which benefits, terms and conditions of employment are not specifically set forth in this Agreement, shall be maintained at not less than the highest standards in effect at the time of the commencement of the collective bargaining negotiations between the parties leading to the execution of this Agreement.
7.04 Unless a contrary intent is expressed in this Agreement, all existing benefits, rights, duties, obligations and conditions of employment applicable to any Employee pursuant to any rules, regulations, instruction, directive, memorandum, practice, statute or otherwise shall not be limited, restricted, impaired, removed or abolished.
In addition, Article 5, Section 5.01, titled "Existing Law," states, "[t]he provisions of this Agreement shall be subject to [and] subordinate to and shall not annul or modify existing applicable provisions of State or Federal Laws."
Finally, Article 36 covers grievance procedures under the CBA. Under Section 36.02, a "grievance" is any complaint, difference or dispute between the Borough and any Employee with respect to the interpretation, application or violation of any of the provisions of [the CBA] or any rule or regulation or policies, ...