United States, Securities and Exchange Commission, Washington, D.C. (Agency) and National Treasury Employees Union, Chapter 293 (Union)
[ v61 p251 ]
61 FLRA No. 49
SECURITIES AND EXCHANGE
September 16, 2005
Before the Authority: Dale Cabaniss, Chairman, and
Carol Waller Pope and Tony Armendariz, Members
I. Statement of the Case
This matter is before the Authority on exceptions to an award of Arbitrator Earle William Hockenberry filed by the Agency under § 7122 of the Federal Service Labor-Management Relations Statute (the Statute) and part 2425 of the Authority's regulations. The Union filed an opposition to the Agency's exceptions.
The Arbitrator found that the Agency reduced unit employees' base pay in violation of the Investor and Capital Markets Fee Relief Act (the Act). [n1] Accordingly, he sustained the grievance.
For the following reasons, we find that the award is not contrary to § 7121(c)(5) of the Statute, but is contrary to the Act. Accordingly, we set aside the award.
II. Background and Arbitrator's Award
Special salary rates (special rates) are rates of pay that are higher than the rates of pay received by employees covered by the General Schedule (GS), and are intended as a means to recruit and retain categories of employees that are otherwise difficult to recruit or retain. See 5 C.F.R. § 530.303(a). [n2] Employees who are paid special rates (special rate employees) are not entitled to receive locality pay. See 5 C.F.R. § 531.606(a)(1) & (4). [n3] However, where the GS basic pay plus locality pay would be greater than the special rate, special rate employees are entitled to the GS basic pay plus locality pay, rather than the special rate. See id.
Office of Personnel Management (OPM) approved, and the Agency began paying, special rates to certain categories of employees. Subsequently, Congress enacted the Act, which provides, in pertinent part, that "[r]ates of basic pay for all employees of the [Agency] may be set and adjusted by the [Agency] without regard to the provisions of chapter 51 or subchapter III of chapter 53" of title 5 of the United States Code. 5 U.S.C. § 4802(c). The Act also provides, in pertinent part, that "[t]o the extent that any employee of the [Agency] is represented by a labor organization with exclusive recognition in accordance with [the Statute], no reduction in base pay of such employee shall be made by reason of enactment of this section (including the amendments made by this section)." 5 U.S.C. § 4802 Note.
Pursuant to its authority under the Act, the Agency proposed to convert both non-special rate and special rate employees into a single pay system. For non-special rate employees covered by the General Schedule, the Agency proposed the following conversion formula: (1) subtract employees' locality pay; (2) add 6 percent to the resulting pay; (3) place the employees into the grade in the new system that corresponded to their existing grade (e.g., a GS-1 employee would become an "SK-1" employee) at the step that was closest to (but not lower than) their pay as adjusted; and (4) add locality pay, which would vary depending on where the employees were located.
The Agency proposed a similar formula for the special rate employees at issue here. [n4] However, as those employees' pay had been enhanced by special rates rather than locality pay, the Agency proposed to [ v61 p252 ] use a different first step in the formula, in an attempt to place the special rate employees at a similar starting point as the GS employees. [n5] Specifically, the Agency proposed to first subtract from the employees' total pay the "rest of U.S." locality rate (8.64 percent), which is the lowest locality pay rate and applies to Federal employees in the continental United States who are "not located within another locality pay area." [n6] 5 C.F.R. § 531.603(b)(32). The Agency proposed to then apply the same steps (2)-(4) that it would apply to GS employees. As a result of the first two steps of the formula, special rate employees' pay was reduced by 2.64 percent (the net result of first subtracting 8.64 percent and then adding 6 percent) prior to placement in the new system and addition of locality pay, pursuant to the last two steps of the formula.
The parties negotiated to impasse over the proposed new pay system and submitted the dispute to the Federal Service Impasses Panel (the Panel) for resolution. While the matter was pending before the Panel, the Agency implemented the new pay system. Under the new system, all employees received an increase in their overall pay, and the special rate employees received an average 16 percent pay increase.
The Union filed a grievance on behalf of special rate employees who were converted to the new system, alleging that the new system violated the Act because it reduced the base pay of those employees. After the grievance was filed, the Panel issued a decision, 02 FSIP 122, "upholding in relevant part the Agency's final offer submission as to the pay conversion process." Award at 2. In so doing, the Panel did not rule on the legality of the Agency's pay conversion formula, finding that "to the extent the Union is claiming that the [Agency's] compensation system violates" the Act, "it has more appropriate forums for enforcing its interpretation of the law." Exceptions, Attachment 10 at 8 n.2.
When the Union's grievance was unresolved, it was submitted to arbitration, where the Arbitrator framed the issues, in pertinent part, as follows:
Arbitrability: Does the . . . grievance concern a classification matter so that it is barred from the grievance process, and/or is the . . . grievance timely filed?[ [n7] ]
Merits: Did the Agency violate the . . . Act and/or the . . . Panel Decision and Order when it converted special rate employees by formula to a new pay system? If so, what shall be the remedy?
Award at 4.
The Arbitrator rejected the Agency's claim that the grievance was not arbitrable because it involved a classification matter under § 7121(c)(5) of the Statute. Specifically, the Arbitrator found that "the Union is challenging the formula used by the Agency to set pay under the new SK system as a violation of the Act, and not the classification of any of the [special rate] employees." Id. at 16.
With regard to the merits of the grievance, the Arbitrator found that the special rates previously paid to special rate employees constituted their rates of basic pay, and that any reduction in basic pay from those special rates would violate the Act. The Arbitrator determined that when the Agency reduced the special rate employees' basic pay by the "rest of U.S." locality pay (8.64 percent) and then added 6 percent back, that resulted in a 2.64 percent reduction in their basic pay, which violated the Act.
The Arbitrator sustained the grievance and directed that "affected employees shall have their pay adjusted to reflect conversion to the [new] pay system using the original base pay figure without a 2.64 [percent] reduction, and shall be awarded back pay, with interest . . . ." Id. at 18.
III. Positions of the Parties
A. Agency Exceptions
The Agency argues that the award is contrary to § 7121(c)(5) of the Statute because the Arbitrator resolved a matter concerning classification. In this connection, the Agency asserts that it reclassified employees when it placed them into the new pay system, and that the grievance is challenging how it classified them. According to the Agency, the mathematical formula it applied to convert the employees "is an inextricable part of the classification process and [cannot] be separated from it." Exceptions at 25. For support, the Agency [ v61 p253 ] cites several Authority decisions involving § 7121(c)(5). [n8]
The Agency also argues that the award is contrary to the Act because the Agency did not reduce special rate employees' base pay. In this regard, the Agency claims that the alleged reduction in employees' pay was only an interim step in the conversion formula, and that when the conversion process was completed, all employees received a significant pay increase. In the alternative, relying on legislative history to the Act, the Agency contends that, even if the formula resulted in a reduction of base pay, the formula "was the product of negotiation" with the Union, and the Act permits the Agency to reduce base pay after negotiating with the Union. Id. at 18, citing S. REP. NO. 107-3, 2001 WL 261317, at *6 ("The legislation assures that reductions, if any, in the base pay of an [Agency] employee represented by a labor organization with exclusive recognition in accordance with [the Statute], result from negotiations[.]"). Finally, the Agency claims that the award is contrary to the Back Pay Act.
B. Union Opposition
The Union argues that the award is not contrary to § 7121(c)(5) of the Statute. According to the Union, classification under § 7121(c)(5) generally involves the analysis of a position's duties and responsibilities for purposes of assigning the position a grade level. The Union asserts that it is challenging only the "across the board formula" applied by the Agency in setting compensation levels, and that "[i]n no case has the Authority ever held [§] 7121(c)(5) applicable simply because compensation levels are at issue." Opp'n at 28.
The Union also argues that the award is not contrary to the Act. In this connection, the Union claims that the term "rate of basic pay" in the Act excludes locality pay, and that the terms "basic pay" and "base pay" are interchangeable. Thus, according to the Union, locality pay should not be considered part of the employees' base pay in determining whether the Agency reduced base pay. The Union also claims that the Agency's pay conversion formula was not negotiated with the Union. In this regard, the Union asserts that the Agency's argument is improperly based on "snippets of legislative history," rather than statutory wording. Id. at 20. The Union also notes both that the Agency implemented the formula prior to the FSIP decision and that the FSIP did not rule on the Union's objection to the legality of the formula. See id. at 22-23. Finally, the Union claims that the award is not contrary to the Back Pay Act.
IV. Analysis and Conclusions
The Agency argues that the award is contrary to law in various respects. The Authority reviews questions of law raised by exceptions to an arbitrator's award de novo. See NTEU, Chapter 24, 50 FLRA 330, 332 (1995) (citing United States Customs Serv. v. FLRA, 43 F.3d 682, 686-87 (D.C. Cir. 1994)). In applying a standard of de novo review, the Authority determines whether the arbitrator's legal conclusions are consistent with the applicable standard of law. See NFFE, Local 1437, 53 FLRA 1703, 1710 (1998). In making that determination, the Authority defers to the arbitrator's underlying factual findings. See id.
A. The award is not contrary to § 7121(c)(5) of the Statute.
The Agency argues that the award is contrary to § 7121(c)(5) of the Statute because the Arbitrator resolved a classification matter within the meaning of that section. Section 7121(c)(5) of the Statute excludes from the coverage of negotiated grievance procedures any grievance concerning "the classification of any position which does not result in the reduction in grade or pay of an employee."
The Authority has construed the term "classification" in § 7121(c)(5) in the context of 5 C.F.R. § 511.101(c), which defines the term as "the analysis and identification of a position and placing it in a class under the position-classification plan established by OPM under chapter 51 of title 5, United States Code." See United States Dep't of Veterans Affairs, Med. Ctr., Marion, Ill., 60 FLRA 971, 973 (2005). However, the Authority has declined to limit the term "classification" to agencies that are subject to chapter 51 of title 5. See AFGE, Local 3295, 47 FLRA 884 (1993) (Local 3295) (Member Talkin dissenting in part on other grounds), aff'd sub nom. AFGE v. FLRA, 46 F.3d 73 (D.C. Cir. 1995). Thus, the mere fact that the Agency has discretion to establish pay without regard to chapter 51 of title 5 does not preclude a finding that the grievance and award concern classification within the meaning of § 7121(c)(5).
Nevertheless, the Authority consistently has described grievances concerning classification under § 7121(c)(5) as involving "the grade level of the duties assigned to, and performed by, the grievant[.]" AFGE, Local 1858, 59 FLRA 713, 715 (2004). Accord SSA, 31 FLRA 933, 936 (1988). Consistent with this, the Authority has found that arbitration awards assessing whether a grievant's duties are improperly classified concern classification under § 7121(c)(5). See, e.g., SSA, 60 FLRA 62, 64-65 (2004) (arbitrator assessed duties that were permanently assigned to grievant's position and found that grievant should be compensated at higher grade); United States Dep't of Veterans Affairs, Med. Ctr., Muskogee, Okla., 47 FLRA 1112, [ v61 p254 ] 1116-17 (1993) (VAMC Muskogee) (arbitrator compared duties of positions with classification standards for higher-graded positions and found positions should be reclassified). By contrast, as argued by the Union, the Authority has not previously found that a grievance or an arbitration award involved classification under § 7121(c)(5) merely because the grievance or award involves the amount of an employee's pay. See, e.g., United States DOL, 12 FLRA 639, 640 (1983) (grievance and award involving whether grievants were entitled to hazard differential pay did not involve classification under § 7121(c)(5)). Cf. Int'l Org. of Masters Mates & Pilots, Marine Div., Pan. Canal Pilots Branch, 51 FLRA 333, 340 (1995) (proposals concerning the process of setting the amount of compensation to be assigned to a classification that has already been established by the agency did not involve classification under § 7103(a)(14)(B)).
Here, the grievance and award involve the Agency's formula for converting employees from one pay scale to another. The grievance did not request -- and the Arbitrator did not engage in -- an assessment of the duties of any employees and whether those duties should be classified at a different grade. Further, the conversion formula applied by the Agency was a mathematical formula that did not involve any assessment of the duties performed by the grievants. As the grievance and award do not concern the grade level of the duties assigned to employees, and do not challenge the Agency's determination regarding grade levels of positions, they do not concern "classification" as the Authority consistently has defined that term.
With one exception, every Authority decision cited by the Agency to support its classification argument involved a grievance or award concerning the assessment of the duties performed by the grievants, in addition to the grade and pay level (or the pay system) under which those duties should be classified. See United States EPA, Region 2, 59 FLRA 520, 525 (2003) (Member Pope dissenting in part on other grounds) (arbitrator considered duties grievant performed and ordered revision to Final Evaluation Statement that had found grievant was performing at GS-12 level); United States Dep't of the Army, United States Army Corps of Eng'rs, N.W. Div., Portland, Or., 59 FLRA 443, 445 (2003) (arbitrator considered duties performed by grievants and found that they should have been hired under different pay system). [n9] The one exception is Local 3295, 47 FLRA 884, a negotiability decision. In Local 3295, the Authority found that a proposal that would require arbitration over disputes concerning classification of positions was contrary to § 7121(c)(5) of the Statute. See id. at 899-902. That proposal would have allowed grievances over the types of matters that, as discussed above, the Authority has found to involve classification - specifically, matters concerning responsibilities of employees are classified at the proper grade and pay level. As the grievance and award here did not involve any assessment of the duties and responsibilities of the employees, Local 3295 does not demonstrate that the award here concerns a classification matter.
As the grievance and award involved in this case concern only the amount of pay provided to employees, and not the Agency's determination regarding the appropriate grade levels at which duties should be classified, we find that the grievance and the award do not involve a classification matter. Thus, the award is not contrary to § 7121(c)(5) of the Statute, and we deny the exception.
B. The award is contrary to the Act.
The Act provides that the Agency may set "[r]ates of basic pay" of employees "without regard to the provisions of chapter 51 or subchapter III of chapter 53" of title 5 of the United States Code. 5 U.S.C. § 4802(c). The Act also provides that with regard to employees who are represented by an exclusive representative under the Statute, "no reduction in base pay of such employee shall be made by reason of enactment of this section (including the amendments made by this section)." 5 U.S.C. § 4802 Note.
The Union claims that application of the Agency's pay conversion formula resulted in a reduction in special rate employees' "base pay." The Agency argues that it did not reduce base pay because the reduction to which the Union objects was merely an interim step in the pay conversion formula. The Agency contends, and it is undisputed, that at the conclusion of the process, the [ v61 p255 ] formula resulted in the special rate employees receiving an average pay increase of 16 percent.
In resolving the Union's claim, it is necessary to determine whether the employees' final converted pay rate -- which was established after applying the entire conversion formula and which included locality pay -- constitutes the employees' base pay. If it does, meaning that locality pay properly may be considered part of base pay, then the special rate employees received a 16 percent increase in base pay, and the Agency did not violate the Act. By contrast, if locality pay properly may not be considered part of base pay, then the special rate employees received a 2.64 percent reduction in base pay, and the Agency violated the Act. Accordingly, we address whether locality pay may be considered part of base pay under the Act.
The plain wording of the Act does not define "base pay" or explain how base pay must be calculated. In particular, the plain wording does not address whether locality pay may be considered part of base pay. Further, the legislative history of 5 U.S.C. § 4802 Note does not address whether locality pay may be considered part of base pay. See S. REP. NO. 107-3, 2001 WL 261317, at *6-7. Thus, nothing in the plain wording or legislative history indicates that locality pay may not be considered part of base pay.
According to the Union, the locality pay portion of the final converted pay rate may not be taken into account in determining whether the Agency reduced base pay. In this regard, the Union notes that the Act permits the Agency to establish "[r]ates of basic pay" for Agency employees and claims that, under rules applicable to General Schedule employees, locality pay is not included in the rate of basic pay. For support, the Union cites 5 C.F.R. § 550.163(d). [n10] The Union contends that the term "base pay" in the Act has the same meaning as "[r]ates of basic pay," and thus, base pay necessarily excludes locality pay.
The Union's argument is undercut by two facts. First, Congress used different terms -- "rate of basic pay" and "base pay" -- in the Act, thus creating a presumption that Congress did not view the two terms as being identical. See, e.g., Recording Indus. Association of Am. v. Verizon Internet Serv., 351 F.3d 1229, 1235 (D.C. Cir. 2003) ("[W]here different terms are used in a single piece of legislation, the court must presume that Congress intended the terms have different meanings.") (quotation omitted). Second, the Union is wrong in arguing that rules governing GS employees indicate that rate of basic pay necessarily excludes locality pay. In fact, for GS employees, the term "basic pay" includes locality pay for some purposes but excludes it for others. See Dube v. Dep't of the Navy, 72 M.S.P.R. 394, 398 (1996). See also 5 C.F.R. § 531.606(b) ("A locality rate of pay is considered basic pay for" certain specified purposes.). Moreover, the Union's citation to 5 C.F.R. § 550.163(d), which discusses the circumstances under which certain types of premium pay are included in "base pay," actually undercuts its argument. In this regard, the definitional regulation that applies to § 550.163(d) defines the term "[r]ate of basic pay" as "including any . . . locality-based comparability payment under 5 U.S.C. [§] 5304[.]" 5 C.F.R. § 550.103. Thus, even if we were to accept the Union's argument that base pay and rate of basic pay are identical, then the Union's citation to § 550.163(d) supports a conclusion that base pay includes locality pay, thus undercutting the Union's claim to the contrary.
Finally, whether or not Congress intended for the terms "base pay" and "rate of basic pay" to be interchangeable in the Act, there is no indication in the plain wording of the Act or its legislative history that the Agency was required to construct a conversion formula in any particular way. Instead, the plain wording and legislative history of the Act indicate Congress's intention that the Agency have broad discretion to develop a pay system for its employees, as long as it does not lower unit employees' base pay without negotiating. See 5 U.S.C. § 4802(c) (the Agency may set rates of basic pay for all Agency employees "without regard to the provisions of chapter 51 or subchapter III of chapter 53" of title 5 of the United States Code). Nothing in the Act indicates that the Agency was required to apply a formula resulting in an 18.64 percent pay raise -- effectively what the Union is seeking -- rather than the formula it applied here, which gave the special rate employees a 16 percent pay raise.
For the foregoing reasons, the Arbitrator's finding that the Agency violated the Act is contrary to law. Accordingly, the award is contrary to the Act, and we set aside the award. [n11]