Sloppy Contract Language Can Lead to Costly Litigation with Unions

Posted in: Employment Law by Dowling Aaron on

The Ninth Circuit issued a decision last week that demonstrates just how important it is to have clear contract language in all agreements entered into with a union. Sloppy drafting can lead, at best, to years of costly litigation just to determine what a contract says and, at worst, the opposite result of what an employer was contracting for.

The case involves NASA Services, Inc., a waste management company in Los Angeles (Employer), and the Teamsters Local 396 (Union). The City of Los Angeles (City) required its waste management contractors to enter into Labor Peace Agreements (LPA) with the Union to prevent waste collection services from being disrupted by labor disputes such as picketing and work stoppages, etc.

The Union and the Employer entered into an LPA, but the contract language in the LPA stated that the agreement would become operative only if the Employer and the City entered into a franchise agreement by December 31, 2016. This protected the Employer from being bound to an agreement with the Union in the event it did not get the contract with the City. However, the City did not sign the franchise agreement until January 31. 2017, a month after the deadline.

A dispute arose between the Union and the Employer over whether the LPA was operative or null-and-void in light of the City’s failure to sign the franchise agreement by the December 31, 2016 deadline. The Union asked a federal district court to have a private arbitrator decide the dispute according to the LPA’s arbitration clause. The Employer argued that the entire LPA was null-and-void, so the arbitration clause was not enforceable.

The district court looked at the contract and decided that the language making the entire LPA “conditioned” on the Employer and City entering a franchise agreement by December 31, 2016 was not drafted clearly and was ambiguous about how it affected the contract. The Court then ordered the Employer and Union to go to arbitration. The Employer appealed and the Ninth Circuit ruled that, according to the contract terms, if there was no franchise agreement by December 31, 2016, then the entire LPA was null-and-void, and the parties could not be ordered to arbitration.

The case now goes back to the district court to decide if there was a franchise agreement between the Employer and the City by December 31, 2016, even though the City did not sign until the following month.   You can read the full opinion at International Brotherhood of Teamsters, Local 396 v. NASA Services, Inc.  In this case the appellate court ultimately ruled in favor of the Employer that the contract language in the LPA was not ambiguous.  However, it took years of litigation and an appeal to the Ninth Circuit, which could have been avoided with more clearly worded contract language.

COUNSEL TO MANAGEMENT:

This opinion illustrates the importance of careful drafting and review of contracts. If you have questions about the impacts of this decision on your business, questions about Labor Peace Agreements, or would like to have a labor contract reviewed, contact the experts at The Saqui Law Group, a division of Dowling Aaron Incorporated.

By: Michael C. Saqui

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