United Parcel Service, Inc. v. Uniónde Tronquistas De Puerto Rico, Local 901

United States Court of Appeals
For the First Circuit
No. 04-2275
UNITED PARCEL SERVICE, INC.,
Plaintiff, Appellant,
v.
UNIÓN DE TRONQUISTAS DE PUERTO RICO, LOCAL 901,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jaime Pieras, II, U.S. Senior District Judge]
Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit Judge.
Pedro J. Manzano-Yates, Carlos M. Aquino-Ramos, and Fiddler
González & Rodríguez, PSC on brief for appellant.
José E. Carreras Rovira on brief for appellee.
October 20, 2005

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COFFIN, Senior Circuit Judge. Appellee Unión de Tronquistas
de Puerto Rico, Local 901 (the union), represents a group of United
Parcel Service (UPS) employees who claim that the company owes them
back wages for unpaid vacation time. The unpaid vacation consists
primarily of days that accrued under expired collective bargaining
agreements. When the union submitted the claim to arbitration, UPS
contended that the arbitrator could not adjudicate such “out-of-
time” claims. The arbitrator concluded otherwise, ruling that the
claims could proceed. The district court refused to vacate the
arbitration award, relying on the well established principle of
deference to arbitrators’ rulings. On appeal, the company argues
that the district court utilized the wrong standard of review and
misapplied the law on survival of arbitration provisions. Although
we find legal error in the court’s approach, we conclude that it
correctly left the dispute in the hands of the arbitrator. We
therefore affirm its dismissal of the case.
I. Background
UPS and the union have been parties to a series of collective
bargaining agreements dating back to at least 1985, each of which
included a comprehensive procedure for handling employee grievances
and broadly provided for arbitration of disputes. The union
submitted the grievance in this case to arbitration in March 1999,
seeking compensation for accrued vacation time on behalf of dozens
of employees. The employees assert that UPS in 1998 “erased”

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It is unclear whether the disputed benefits derive solely from 1
the collective bargaining agreement that immediately preceded the
one in effect from 1997 to 2002 – i.e., the one covering 1993 to
1997 – or from multiple prior agreements. Because it appears that
the prior agreements all were substantially the same, and our
analysis would be the same whether one or more prior agreements are
involved, we presume for simplicity’s sake that the disputed
benefits all accrued under the 1993-97 agreement.
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vacation time they had accumulated before that year. The
collective bargaining agreement then in effect covered the period
between August 1, 1997 and July 31, 2002. Most, if not all, of the
alleged vacation leave at issue had accrued, however, under prior
collective bargaining agreements. UPS’s position is that the
obligation to arbitrate the dispute over that vacation pay expired
when the earlier agreements expired, and, indeed, the company
appears to contend that the employees have retained no right at all
to pursue claims arising from the earlier agreements.1
The arbitrator, however, ruled that she had the authority to
order payment of any compensation determined to be owed. In
dismissing UPS’s petition to vacate the arbitration award, the
district court observed that it was obliged to enforce the award
“as long as the arbitrator is even arguably construing or applying
the contract and acting within the scope of his authority.”
Opinion and Order at 1 (internal citation omitted). The court
found no flaw in the arbitrator’s award and accordingly entered
judgment in the union’s favor.

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On appeal, UPS argues that the court made a pivotal error at
the outset of its inquiry by implicitly deferring to the arbitrator
on the threshold question of arbitrability. The company maintains
that it was up to the court to decide in the first instance whether
the arbitrator was empowered to decide the employees’ vacation
dispute, and it therefore asserts that the district court’s first
step should have been to consider that issue de novo.
UPS goes on to argue that, had the court properly assumed its
authority to make the threshold arbitrability determination, it
should have found the dispute non-arbitrable on the grounds
asserted above – i.e., that the applicable arbitration provision
expired along with the rest of the prior collective bargaining
agreement and that the arbitrator had no authority under the
current agreement to delve into the issue. In brief, UPS’s
argument is that the arbitrator lacked jurisdiction under any
agreement to entertain the union’s claim on behalf of the
employees.
We agree with UPS that the district court should have made the
initial decision on arbitrability. The district court apparently
thought of this as a case requiring interpretation of the contract
and therefore a matter for determination in the first instance by
the arbitrator. But “[w]hether or not a company is bound to
arbitrate . . . is a matter to be determined by the court,” Litton
Fin. Printing Div. v. N.L.R.B., 501 U.S. 190, 208 (1991) (citing

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An exception to that general principle exists when “‘the parties 2
clearly and unmistakably provide otherwise.’” Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting AT&T Techs.,
Inc. v. Communications Workers, 475 U.S. 643, 649 (1986)). No such
statement of contrary intent is asserted here.
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AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (1986));2
see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83
(2002) (“[A] gateway dispute about whether the parties are bound by
a given arbitration clause raises a ‘question of arbitrability’ for
a court to decide.”). Such a duty must be performed even though it
may require the court to interpret a bargaining agreement
provision. See Litton, 501 U.S. at 209. Because we conclude,
however, that the arbitrator does have authority to resolve the
vacation pay dispute, the court’s threshold error was harmless. We
explain below the legal and factual foundation for that conclusion.
II. Discussion
As we have noted, UPS maintains that the vacation pay dispute
may not be arbitrated because there is no applicable arbitration
provision: the one in the current collective bargaining agreement
does not apply to benefits accrued before that agreement took
effect, and the one that existed when the asserted benefits accrued
has since expired. In our view, the case law is to the contrary.
In Litton, the Supreme Court confirmed that a presumption
exists “in favor of postexpiration arbitration of matters unless
‘negated expressly or by clear implication’” in the collective
bargaining agreement. 501 U.S. at 204 (quoting Nolde Bros., Inc.

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v. Bakery Workers, 430 U.S. 243, 255 (1977)). The presumption is
limited by a “vital qualification”: the arbitration must concern
“matters and disputes arising out of the relation governed by the
contract.” Id. A dispute “can be said to arise under the
contract”
only where it involves facts and occurrences
that arose before expiration, where an action
taken after expiration infringes a right that
accrued or vested under the agreement, or
where, under normal principles of contract
interpretation, the disputed contractual right
survives expiration of the remainder of the
agreement.
Id. at 205-06. Our inquiry is thus two-pronged; we must determine
if the particular dispute “has its real source in the contract,”
id. at 205, and if so, we must consider whether postexpiration
arbitration of the issue was negated expressly or by clear
implication.
UPS confusingly blends these two inquiries in its brief, and
offers its argument on whether the disputed vacation time accrued
under the prior agreement only in cursory fashion, embedded within
its discussion of the arbitration clause’s survivability.
Nonetheless, viewing its effort generously, we consider UPS’s
implicit assertion that Article 34 of the 1993-97 collective
bargaining agreement (titled “Vacation”) resolves the first prong
of the inquiry in its favor. We focus, as did the parties,
specifically on whether the dispute involves “a right that accrued

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The union asserts that UPS infringed that right in 1998, after 3
expiration of the agreement under which the vacation days were
earned, when it “erased” previously accrued leave.
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or vested under the agreement.”3
Section 3 of Article 34 provides that “[e]arned vacation will
be taken each year.” The section goes on to state that “[o]nly one
year earned vacation can be taken in each calendar year.” UPS
maintains that the combined force of the “clear and unequivocal
language” in these two statements confirms that vacation time does
not accrue from year to year and likewise could not accrue from one
collective bargaining agreement to the next.
In our view, UPS overstates the reach of section 3. That
vacations may be taken only in the year earned does not necessarily
foreclose the employees from seeking compensation for unused,
accrued vacation time. The idea of pay in lieu of vacation time is
incorporated, in fact, in the 1997-2002 collective bargaining
agreement, which allows employees to elect pay instead of time off
for all days in excess of ten vacation days. See Article 34,
Section 1©). The lack of an explicit paid vacation option in the
earlier agreement does not negate its possible existence as a
matter of practice; indeed, the provision in the later agreement
may have been added to reflect just such a practice. We thus
reject the notion that the limitation on when vacation time may be
enjoyed leads inevitably to the conclusion that vacation time not
taken as specified is lost entirely.

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The nature of earned vacation time, moreover, is materially
different from the contractual right that the Supreme Court ruled
did not vest or accrue in favor of the employees in Litton. At
issue there was the right to seniority in the case of layoffs. The
agreement specified that layoffs would be based on aptitude and
ability, as well as seniority. The Supreme Court observed that
aptitude and ability do not remain constant, but change over time,
and that the layoff provision there consequently “cannot be said to
create a right that vested or accrued during the term of the
Agreement or a contractual obligation that carries over after
expiration.” Litton, 501 U.S. at 210.
Here, however, the right at issue is objectively quantifiable;
the vacation benefit accrued according to a specified formula (one
and five-twelfths days for each month in which the employee has
worked at least eighty hours), and the total time earned by a given
employee presumably may be ascertained through a check of company
records revealing how much time was worked. Records also
presumably would show how many vacation days already were taken.
Vacation time strikes us as the classic example of a benefit that
– barring explicit provision to the contrary – accrues during the
term of the agreement under which it is earned. Cf. Foster v.
Dravo Corp., 420 U.S. 92, 99-100 (1975) (observing that the
presence of a work requirement for vacation benefits generally is
strong evidence that the benefits were “intended as a form of

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shortterm compensation for work performed”). The measure of that
benefit in days earned would remain constant over time, much like
a deposit in a bank. We therefore conclude that Litton’s first
prerequisite for post-expiration arbitrability is met here, namely
that the dispute “has its real source in the contract.”
Whether employees were entitled under the 1993-97 agreement to
compensation in lieu of time off and whether such compensation
could be claimed years after the vacation time was earned are, of
course, separate matters. In deciding arbitrability, we are not
called upon to finally resolve either of those merits-based
questions. The answers lie between the lines of the collective
bargaining agreement and involve precisely the sort of contractual
dispute that the parties agreed to arbitrate. Our role with
respect to the merits of the dispute is limited to determining
whether the grievance – an allegation that employees were
wrongfully deprived of earned vacation time – could be said to
arise under the contract. Having concluded that the employees’
right to vacation time accrued under the earlier agreement and,
consequently, that the underlying dispute arises under that
agreement, we must assign substantive resolution of the dispute to
the arbitrator – unless the agreement negates the presumption of
arbitrability expressly or by clear implication. We thus turn to
that second prong of the inquiry.

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UPS cites three contractual provisions to support its
contention that the expired agreement negated by “clear
implication” the post-expiration survival of the arbitration clause
with respect to disputes over vacations. First, it invokes section
3 of Article 34 on vacations, the section we previously have
discussed. Second, it points to a provision in the 1997-2002
agreement stating that any complaints or disputes the parties may
have “with regard to the interpretation or administration of the
present Agreement” will be resolved through specified procedures
that culminate with arbitration, see Article 16, sections 1 & 2 of
the 1997-2002 agreement (emphasis added), and it notes that both of
the prior agreements had materially similar provisions. Finally,
it refers us to a provision in the 1997-2002 agreement denying the
arbitrator authority to “amend or modify this Agreement or
establish new terms and conditions under this Agreement.” See
Article 16, section 4(a). UPS maintains that the latter two
provisions reflect that an arbitrator may only resolve
controversies that arise under the current agreement and may not
modify the current agreement to cover untimely claims.
We find no evidence in these provisions – clear or otherwise
– that the parties agreed to depart from the presumption that
matters arising under a particular collective bargaining agreement
will remain arbitrable even after the contract has terminated.
Although the provision on vacation time is, as we have explained,

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at the core of the dispute on the merits, it sheds no light on the
threshold question of arbitrability. It simply does not address
the procedures to be used in resolving conflicts over entitlement
to vacation pay. The two remaining provisions are likewise
inapplicable to our inquiry. Both refer to the arbitrator’s
authority under the agreement currently in effect, but they say
nothing to negate the presumption that an arbitrator possesses
continuing authority to resolve appropriate disputes arising from
prior agreements.
Thus, because the vacation pay dispute arises under the
agreement and because the agreement does not rebut the presumption
of arbitrability, the merits of the union’s claim must be
arbitrated. Our reading of the arbitrator’s decision indicates
that this substantive review of the dispute has not yet occurred.
In the decision that was the subject of UPS’s appeal to the
district court, the arbitrator described “the specific matter”
before her as “determin[ing] our jurisdiction to formulate remedies
regarding a salary claim which extends retroactively beyond the
effectiveness of the Collective Bargaining Agreement.” The award
issued stated that “[w]e have jurisdiction to grant remedies for
vacations earned prior to the effectiveness of the Collective
Bargaining Agreement under which this Complaint is filed.”
This ruling was faulty because, as we have explained, the
arbitrator did not have authority to decide the issue of her

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jurisdiction. In turn, the district court improperly deferred to
the arbitrator’s determination on arbitrability. The end result,
however – that the merits of this case are to be handled by an
arbitrator – was correct. We therefore hold that the case was
properly dismissed, and we presume that the parties will now return
to arbitration to address the employees’ specific entitlement to
compensation for unpaid vacation time.
The judgment of the district court is affirmed.

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