U.S. Department of the Navy, Naval Undersea Warfare Center, Newport, Rhode Island and National Association of Government Employees, Federal Union of Scientists and Engineers

[ v55 p687 ]

55 FLRA No. 123

U.S. DEPARTMENT OF THE NAVY
NAVAL UNDERSEA WARFARE CENTER
NEWPORT, RHODE ISLAND
(Agency)

and

NATIONAL ASSOCIATION OF GOVERNMENT
EMPLOYEES, FEDERAL UNION OF
SCIENTISTS AND ENGINEERS
(Union)

0-AR-3094

_____

DECISION

July 31, 1999

Before the Authority: Phyllis N. Segal, Chair; Donald S. Wasserman and Dale Cabaniss, Members.

Decision by Chair Segal for the Authority.

I.     Statement of the Case

      This matter is before the Authority on exceptions to an award of Arbitrator Peter Florey filed by the Agency under section 7122(a) of the Federal Service Labor-Management Relations Statute (the Statute) and part 2425 of the Authority's Regulations. The Union filed an opposition.

      For the following reasons, we deny, in part, the Agency's exceptions, and remand, in part, the award to the parties for further action consistent with this decision.

II.     Background and Arbitrator's Award

      The grievant's supervisor reviewed his performance and rated him "Above Fully Successful" in three critical elements, and "Fully Successful" in two critical elements, resulting in a summary rating of "Exceeds Fully Successful." The grievant sought a modification of his summary rating from "Exceeds Fully Successful" to "Outstanding." Under the Agency's Performance Appraisal Review System (PARS) regulation, employees are given a summary rating of "Exceeds Fully Successful" if they are rated "Above Fully Successful" on a majority of their critical elements. Exceptions, Enclosure 2, PARS Regulation at 8, (PARS Regulation). Employees are given a summary rating of "Outstanding" if they are rated "Above Fully Successful" on all of their [ v55 p688 ] critical elements and "ma[k]e significant contributions to the organization's mission." Id.

      During the processing of the grievance, an Agency official recommended that the rating for one of the two critical elements that had been "Fully Successful" be raised to "Exceeds Fully Successful." The official determined that there was insufficient evidence to warrant changing the rating for the remaining "element 4". Because the official did not find that the grievant should have been rated "Exceeds Fully Successful" on all five elements, he did not raise the grievant's overall rating to "Outstanding."

      The Arbitrator found that, with regard to the grievant's rating for the remaining element, both the supervisor and the Agency official disregarded the language of the Agency's PARS regulation, "which, expressly authorizes an `Above Fully Successful' rating for unusually good or excellent quality or quantity of work provided ahead of schedule and with less than normal supervision." Award at 9 (emphasis in award). The Arbitrator faulted the supervisor and official for focusing exclusively on the quantity of the grievant's work with respect to the remaining element. He noted that the official had concluded in a letter that the grievant had made significant contributions to the organization's mission, that the grievant had acted without "a single oversight," and that, in previous years, similar performances had been rated "Above Fully Successful." Id.

      Based on these findings, the Arbitrator raised the grievant's rating for the remaining element to "Above Fully Successful." In doing so, he stated that his action was based on "the clear regulation as implemented by supervision in prior years." Id. at 10. In addition, the Arbitrator determined that the fact that the grievant "made significant contributions to the organization's mission," coupled with the fact that that he should have received "`Above Fully Successful' evaluations in all [c]ritical [e]lements, requir[ed] a Level 5, `Outstanding' overall rating." Id.

      Further, the Arbitrator held that, under the Agency's guidelines, the grievant was entitled to a performance award equal to at least 2 percent of his base pay. According to the Arbitrator:

With respect to a performance award, I do not have to use subjective criteria. By the [Agency's] own guidelines, [the grievant] is entitled [to] at least 2% of his base pay, and it [is] so ordered.

Id. (emphasis in original).

      In reaching these conclusions, the Arbitrator rejected the Agency's argument that changing the grievant's rating would improperly affect its management rights. The Arbitrator stated that where an agency ignores "its own regulations[,] . . . an arbitrator has not only the right but the obligation to follow the letter of the [Agency's] own regulations which are so clear that they do not leave room for any subjective application." Id.

III.     Positions of the Parties

A.     Agency's Position

      The Agency argues that the award raising the grievant's rating for the remaining element is contrary to management's rights to direct employees and assign work. Relying on U.S. Department of the Treasury, Bureau of Engraving and Printing, Washington, D.C. and National Treasury Employees Union, Chapter 201, 53 FLRA 222 (1997) (BEP II), the Agency asserts that the Union made no argument and presented no evidence that management violated any procedures or regulations. Instead, the Agency asserts, the Union's argument is based on a difference of opinion between the Agency and the grievant concerning the appropriate rating. The Agency further argues that the Arbitrator's determination to raise the grievant's rating was contrary to the Agency's PARS regulation because it was based on only one part of the definition of "Fully Successful" -- the requirement that there be "[n]o more than 10 [percent] oversights[.]" Exceptions at 3.

      The Agency also argues that the Arbitrator's decision to grant the grievant a 2 percent performance award is contrary to regulation and Authority precedent that "reserves management's right to determine under its own rules which employees should get awards." Exceptions at 4 (citing 5 C.F.R. § 430.504(d); U.S. Department of Health and Human Services, Food and Drug Administration, Kansas City District and National Treasury Employees Union, Chapter 254, 53 FLRA 422 (1997) (Food and Drug Administration)). In addition, the Agency asserts that the decision to grant the grievant the performance award was based on a nonfact. The [ v55 p689 ] Agency argues that the Arbitrator's conclusion that the employee was "entitled" to a performance award pursuant to the Agency's PARS regulation is contrary to that regulation, which states that the granting of such awards is optional. [n1] 

B.     Union's Position

      The Union asserts that the award was not based on a difference of opinion between the Arbitrator and the supervisor, as the Agency had argued. Rather, according to the Union, the award is based on "the evidence submitted on the negotiated policy for [PARS] and the Agency's own investigative conclusions, as well as the Arbitrator's clear reliance on those policies in reaching a decision." Opposition at 2. Specifically, the Union contends that the Arbitrator based his award on the evidence the Union presented concerning established policy with regard to the Agency's PARS regulation ratings and a report created during the Agency's initial investigation of the grievance.

      The Union also argues that the Arbitrator's evaluation of the evidence conformed to the two-prong test set forth in BEP. According to the Union, the Agency was bound by its PARS regulation, which it developed based on negotiation with the Union, and the Arbitrator based his award on the Agency's failure to comply with its obligations under that regulation. The Union argues that once the Arbitrator determined that the grievant's rating should be raised for element 4, the Agency's PARS regulation required that the grievant's overall rating be raised to "Outstanding."

      Finally, the Union asserts that the Arbitrator properly determined that the grievant was entitled to a performance award. In this regard, the Union claims that the Arbitrator based his decision on his interpretation of the Agency's PARS regulation, which required the granting of a performance award in this case. According to the Union, the PARS regulation required that employees rated "Outstanding" receive higher awards than employees rated "Exceeds Fully Successful." The Union contends that although "in general the granting of performance awards is optional[,]" because two employees in the grievant's department who were rated "Exceeds Fully Successful" received performance awards, the granting of an award to the grievant is "mandatory." Id. at 7.

IV.     Analysis and Conclusions

A.     The Portion of the Award Raising the Grievant's Rating Is Not Inconsistent with Agency Regulation, or Management Rights

      The Agency's assertions that the award raising the grievant's rating is contrary to the Agency's PARS regulation and management rights challenge the award's consistency with law. Accordingly, we review the questions of law raised by these assertions and the Arbitrator's award de novo. See National Treasury Employees Union, Chapter 24 and U.S. Department of the Treasury, Internal Revenue Service, 50 FLRA 330, 332 (1995) (Department of the Treasury) (citing U.S. Customs Service v. FLRA, 43 F.3d 682, 686-87 (D.C. Cir. 1994)).

      In applying a standard of de novo review, the Authority assesses whether an arbitrator's legal conclusions are consistent with the applicable standard of law, based on the arbitrator's underlying factual findings. National Federation of Federal Employees, Local 1437 and U.S. Department of the Army, Army Research, Development and Engineering Center, 53 FLRA 1703, 1710 (1998) (Army Research). In making that assessment, the Authority defers to the arbitrator's underlying factual findings. See id.

1.     The Award Raising the Grievant's Rating Is Not Contrary to the Agency's PARS Regulation

      The Agency argues that the Arbitrator based his determination to raise the grievant's rating solely on one component of the rating standard -- the fact that the grievant met the regulatory requirement of having "[n]o more than 10 [percent] oversights." Exceptions at 3. According to the Agency, meeting this requirement does not mean that the grievant has achieved a rating of "[A]bove [F]ully [S]uccessful." Id.

      The Agency's position ignores the Arbitrator's discussion of reasons other than the number of oversights for raising the rating. The Arbitrator stated that he based his determination on the express language of the Agency's PARS regulation, which "expressly authorizes an `Above Fully Successful' rating for unusually good or excellent quality or quantity of work provided ahead of schedule and with less than normal supervision." Award at 9 (emphasis in award). Finding that the term "quantity" varied greatly depending on the duties of a particular position, and noting that the grievant's supervisor "did not have a single clue of what was involved in [this] work[,]" the Arbitrator relied on the fact that similar performance in the past had always [ v55 p690 ] resulted in the grievant begin rated "Above Fully Successful." Id. at 9-10. The Arbitrator also found that the grievant had performed these duties during the rating period "without a single oversight[.]" Id. at 9. The Arbitrator concluded, therefore, that his award was based on "the clear regulation as implemented by supervision in prior years." Id. at 10.

      Reading the award in its entirety leads us to reject the Agency's contention that the Arbitrator based his determination solely on one part of the Agency's PARS regulation. As the Agency has failed to show that the Arbitrator's award raising the grievant's rating on the remaining critical element is contrary to the Agency's PARS regulation, we deny this exception.

2.     The Award Raising the Grievant's Rating Does Not Violate Management Rights                                        

      The Authority's framework for resolving exceptions alleging that an award violates management's rights under section 7106 of the Statute is set forth in U.S. Department of the Treasury, Bureau of Engraving and Printing, Washington, D.C. and National Treasury Employees Union, Chapter 201, 53 FLRA 146, 151-54 (1997) (BEP). Upon finding that the award affects a management right under section 7106(a), the Authority applies a two-prong test. Under prong I of this framework, the Authority examines whether the award provides a remedy for a violation of either an applicable law, within the meaning of section 7106(a)(2) of the Statute, or a contract provision that was negotiated pursuant to section 7106(b) of the Statute. Id. at 153. If the award provides such a remedy, the Authority will find that the award satisfies prong I of the framework and will then address prong II. Under prong II of BEP, the Authority considers whether the arbitrator's remedy reflects a reconstruction of what management would have done if management had not violated the law or contractual provision at issue. Id. at 154. If the arbitrator's remedy reflects such a reconstruction, then the Authority will find that the award satisfies prong II.

      The Agency asserts that the award is contrary to management's rights to direct employees and assign work under 7106(a)(2)(A) and (B) of the Statute. In BEP, the Authority held that an arbitrator's cancellation of a grievant's rating under an established performance appraisal system affects the exercise of these management rights. 53 FLRA at 154. Therefore, it is necessary to examine whether the award satisfies both prongs of the BEP test.

a.      The Award Provides a Remedy for a Violation of an Applicable Law

      The Arbitrator concluded that the Agency's appraisal of the grievant violated the Agency's PARS regulation. If the PARS regulation constitutes either an "applicable law" or a contract provision within the scope of 7106(b) of the Statute, then Prong I of BEP is satisfied.

      The Authority has held that a regulation is an "applicable law" where that regulation has "the force and effect of law." National Treasury Employees Union and U.S. Department of the Treasury, Internal Revenue Service, 42 FLRA 377, 391-92 (1991), enforcement denied on other grounds, 996 F.2d 1246 (D.C. Cir. 1993) (NTEU). Regulations are found to have the force and effect of law where they: (1) affect individual rights and obligations; (2) were promulgated pursuant to an explicit or implicit delegation of legislative authority by Congress; and (3) were promulgated in conformance with any procedural requirements imposed by Congress. Id. This test is similar to the test used by the U.S. Court of Appeals for the Federal Circuit to determine whether agency regulations have the force and effect of law. See Hamlet v. United States, 63 F.3d 1097, 1105 (Fed. Cir. 1995) (Hamlet), cert. denied, 517 U.S. 1155 (1996). [n2] 

      The first requirement -- that a regulation affects individual rights -- has been determined to be satisfied where the regulation is mandatory and establishes the obligations of agencies and the rights of employees. NTEU, 42 FLRA at 391. The Federal Circuit, in determining whether an agency regulation is mandatory, examines the language of the provision, its context, and "any other extrinsic evidence of intent." Hamlet, 63 F.3d at 1103-1105. Here, the PARS regulation's purpose is "[t]o establish policy and responsibilities for the . . . performance appraisal system[.]" See Exceptions, Enclosure 2, PARS Regulation at § 1 (PARS Regulation). The regulation sets out requirements for supervisors and employees with respect to performance plans, appraisals and ratings, and provides specific summary ratings that are associated with particular levels of ratings on performance elements. On their face, the regulations oblige the agency to conduct the performance appraisal process in a particular manner and affect the rights of individual employees to obtain a particular summary performance rating. The Agency has provided no argument or reason that would indicate that the regulations are not the binding rules they purport to be, and we find that the PARS regulation affects individual rights.

      Second, there is an explicit delegation of legislative authority by Congress to create performance [ v55 p691 ] appraisal systems. Under 5 U.S.C. § 4302, each agency is required to establish performance appraisal systems that conform to Office of Personnel Management (OPM) regulation and contain specific features. The PARS regulation explicitly states that it was developed under this authority See PARS Regulation at § 5(d). The terms of the Agency's PARS regulation include the features required by the statute.

      Finally, we find that the PARS regulation was promulgated in conformance with the procedural requirements imposed by Congress. Under the Administrative Procedure Act (APA), 5 U.S.C. § 551 et. seq., for an agency rule to have the force and effect of law, it must be validly promulgated in accordance with applicable statutory procedures and be within the scope of delegated duties. 1 Stein, Mitchell, Mezines, Administrative Law § 1.02[2], at 1-48 - 1-49 (1999). Many agency regulations must be published through notice of the proposed rule in the Federal Register, providing interested parties an opportunity for comment. 5 U.S.C. § 553(b). However, section 553(a)(2) of title 5 excepts agency rulemaking from the notice and comment requirement to the extent that it involves "a matter relating to agency management or personnel[.]" In applying this exception, several courts have held that an agency manual or handbook can be a regulation with the force and effect of law, despite not being published for notice and comment. See Hamlet, 63 F.3d at 1103-05, citing Service v. Dulles, 354 U.S. 363 (1957); Doe v. Hampton; 566 F.2d 265 (D.C. Cir. 1977); Piccone v. United States, 407 F.2d 866 (1969).  [n3] 

      The only requirements placed on agency performance appraisal systems under 5 U.S.C. § 4302 are that they must include specific substantive matters and be promulgated under the regulations that the Office of Personnel Management (OPM) prescribes. The OPM regulations, in turn, require that an agency must submit a description of its appraisal system to OPM for approval. 5 C.F.R. § 430.209.

      The Arbitrator's award does not state whether the Agency's PARS regulation was approved by OPM. However, in an unpublished decision of the Federal Circuit, the court stated that the Agency's PARS regulation was approved by OPM. See Woodward v. Department of the Navy, 99 F.3d 1160, 1996 WL 599796, *2 (Fed. Cir. 1996). [n4]  We also note that it appears from the record that the Agency's PARS regulation, dated August 17, 1993, has been in effect for over five years. Section 430.210 of 5 C.F.R. provides that if OPM determines that an appraisal system "does not meet the requirements of applicable law, regulation, or OPM policy, it shall direct the agency to implement an appropriate system or program or take other corrective action." If the Agency's PARS regulation was not initially promulgated in conformance with any procedural requirements set forth in law, regulation, or OPM policy, it seems reasonable to expect that corrective action would have already been taken by the Agency at the direction of OPM. We thus find that the PARS regulations was validly promulgated.

      In sum, we conclude that the Agency's PARS regulation is an "applicable law" because it affects individual rights and obligations, was promulgated pursuant to an explicit delegation of legislative authority by Congress and was promulgated in conformance with required procedures. Accordingly, the Arbitrator's application of the Agency's PARS regulation meets prong I of the BEP test.

b.     The Remedy Reflects a Reconstruction of What Management Would Have Done If it Had Not Violated the Regulation

      The Arbitrator based his determination to raise the grievant's rating for element 4 on his conclusion that the Agency had not followed its own PARS regulation. The Arbitrator determined that if the Agency had adhered to its PARS regulation, and rated the grievant on the [ v55 p692 ] acknowledged quality of his work, it would have rated the grievant "Above Fully Successful" on the remaining element, as it had in the past for similar demonstrated performance. Based on these findings, the Arbitrator concluded that if the grievant properly had been rated "Above Fully Successful" on this element, the PARS regulation would have required that the grievant be rated "Outstanding" overall.

      Because the Arbitrator determined how the Agency would have rated the grievant if it had not violated its PARS regulation, the remedy of an "Outstanding" rating reconstructed what management would have done absent that violation. As such, this aspect of the award satisfies prong II of the BEP test. Accordingly, we deny the Agency's exception claiming that the award raising the grievant's rating is inconsistent with law because it violates management rights.

B.     The Portion of the Award Granting a Performance Award Is Not Inconsistent with 5 C.F.R. § 430.504(d)

      The Agency argues that the Arbitrator's decision to grant the grievant a 2 percent performance award is contrary to 5 C.F.R. § 430.504(d). See Food and Drug Administration, 53 FLRA 422 (holding that requirement of section 504(d) that higher level agency official review and approve all performance awards precluded arbitrator from providing this remedy). The Agency's reliance on section 430.504(d) is misplaced. In Food and Drug Administration, the Authority explained that section 430.504(d) was eliminated in 1995. As section 430.504(d) is no longer in effect, and there is no basis for finding that it was applicable during any period relevant to this grievance, which arose in 1996, we reject the Agency's claim that the award of a performance award is deficient as contrary to 5 C.F.R. § 430.504(d).

C.     The Portion of the Award Granting a Performance Award Is Not Based On a Nonfact

      The Agency argues that the Arbitrator's decision to grant the grievant a performance award was based on a nonfact.

      To establish that an award is based on a nonfact, the excepting party must demonstrate that a central fact underlying the award is clearly erroneous, but for which a different result would have been reached by the arbitrator. U.S. Department of the Air Force, Lowry Air Force Base, Denver, Colorado and National Federation of Federal Employees, Local 1497, 48 FLRA 589, 593 (1993). The Authority will not find an award deficient on the basis of an arbitrator's determination on any factual matter that the parties disputed at arbitration. Id. at 594 (citing Mailhandlers v. Postal Service, 751 F.2d 834, 843 (6th Cir. 1985)).

      The Agency has not established that the Arbitrator's conclusion that the grievant was entitled to a performance award under the Agency's PARS regulation constitutes a "fact" underlying the award. The Arbitrator's conclusion resulted from his interpretation and application of the Agency's PARS regulation to the evidence presented and, as such, cannot be challenged as a nonfact. See National Air Traffic Controllers Association and U.S. Department of Transportation, Federal Aviation Administration, 54 FLRA 1354, 1361-62 (1998). As such, we deny the Agency's nonfact exception

D.     We Are Unable to Determine Whether the Portion of the Award Granting a Performance Award Is Inconsistent With the Agency's PARS Regulation

      The Agency argues that the Arbitrator's conclusion that the grievant was "entitled" to a performance award pursuant to the Agency's PARS regulation is contrary to that regulation, which states that the granting of such awards is "optional". Exceptions at 4 (quoting PARS Regulation at § 9(e)(5)). Because the Agency's PARS regulation is an "applicable law," we review the Agency's exception that the award conflicts with the PARS regulation de novo. See supra at 5-6.

      As set forth above, the Arbitrator found that the grievant was entitled under the PARS regulations to a 2 percent performance award. His only explanation for this conclusion is his statement that:

With respect to a performance award, I do not have to use subjective criteria. By the [Agency's] own guidelines, [the grievant] is entitled [to] at least 2% of his base pay, and it [is] so ordered.

Award at 10 (emphasis in original).

      The PARS regulation provides the following regarding performance awards:

(5)     Granting of Awards. Granting of performance awards is optional. If one or more employees with an "O" rating is granted an award, it is not necessary that every "O" rated employee in that same grade and award pool be granted an award. Performance awards should be considered together where the employees have the same or similar performance standards and are wording together in support of the same organizational requirements.

(6)     Payment of awards [ v55 p693 ]

. . . .

(b)     When the decision to grant awards is made within each award pool, the amount (i.e., the percentage of base pay) paid to employees at the same grade level who were rated "O" must be at least two percent of base pay, if granted at all; the amount paid to "EFS" employees must be less than that paid to "O" rated employees, if any. . . .

PARS Regulation, § 9(e)(5),(6)(b).

      As the Agency asserts, this regulation does provide that performance awards are optional, and that not every employee with an "Outstanding" rating need be given an award. It also provides, however, that under some circumstances employees rated "Outstanding" must receive an award of at least 2 percent if they receive any award, and provides that awards paid to employees rated "Exceeds Fully Successful" be lower than awards to employees rated "Outstanding."

      The Arbitrator, in simply concluding that the Agency's "own guidelines" require the payment of at least a 2 percent award to the grievant, did not set out the facts on which he based this legal conclusion, and no facts supporting his conclusion are present in the record before us. [n5]  Under these circumstances, where an award fails to contain factual findings necessary to assess an arbitrator's legal conclusions, and the finding cannot be derived from the record, that portion of the award will be set aside and the case remanded to the parties for submission to the arbitrator so that the requisite findings can be made. See U.S. Department of Transportation, Federal Aviation Administration, Washington, D.C. and National Air Traffic Controllers Association, 55 FLRA 322, 328 (1999) (citing Army Research, 53 FLRA at 1710). Accordingly, we remand this portion of the award to the parties with the direction that, absent settlement, the issue should be resubmitted to the Arbitrator for clarification as to the basis for his conclusion that the grievant is entitled to performance award. See Army Research, 53 FLRA at 1710-11.

V.     Decision

      Based on the foregoing, we deny the Agency's exceptions claiming that the award raising the grievant's performance rating is contrary to the Agency's PARS regulation and management rights under section 7106(a)(2)(A) and (B) of the Statute. In addition, we deny the Agency's exception that the award of a 2 percent performance award is based on a nonfact.

      As set forth above, we are unable to determine based on the award whether the granting of a 2 percent performance award is inconsistent with the Agency's PARS regulation. Accordingly, we remand this portion of the award to the parties with the direction that, absent settlement, the issue should be resubmitted to the Arbitrator for clarification as to the basis for his conclusion that the grievant is entitled to a performance award.






Footnote # 1 for 55 FLRA No. 123

   The Agency also states that the Arbitrator "clearly exceeded his authority" in raising the grievant's rating and in ordering the Agency to give the grievant a performance award. Exceptions at 2. However, the Agency does not elaborate on this statement. Accordingly, we do not construe the assertion that the Arbitrator exceeded his authority as a separate ground for excepting to the award.


Footnote # 2 for 55 FLRA No. 123

   In particular, Hamlet, 63 F.3d at 1105, sets out a four-part test for determining whether an agency's personnel regulation has the force and effect of law. Under this test, the court asks whether the promulgating agency: (1) was vested with the authority to create the regulation; (2) conformed to procedural requirements, if any, in promulgating the regulation; and (3) intended the provision to establish a binding rule. The court also determines whether the regulation contravenes a statute. Id.


Footnote # 3 for 55 FLRA No. 123

   Hamlet also discussed precedent where courts found that agency regulations did not create enforceable rights. Id. at 1104-05. In reaching these conclusions, the courts held that the disputed regulation was precatory, rather than mandatory, see Griessenauer v. Department of Energy, 754 F.2d 361, 364 (Fed. Cir. 1985); that the provision was intended to "establish a policy" rather than "create any rights," Johnson v. Merit Systems Protection Board, 812 F. 2d 705, 711 (Fed Cir. 1987); or that the provision was an "interpretive," rather than a "substantive" rule, Horner v. Jeffrey, 823 F.2d 1512, 1528-30 (Fed. Cir. 1987). These decisions do not relate to the procedural regularity of the regulations at issue, but to the intent of the agency promulgating the particular regulation, an issue discussed above.


Footnote # 4 for 55 FLRA No. 123

   Under the rules of the Federal Circuit, "every disposition may be cited as precedent of the court except those which are issued bearing a legend thereon specifically stating that the disposition may not be cit