PPG's Unilateral Introduction of Pay Cuts Didn't Violate Steelworkers Arbitration Award

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May 9 --PPG Industries Inc. didn't violate an arbitration award to the United Steelworkers by unilaterally implementing a two-tier wage system that lowered production and maintenance employees' pay at an Illinois glass manufacturing plant, the U.S. Court of Appeals for the Seventh Circuit ruled May 9 .  

Affirming summary judgment for PPG, the Seventh Circuit rejected the union's argument that the company's compensation cuts should be rescinded because the arbitrator determined that, when proposed during a negotiation conference, the cuts were untimely under a collective bargaining agreement's modification provisions.

The appeals court said the arbitrator's award didn't prohibit PPG's actions because the union had been aware that “economic concessions from existing employees were on the table” prior to the proposal deadline.

“[N]either the text of the arbitrator's decision nor the arbitration record supports the Union's desired interpretation of the award,” the court said. “To accept the Union's arguments, we would have to substantively alter the award in the Union's favor. Because we may not do so, we affirm.”

Judge Thomas M. Durkin wrote the opinion, joined by Judges Michael S. Kanne and Ilana D. Rovner.

PPG Sought to Reduce Labor Costs

According to the court, PPG in April 2009 sought to modify its bargaining agreement with USW to reduce labor costs at a Mt. Zion, Ill., plant.

At a May 2009 informal meeting, the company proposed lowering its labor costs from $37 to $27 per hour in order to match competitors' costs. Among other things, PPG suggested implementing a two-tier wage system under which existing employees would receive higher “first-tier” wages, while new hires and workers recalled from layoffs would receive lower “second-tier” wages.

In a post-meeting e-mail to the union, PPG officials calculated that the two-tier system would reduce its labor costs to only about $30 per hour and suggested that it would be “difficult” to meet its $27 per hour goal without “significant” wage concessions from existing employees.

PPG and the union initiated an official negotiating conference on June 1, during which the company reiterated its desire to lower labor costs and establish a two-tier pay structure. The company then proposed pay cuts for employees in both tiers during the next two days of the conference.

The union argued that it needn't bargain about the pay cut proposal because the parties' bargaining agreement “barred new proposals from being made after the conference's first day,” the court recounted. PPG disagreed.

The company and the union submitted their dispute to an arbitrator, who concluded that the $10 cost reduction and other proposals discussed June 1 were “proper for consideration,” but that other proposals were “discretionary … for bargaining.”

The Seventh Circuit said the arbitrator's award didn't prohibit PPG's actions because the United Steelworkers had been aware that “economic concessions from existing employees were on the table” prior to the proposal deadline.  


PPG made a final offer to the union that included the two-tier system and cuts to compensation for all employees, which the union refused to accept.

The company later unilaterally implemented the changes, leading the union to sue PPG under the Labor-Management Relations Act. The union sought enforcement of the arbitration award and rescission of PPG's cost-cutting actions.

The U.S. District Court for the Central District of Illinois granted summary judgment to PPG, and USW appealed.

Pay Cut Possibility Previously Raised, Court Says

Affirming, the Seventh Circuit held that the district court correctly concluded that PPG introduced the idea of pay cuts for employees prior to the June 1 start of the negotiation conference.

The company mentioned the possible reductions during the May 2009 informal meeting and follow-up e-mail, it said.

“PPG raised the possibility of compensation cuts for existing employees by June 1, and this court may not 'interject itself into the arbitration process' by reading into the arbitrator's opinion a conclusion that proposed wage cuts for existing employees were untimely,” the court said.

The appeals court found no merit to the union's contention that its conclusion would render the arbitrator's award “meaningless” because it would impose no obligations on PPG.

“[T]he union overlooks changes that PPG did make to its offer in the wake of the arbitrator's decision,” it said, pointing to the company's removal of several proposals, including severance benefits limitations and pension alterations, that it introduced after June 1 and that didn't pertain to hourly labor cost reductions.

“[T]he award may not have been as favorable to the Union as it wanted, but it was not 'meaningless,' ” the court said.

Cornfield & Feldman represented the union. Winston & Strawn represented PPG.

Text of the opinion is available at http://www.bloomberglaw.com/public/document/United_Steel_Paper_and_Forest_et_al_v_PPG_Industries_Incorporated/1.

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