Court: Employer waived interim earnings offset of back pay award by failing to raise the issue with the arbitrator

The Fraternal Order of Police, Lodge 10 grieved the termination of an employee of the State of Delaware. An arbitrator converted the termination to a suspension, ordered grievant's reinstatement, and directed the State to "[m]ake Grievant whole for all lost wages, benefits and seniority from the date of her termination, less the ninety (90) day period of time represented by the suspension."

Approximately nine months later the union filed a Petition to enforce the arbitrator's award. The State filed a Motion to Dismiss. The State did not seek to vacate or overturn the award. Rather, it sought a declaration from the Court that the term "make whole" used by the arbitrator required an offset of interim earnings. Alternatively, it requested that the issue be remanded to the arbitrator for clarification.  The Delaware Court of Chancery denied both of these requests. Noting the absence of any Delaware cases addressing the issue before it, which it described as "whether an arbitration award that is silent on the matter of the offset of interim wages should include an offset," the Court elected to follow the reasoning of the Seventh Circuit in International Union of Operating Engineers, Local No. 841 v. Murphy Co. 

The Court summarized the holding of the Seventh Circuit:

...if an arbitrator does not "mention offsets in his ruling it means that no offset was granted," especially when the defendant "knew or should have known that the issue of damages was before the arbitrator."... "To hold otherwise would only encourage employers to withhold evidence or comment on important issues, thereby undermining arbitration as a valuable tool for expeditiously and inexpensively resolving employer-employee disputes."[footnotes omitted]

The Court noted that the State had had ample opportunity to raise the offset issue but failed to address it other than to request that all of the Unions requested remedies be denied. The Court declined to adopt the State's argument that offsets of interim earnings is common in arbitration and the Court should assume that a "make whole" remedy includes an offset.

The Court also declined to order remand to the arbitrator, finding no ambiguity in the award. It concluded:

Defendant failed to ask the arbitrator to offset the back-pay award, and the arbitrator's silence as to offset in the Arbitration Award means that none was granted. Thus, there is no ambiguity that would allow me to remand the case back to the arbitrator for clarification.

The Court's opinion can be found here. A similar decision was reached by the Fifth Circuit in International Chemical Workers Union, Local 683C v. Columbian Chemicals Co.

Update: The Chancery Court denied the State's Motion for Reargument, concluding that it had failed to establish either that the award was contrary to public policy or failed to draw its essence from the cba. here.