Sunday, February 5, 2017

Court rejects Union's challenge to outsourcing award-work was supplemental and was not replaced elsewhere

Steelworkers Local 10-86 represents employees at Merck facility in West Point, PA. The facility is primary used for the production of large molecule products like vaccines, rather than small molecule products like tablets.

Merck sold a small molecule product (Janumet) used to control blood sugar levels in individuals with Type  2 diabetes. In 2006 Merck entered into a contract with Patheon, a third party supplier, pursuant to which Patheon would produce no less than eighty percent of the total worldwide requirements for Janumet. In 2006 the West Point facility was designated as a back up facility which could supply the difference between the demand and what Patheon could manufacture. Production of Janumet at West Point continued until December of 2014 when Merck announced that it was ceasing the manufacture of Janumet at West Point because a back up supplier was no longer needed in light of "stabilization of supply and demand."

The Steelworkers grieved that decision, alleging that the Company's actions violated language of its cba which provided:

                                                     Article 15-Subcontracting
It is the intention of the parties and of this provision to protect and preserve bargaining unit work for bargaining unit employees.

The Company will not contract out work to individuals or to other companies which is normally performed by bargaining unit(s) employees where the necessary equipment is at hand, qualified employees are available, project completion dates can be met and the results would otherwise be consistent with efficient and economic operations. 

  The Union claimed that the Merck had outsourced or contracted the Janumet work at West Point in violation of the clear and express language of the contract. Merck maintained that it had not outsourced work, but that it had simply hired and laid off employees as demand for Janumet rose and then fell. It argued that it had ceased production at West Point without hiring employees elsewhere.

The dispute was submitted to Arbitrator Shyman Das, who issued an award on September 1, 2015.  Arbitrator Das essentially agreed with Merck. He concluded:

In these particular circumstances, a critical consideration as to whether the Company violated Article 15 is that the production of Janumet at West Point always was in a backup or contingent capacity. [footnote omitted[ External suppliers, in particular Patheon, always have been the primary source of Janumet production. There never was a specified volume of share of total production assigned to West Point. For much of the seven years period in which certain strengths of Janumet for distribution in the United States and European Union were manufactured at West Point, the Company needed all the Janumet West Point could produce with its existing and later expanded ...facilities and manpower. When the need no longer was there, the Company -- consistent with its large molecule versus small molecule business strategy -- decided to cease production of Janumet at West Point because its other primary suppliers with their expanded capacity were more that capable of meeting the no longer increasing demand for Janumet. On these facts, I am unable to conclude that the Company violated Article 15 by "contract[ing] out work ... which is normally performed by bargaining unit (s) employees " at West Point.

The Union sought to have the award set aside, claiming it was one of the "rare instances" where an award was subject to reversal because:

    ...  the arbitrator made his decision based on principles that were not bargained for and are not encompassed within the CBA. Specifically, the Union argues the arbitrator impermissibly "used third-party contracts and un-bargained for concepts about exclusivity and primacy to interpret the already plain and unambiguous language of Article 15."

The District Court rejected this effort and confirmed the award. Contrary to the Union's claims, the Court concluded that the arbitrator was at least "arguably construing" the cba and that there was no basis to find that he was adding to or ignoring it. The Court  noted that Arbitrator Das specifically addressed the question  of whether the work in question was "normally performed" by the West Point employees and that he also found that the work done at West Point was not replaced elsewhere. The Court noted:

Given the need to define "normally" under Article 15, the course of dealings between the parties (particularly West Point's explicit role as a supplemental supplier and Merck's large molecule-small molecule business strategy), and the fact that no jobs lost at West Point were recreated elsewhere, I am persuaded that, whether right or wrong, the arbitrator's decision was rooted in the language of the CBA. For these reasons, the Union has failed to meet its difficult burden. The arbitrator's award must be affirmed, and summary judgment is therefore granted to Merck.

The Court's decision in  United Steelworkers, Local 10-00086 v. Merck & Co. can be found here.

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