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Social Security Administration, Baltimore, Maryland (Agency) and American Federation of Government Employees, AFGE/SSA General Committee (Union)

[ v59 p312 ]

59 FLRA No. 48






September 30, 2003

Before the Authority: Dale Cabaniss, Chairman, and
Carol Waller Pope and Tony Armendariz, Members [n1] 

I.     Statement of the Case

      This case is before the Authority on exceptions to an award of Joseph Sharnoff filed by the Agency under § 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 to the Agency's exceptions.

      The Arbitrator found that the Agency violated the parties' collective bargaining agreement and Agency regulations by granting performance awards only to those who were rated Outstanding. Among other things, the Arbitrator ordered the Agency to make whole employees who had been rated Excellent and those rated Fully Successful who would otherwise have received awards.

      For the following reasons, we find that the award is deficient and set it aside.

II.      Background and Arbitrator's Award

A.     Background

      For a number of years prior to the action complained of in the grievance, the Social Security Administration (SSA or Agency) [n2] had consistently provided performance awards to all employees who received ratings of Outstanding and Excellent, and to many employees who received ratings of Fully Successful. For Fiscal Year 1995 (FY 1995), the appropriations bill regarding SSA ultimately enacted by Congress limited the funds available to the Agency for awards to 1 percent of total salary costs. Thereafter, the Agency decided, as relevant herein, to provide performance awards to only those employees who received a performance rating of Outstanding during the FY 1994 appraisal year. [n3] 

      As relevant herein, Article 17, Section 3.B. of the parties' Agreement provides that performance awards will be governed by HHS Instruction 430.5, which specifies that performance awards "should" be given to employees who receive performance ratings of Outstanding and Excellent. HHS Instruction 430.5-70, Sections F.3. and 4. [n4]  In reaching agreement on Article 17, during negotiations on the 1990 National Agreement, the parties negotiated a separate Letter of Understanding, which stated that the Agency was "not compromising its right and obligation to administer the incentive awards program within the context of budgetary considerations and limitations." Letter of Understanding (Letter), dated July 19, 1988, quoted at 18 of the Award.

      On February 22, 1995, the Union filed a grievance alleging that the Agency violated law, regulation, relevant HHS and SSA rules, and the parties' 1993 National Agreement (Agreement). The basis for the grievance was the Union's claim that the Agency had unilaterally limited the issuance of FY 1995 performance awards to only those employees who had received a performance rating of Outstanding. The Union also alleged that the Agency had violated the parties' Agreement and the Statute by implementing this change while the subject of performance awards was being negotiated by the parties. When the grievance was not resolved, it was submitted to arbitration. [n5]  [ v59 p313 ]

B.      Arbitrator's Award

      The parties stipulated to the issue before the Arbitrator as follows:

Did SSA, based on the information contained in this stipulation and Joint Exhibits, violate the National Agreement, the National Partnership Agreement, law, rule, regulation and/or any past practice? If so, what shall the remedy be?

Award at 3. Specifically, the Arbitrator stated that the question is "whether the Agency's action, in awarding performance awards for the FY 1995 period only to individuals rated in FY 1994 as Outstanding, violated express provisions of the Parties' 1993 National Agreement, including past practices . . . , and/or any applicable law, rule or regulation." [n6]  Award at 34.

      Initially, the Arbitrator found that "the applicable law controlling the question of whether the Agency's action . . . violated the Parties' 1993 Agreement[] involves the application of those [Authority] decisions which concern an Agency's action in the face of an existing collective bargaining agreement provision and/or practice, rather than those [Authority] decisions which concern the issue of whether a proposal is non-negotiable." [n7]  Award at 41. He determined that cases arising "in the context of a negotiability dispute" were "not applicable or controlling of the results" in this case. [n8]  Award at 41-42.

      The Arbitrator found that the Union had presented "convincing evidence" that, subsequent to the parties' negotiation in 1988 of the "contractual language regarding performance awards," the Agency "consistently issued awards to employees rated Outstanding, to those rated Excellent and to at least some of those rated Fully Successful." Award at 42. Based on the record, the Arbitrator also found that Article 17 of the parties' Agreement must be read in conjunction with the Agency's right, which had been reserved in the parties' Letter, to administer the awards program within the context of budgetary considerations and limitations. Given that finding, the Arbitrator further found that the term "should," as used in the HHS Instruction, "connotes a greater degree of discretion by the Agency than `shall' or `will,' but less than `may.'" Id. at 44.

      The Arbitrator also found, however, based on the evidence as to its practice in granting awards, that the Agency applied Article 17 and the HHS Instruction "as if there was a direct linkage between an employee's performance rating and the type and amount of the performance award." Id. at 45. That is, according to the Arbitrator, in practice, the Agency treated the HHS Instruction and Article 17 "as if `should' was the full equivalent of `shall[.]'" Id.

      The Arbitrator further found that "the Agency bears the burden of justifying the circumstances which caused it to depart" from its "consistent practice and Agency policy" of issuing awards to all employees rated Outstanding and Excellent, and to a significant number rated Fully Successful, by "issuing performance awards to employees rated Outstanding only." Id. at 47. More particularly, the Arbitrator ruled that, "despite the Agency's reservation of budgetary discretion, given [the Agency's consistent practice,] the Agency, in exercising its discretion for FY 1995 awards[,] must be held to a requirement to show more than the normal routine budgetary constraints and instead to demonstrate significant, compelling restrictions on the Agency's budgeting authority." Id. at 47-48. In this regard, the Arbitrator found that: (1) the limitation of award funding to 1 percent of total salary was such a restriction; (2) the limitation of awards to 37 percent of employees was not; and (3) to the extent that political considerations, such as pressure from Congress and the public, were involved in the Agency's decision, they were not sufficient to justify the Agency's violation of Article 17 and its consistent practice.

      In light of all these findings, the Arbitrator concluded that "the Agency's actions in issuing awards to employees rated Outstanding only, was inconsistent with, and therefore[] violative of, its obligations under" [ v59 p314 ] Article 17 and the HHS Instruction. Id. at 47. Specifically, the Arbitrator found that the Agency failed to meet its contractual obligation to issue awards to employees rated Excellent and to a substantial number of employees rated Fully Satisfactory, as well as to employees rated Outstanding. The Arbitrator further found that: (1) the Agency's actions constituted an unwarranted and unjustified personnel action; (2) a substantial number of bargaining unit employees "(the identities of whom remain to be determined)" were adversely affected by those actions; (3) by refusing to issue awards to those rated Excellent and to a substantial number of those rated Fully Satisfactory, the Agency's actions resulted directly in the withdrawal or reduction of those employees' pay; and (4) but for the Agency's actions, the employees would not have suffered such withdrawal or reduction of pay in the form of awards. Id. at 51.

      The Arbitrator directed the Agency, "to the extent possible, to return to the status quo ante with respect to the FY 1995 performance awards and to make whole, with interest, those employees who have been harmed by the Agency's action." Id. In this regard, the Arbitrator remanded the matter to the parties so that they might attempt to reach a settlement of the remedial aspects of the award. He retained jurisdiction "for the limited purpose of resolving any disputes concerning the remedial aspects of this Award only." Id.

III.      Positions of the Parties

A.     Agency's Exceptions

      The Agency contends that 5 C.F.R. § 430.504(d) is applicable to this case [n9] and argues that the Arbitrator's award is inconsistent with that Government-wide regulation. [n10] Specifically, the Agency maintains that, in this case, as it did in Fort Rucker, the Authority should find, based on OPM's Advisory Opinion, that the Arbitrator's award is contrary to 5 C.F.R. § 430.504(d) because it requires the granting of an award. In this regard, the Agency notes that the award granting a performance award found deficient in Fort Rucker was also based on a past practice. The Agency also asserts that this case is like FDA, wherein the Authority found that an award holding that the agency could not limit awards to employees rated Outstanding was contrary to 5 C.F.R. § 430.504(d). The Agency distinguishes the cases relied on by the Arbitrator, noting that they predate Fort Rucker and the Advisory Opinion.

      The Agency also contends that the award is contrary to law because the award requires it to "violate the 1995 Appropriations Bill by directing [it] to grant performance awards to all employees who received an appraisal rating of `excellent' and up to 25 percent of all employees who were rated `fully satisfactory.'" Exceptions at 13-14. According to the Agency, if it were required to implement the award, it would "surpass the 1 percent payroll restriction" that even the Arbitrator conceded was a valid budgetary restriction. Id. at 14.

B.     Union's Opposition

      The Union argues that the Agency is not entitled to de novo review of the Arbitrator's award because its exceptions challenge the Arbitrator's findings of fact and interpretation of the parties' Agreement. In particular, the Union claims that, insofar as the Agency challenges the Arbitrator's finding of a past practice, such factual dispute is not a ground for finding the award deficient.

      As to 5 C.F.R. § 430.504(d), the Union distinguishes FDA, wherein the Authority found an award contrary to the regulation and modified the award, arguing that the remedy in this case does not need modification. Moreover, the Union contends that the Agency's position is contradictory, because the Agency claims that 5 C.F.R. § 430.504(d) precludes mandatory awards, and yet the Agency itself adopted a practice of giving all employees rated Outstanding or Excellent an award. Further, citing testimony in the record, the Union contends that the Agency concedes that its existing awards process preserves the right of Agency officials to approve awards.

      Finally, the Union contends that the Arbitrator's remedy would not affect the Agency's budget and that it would not be impossible to implement the remedy, because the award is not incomplete, ambiguous, or contradictory.

IV.      Analysis and Conclusions

      The Agency contends that the Arbitrator's award is deficient under § 7122(a)(1) of the Statute because it is [ v59 p315 ] contrary to 5 C.F.R. § 430.504(d). The Authority reviews questions of law and Government-wide regulation raised by exceptions to an arbitrator's award de novo[n11]  See NTEU, Chapter 24, 50 FLRA 330, 332 (1995) (citing United States Customs Service 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.

      An arbitration award is deficient under § 7122(a)(1) of the Statute if it is contrary to an applicable Government-wide regulation. See FDA, 53 FLRA at 425 (citing United States Dep't of the Army, Fort Campbell Dist., Third Region, Fort Campbell, Ky., 37 FLRA 186, 191 (1990)). The questions presented by the Agency's exception, therefore, are: (1) whether 5 C.F.R. § 430.504(d) is an applicable regulation; and (2) whether the Arbitrator's award is contrary to that regulation.

A.     5 C.F.R. § 430.504(d) Applies in this Case

      The regulation relied on by the Agency, 5 C.F.R. § 430.504(d), was a Government-wide regulation within the meaning of § 7117(a)(1) of the Statute. Cf. FDA, 53 FLRA at 425 (citing Fort Rucker, 52 FLRA at 92). As noted above, supra, n.9, 5 C.F.R. § 430.504(d) took effect on April 22, 1992, and was rescinded on September 22, 1995. The grievance in this case was filed on February 22, 1995, and requested relief for the Agency's action in denying performance awards to employees rated Excellent, and a portion of those rated Fully Satisfactory, during the FY 1994 appraisal year. Consequently, 5 C.F.R. § 430.504(d) was in effect at all relevant times and the rights of the Agency would be impaired if the Authority did not apply it in resolving the Agency's exception. See FDA, 53 FLRA at 425 (citing Fort Rucker, 52 FLRA at 91 n.3). See also United States Dep't of Transportation, FAA, Little Rock, Ark., 51 FLRA 216, 224 (1995) (discussing Landgraf v. USI Film Products, 511 U.S. 244, 273-80 (1994). Cf. United States Dep't of the Navy, Naval Undersea Warfare Center, Newport, R.I., 55 FLRA 687, 692 (1999) (5 C.F.R. § 430.504(d) held not to apply because grievance arose after the regulation was eliminated).

B.     The Award is Contrary to 5 C.F.R. § 430.504(d)

      Pursuant to the remand from the court in NTEU v. FLRA, see n.8, the Authority sought an Advisory Opinion from OPM concerning the meaning and effect of 5 C.F.R. § 430.504(d). In that Advisory Opinion, OPM advised that 5 C.F.R. § 430.504(d) requires review and approval of each individual performance award. See FDA, 53 FLRA at 425. The Authority applied OPM's opinion both in Fort Rucker and FDA in finding deficient the arbitrator's order in each case that the agency grant a performance award. Id. The Authority concluded in those cases that the arbitrators' orders were deficient because they deprived each agency of its discretion to approve or disapprove the performance awards ordered by the arbitrators. Id. The Arbitrator's award in this case requires the Agency to grant performance awards to all employees who were rated Excellent, and a portion of those rated Fully Successful, during the FY 1994 appraisal year. Consequently, for the reasons stated in FDA and Fort Rucker, the award deprives the Agency of its discretion, under 5 C.F.R. § 430.504(d), to approve or disapprove those awards and is contrary to that regulation. [n12] 

      Although the Arbitrator was aware of Fort Rucker, Award at 37, he did not address its application to this case. Instead, the Arbitrator apparently relied on his distinction between negotiability cases and arbitration cases in concluding that Fort Rucker, and by implication FDA, which relies on Fort Rucker, were not applicable because they were based on NTEU v. FLRA and the Advisory Opinion, which he concluded involved negotiability issues. The Arbitrator's distinction is invalid. In the first place, the fact that, in Fort Rucker and FDA, the Authority explicitly relied on precedent rooted in negotiability law to find the awards therein deficient belies the Arbitrator's distinction. Secondly, the Authority has made clear that negotiability precedent is applicable in arbitration cases. See Panama Canal Commission, 54 FLRA 1161, 1171 (1998).

      The Arbitrator's reliance on New York Region, Red River, and HHS, SSA is misplaced. New York Region is based on the theory that the agency had exercised its review and approval authority under 5 C.F.R. [ v59 p316 ] § 430.504(d) through the blanket authorization of awards for employees with performance ratings of excellent. See New York Region, 48 FLRA at 376. Fort Rucker, particularly as interpreted in FDA, overrules New York Region by adopting OPM's interpretation of the regulation as requiring review and approval of each award individually. As to Red River, we note that the agency in that case did not contend that the award was contrary to 5 C.F.R. § 430.504(d). See Red River, 52 FLRA at 136 n.2.

      Similarly, although Fort Rucker purported to distinguish HHS, the Authority subsequently stated that "[i]n view of OPM's [Advisory Opinion], HHS "provide[s] no basis for denying the [a]gency its right to review and approve all performance awards." FDA, 53 FLRA at 426. Specifically, in FDA, the Authority held, based on the Advisory Opinion, that 5 C.F.R. § 430.504(d) required agency approval of each performance award individually and, thus, precluded the blanket requirement of such awards as mandated by the arbitrator in the case. Consequently, we find that HHS provides no basis for sustaining the Arbitrator's award in this case.

      The Arbitrator's award in this case is therefore deficient under § 7122(a)(1) of the Statute because it is contrary to 5 C.F.R. § 430.504(d). [n13]  Accordingly, we grant the Agency's exceptions and set aside the award. See Fort Rucker, 52 FLRA at 92 (Authority set aside an arbitrator's award requiring the agency to grant a performance award to an employee, after finding that the arbitrator's award was deficient as contrary to 5 C.F.R. § 430.504(d)). [n14] 


      The award is set aside.


1. Article 17, Section 3.B. provides as follows:

               Article 17
           Incentive Awards
Section 3 - Criteria
B. The Administration will follow the procedures and criteria set forth in HHS Instruction 430-5.

2. HHS Instruction 430.5 provides, in relevant part, as follows:

430.5-70 Performance Award Requirements
F. In reviewing and approving performance award determinations, the following apply:
. . .
3. An employee with a rating Level 5 (Outstanding) should receive a performance award of at least 2 percent of base pay.
4. An employee with a rating Level 4 (Excellent) should receive a performance award. Among the employees included under the same performance award budget, any award granted to an employee rated at Level 4 must be less than any award received by an employee rated at Level 5.
5. An employee with a rating Level 3 (Fully Successful) may receive a performance award.
. . .

File 1: Authority's Decision in 59 FLRA No. 48
File 2: Opinion of Member Pope

Footnote # 1 for 59 FLRA No. 48 - Authority's Decision

   The separate opinion of Member Pope, dissenting in part, is attached to this decision.

Footnote # 2 for 59 FLRA No. 48 - Authority's Decision

   During the pendency of this case, SSA, previously an agency within the Department of Health and Human Services (HHS), was established as an independent agency. See United States Dep't of Health and Human Services, Social Security Admin., New York Region, 52 FLRA 989, 989 n.* (1997).

Footnote # 3 for 59 FLRA No. 48 - Authority's Decision

   See Message, Jt. Ex. 10, quoted at 23 of the Award ("we still have sufficient funds to ensure monetary award recognition to all SSA employees who received ratings of outstanding."); Jt. Ex. 11, quoted at 24 of the Award ("This year, a performance award or a QSI must be granted to all employees whose FY 1994 performance was rated Outstanding.) (Emphasis in original).

Footnote # 4 for 59 FLRA No. 48 - Authority's Decision

   For the text of Article 17, Section 3.B. and HHS Instruction 430.5, Section F. (HHS Instruction), see the Appendix to this decision. Although the Arbitrator, in discussing the merits of the grievance, references Article 17, Section 3.A., it is clear, in the facts and circumstances of the case, that Section 3.B. is more directly relevant.

Footnote # 5 for 59 FLRA No. 48 - Authority's Decision

   The grievance was originally scheduled to be resolved by another arbitrator. It was resubmitted by the parties to this Arbitrator, who issued his award in March 2002.

Footnote # 6 for 59 FLRA No. 48 - Authority's Decision

   In resolving this question, the Arbitrator rejected: (1) the Union's objection to the Arbitrator's acceptance of additional Agency exhibits; (2) the Agency's procedural grievability and arbitrability claims; and (3) the Union's claim that the Agency violated the parties' Agreement by failing to bargain over the unilateral change in its performance award practices. No exceptions were filed to the Arbitrator's rulings in connection with these issues and they will not be dealt with further in this decision.

Footnote # 7 for 59 FLRA No. 48 - Authority's Decision

   The Arbitrator found to be "controlling" the following Authority decisions: United States Dep't of Defense, Defense Logistics Agency, Defense Distribution Region West, Defense Distribution Depot Red River, Texarkana, Tex., 52 FLRA 132 (1996) (Red River); United States Dep't of Health and Human Services, Social Security Admin., Area II, New York Region, 48 FLRA 370 (1993) (New York Region); and United States Dep't of Health and Human Services, Social Security Admin., 46 FLRA 1126 (1993) (HHS, SSA).

Footnote # 8 for 59 FLRA No. 48 - Authority's Decision

   On this ground, the Arbitrator rejected, as controlling precedent, NTEU v. FLRA, 30 F.3d 1510 (D.C. Cir. 1994) (NTEU v. FLRA), reversing and remanding NTEU, 43 FLRA 1442 (1992), and the Office of Personnel Management (OPM) Advisory Opinion, dated July 7, 1995 (Advisory Opinion), which was obtained by the Authority, from OPM, in connection with the remand in NTEU v. FLRA. In its Advisory Opinion, OPM stated that 5 C.F.R. § 430.504(d), which was then in effect, does "not permit the imposition upon an agency of a mandatory performance awards plan."

Footnote # 9 for 59 FLRA No. 48 - Authority's Decision

   5 C.F.R. § 430.504(d) took effect April 22, 1992. The regulation was rescinded on September 22, 1995. See 60 Fed. Reg. 43936 (Aug. 23, 1995). 5 C.F.R. § 430.504(d) provided as follows:

The decision to grant a performance award, including the amount of such award, shall be reviewed and approved by an official of the agency who is at a higher level than the official who made the initial decision, unless there is no official at a higher level in the agency.

Footnote # 10 for 59 FLRA No. 48 - Authority's Decision

   As support, the Agency cites United States Dep't of Health and Human Services, Food and Drug Admin., Kansas City Dist., 53 FLRA 422 (1997) (FDA) and United States Dep't of the Army, Headquarters, United States Army Aviation Ctr., Fort Rucker, Ala., 52 FLRA 89 (1996) (Fort Rucker).

Footnote # 11 for 59 FLRA No. 48 - Authority's Decision

   For this reason, the Union's claim that the award is not subject to de novo review is rejected.

Footnote # 12 for 59 FLRA No. 48 - Authority's Decision

   The Union's claim that the Agency's position is contradictory is mistaken. In holding that 5 C.F.R. § 430.504(d) prevents an agency from being required to grant an award, the Authority did not conclude that an agency was precluded from giving awards to all employees who received a specific rating. Moreover, the Union's argument regarding the Agency's award process is also mistaken. The testimony relied on by the Union concerns the Agency's decision concerning who might be entitled to an award, not its decision to grant one.

Footnote # 13 for 59 FLRA No. 48 - Authority's Decision

   For this reason, it is unnecessary to address the Agency's additional exception that the award is contrary to law.

Footnote # 14 for 59 FLRA No. 48 - Authority's Decision

   The Authority's action in FDA of modifying, rather than setting aside, a similar award was inconsistent with the intent of 5 C.F.R. § 430.504(d). The effect of FDA was to leave in place the performance awards that the Authority found were improperly ordered by the arbitrator, unless the agency affirmatively took action to disapprove them. However, the intent of the regulation was to allow an agency to determine on an individualized basis whether to grant performance awards; it did not mean that improperly ordered performance awards should remain intact unless the agency later acted to disapprove them.