Department of Treasury, Internal Revenue Service v. Federal Labor Relations Authority

PETITIONER:Department of Treasury, Internal Revenue Service
RESPONDENT:Federal Labor Relations Authority
LOCATION:Maple Heights High School

DOCKET NO.: 88-2123
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 494 US 922 (1990)
ARGUED: Jan 08, 1990
DECIDED: Apr 17, 1990

ADVOCATES:
David L. Shapiro – on behalf of the Petitioner
Gregory O’Duden – on behalf of the Respondent National Treasury Employees Union
Robert J. Englehart – on behalf of the Respondent Federal Labor Relations Authority

Facts of the case

Question

Audio Transcription for Oral Argument – January 08, 1990 in Department of Treasury, Internal Revenue Service v. Federal Labor Relations Authority

William H. Rehnquist:

We’ll hear argument first this morning in Number 88-2123, the Department of the Treasury, Internal Revenue Service v. Federal Labor Relations Authority.

Mr. Shapiro.

David L. Shapiro:

Thank you, Mr. Chief Justice, and may it please the Court:

The question in this case is whether a Federal agency can be required to bargain over a union proposal that would subject certain agency decisions with respect to the contracting out of agency work to the grievance procedure of the collective bargaining agreement and to third-party arbitration.

The agency position, that is, the position of the Internal Revenue Service in this case, has been that it cannot be required to bargain over this proposal, that indeed, bargaining over the proposal is precluded by the management rights provision of the Federal Labor Management Relations statute.

The union proposal in this case is related to Circular A-76, issued by the Office of Management and Budget, which is an arm of the Executive Office of the President.

Circular A-76 was originally issued in the early… in the 1950s and has been amended a number of times ever since.

It is a statement of executive policy on the important matter of Federal procurement.

It deals in some detail with the circumstances under which the particular work shall be done inside the agency or shall be contracted out.

The Circular specifically states not only that it is designed to give administrative direction to heads of agencies, but, and I quote, that it

“shall not establish and shall not be construed to create any substantive or procedural basis for anyone to challenge any agency action or inaction on the basis that it was not in accordance with the Circular, except as specifically provided in the Circular itself. “

The Circular then goes on–

Antonin Scalia:

Excuse me.

That last point is really not essential to your principal argument here, though, is it?

Even if it had… even if it had not included that provision, even if you were allowed to imply that there might be some binding effect in the courts, your main argument would be unaffected, wouldn’t it?

David L. Shapiro:

–Well, the core of our argument, Your Honor, is that Circular A-76 is not an applicable law within the meaning of the management rights provision.

So that if Circular A-76 did confer third-party rights that would be enforceable in court, then that threshold aspect of our argument would be crossed, and you would come to the latter part of our argument that the subject matter of the Circular is excluded from bargaining by Section 7117–

Antonin Scalia:

xxx to be the principal part of your argument.

David L. Shapiro:

–No, it’s really… I believe it’s a subsidiary part.

We reach it really only at the latter point of our brief.

The focus of our argument is really that Circular A-76 is not an applicable law.

We do make both arguments.

Sandra Day O’Connor:

Well, Mr. Shapiro, I guess you come close to conceding that the Circular is a governmentwide rule or regulation for purpose of Section 7117.

David L. Shapiro:

Yes, we do, Your Honor, although we think that question need be reached only if the Court determines that it is an applicable law under 7106.

We do believe, however, that there is a considerable difference between the scope, purpose and language of 7117 on the one hand and the scope and language of 7106 on the other.

Sandra Day O’Connor:

Well, it strikes one as a little odd that Congress intended a different meaning for purposes of 7103 than it did in 7117.

David L. Shapiro:

There are three relevant provisions of this statute, Your Honor.

There is the definition of a grievance, in Section 7103, which refers very broadly to any complaint of any violation of a law, rule or regulation.

There is Section 7117, which excludes from the scope of bargaining any proposal that is inconsistent with any governmentwide rule or regulation.

Now, it may be that the concept of a rule in those two provisions is the same.

David L. Shapiro:

We content in our brief that it is not.

But it may be that it is.

Congress has indicated in the legislative history that it regards a government policy statement as within the scope of 7117.

But the third provision of the act, and the one in which we place our central reliance, is the management rights provision of 7106.

That section does not use the words rule or regulation.

It speaks only of applicable laws.

And in our view the scope and purpose of that section is very different.

Now, there is, as I say, a reference in Circular A-76 to an internal appeals procedure within the agency itself that agencies are required to create.

But that internal appeals procedure, as spelled out in the Circular, is not to authorize an appeal outside the agency or judicial review, and it is provided that it may not be subject to negotiation, arbitration or agreement.

Anthony M. Kennedy:

Well, Mr. Shapiro, where does the Treasury authority… get the authority to contract out to begin with?

Does it get it from the Circular?

David L. Shapiro:

No, I think it is… I think it is inherent in the agency’s appropriations that certain kinds of functions may be performed either in-house or by contracting out.

But I don’t believe the authority to contract out comes from the Circular.

The Circular is a statement of policy about how existing authority is to be exercised.

The Circular does in fact purport to preclude contracting out of certain kinds of governmental functions.

But the Circular, I don’t believe, is the source of authority.

I think the government’s authority to contract out predates the Circular, which goes back only to the 1950s.

Anthony M. Kennedy:

Well then, how can negotiating over what is in the Circular affect the authority of the agency, if the authority doesn’t get… if the authority doesn’t derive from the Circular?

David L. Shapiro:

I think the authority of the agency exists even if there were no Circular.

The Circular is defined… designed to give the agency direction with respect to the exercise of that authority.

And so, when the agency follows A-76, it is making determinations with respect to contracting out.

The agency isn’t… I’m sorry, the Circular is a direction to Federal agencies.

I think I was only trying to suggest that the authority to contract out predates the publication of the Circular, and I believe would exist even if there were no Circular.

But the Circular is designed to direct the exercise of that authority.

The union proposal in this case was a proposal, and I quote it at this point, that the

“internal appeals procedure of the Circular shall be the grievance and arbitration provisions of the collective bargaining agreement. “

The agency refused to bargain over that, holding that bargaining was precluded by the management rights provision.

The Federal Labor Relations Authority upheld the union’s claim that the proposal was subject to bargaining.

The matter was taken to the D.C. Circuit Court of Appeals, which held two to one that the agency was correct.

In that decision, the D.C. Circuit was coming down with a result that was diametrically opposed to the en banc decision of the Fourth Circuit, as well as to the rationale of a decision of the Ninth Circuit, and so that decision was brought here for review.

Antonin Scalia:

Mr. Shapiro, while you are pausing for liquid refreshment, why… why doesn’t the government rely on Section (a)(1) of 7117, which simply says that the duty to bargain in good faith doesn’t extend to matters which are the subject of a rule or regulation, if the rule or regulation is a governmentwide rule or regulation, which this is?

David L. Shapiro:

Your Honor, we do rely on that provision, but–

Antonin Scalia:

Very subtly.

David L. Shapiro:

–Well no, quite explicitly in our brief on page 38.

It is not the core of our argument.

The FLRA has an answer to that argument which we believe is not correct.

I don’t want to make it for them, but to summarize it very briefly it is that since Circular A-76 is a rule or regulation, the authority to subject decisions under it to the grievance procedure and arbitration exists under the Federal Labor Management Relations statute.

7117, they say, only operates to preclude certain matters from negotiation, but not from the operation of the grievance procedure or the arbitration provision.

We contend that that position is incorrect.

Antonin Scalia:

Well, that argument would mean it’s in the arbitration provision automatically, but you don’t have to bargain to put it in here [inaudible].

David L. Shapiro:

That’s right, and indeed that is their argument.

Their argument here is that the union proposal is superfluous, that the authority to go to the grievance procedure and arbitration would exist even without it.

In fact, the FLRA’s position here is that this case essentially is resolved by the definition of a grievance in Section 7103.

They say that because the concept of a grievance has such a broad definition, any matter relating to subcontracting, in effect, can be taken to arbitration without regard to the management rights provision.

Indeed, as I read their argument, they are saying that the definition of a grievance overrides the management rights provision.

That the management rights provision, they say, comes into play only insofar as it may exercise a constraint on the arbitrator’s decision.

That the arbitrator may not substitute his judgment for that of a Federal agency in matters of discretion.

Now, on this score, that is, reading the grievance procedure in effect to override the threshold provisions of the management rights provision, there is a very fundamental disagreement between the FLRA and the Federal agency employer in this case that goes to the heart of the construction and purpose of the statute.

We believe the FLRA is incorrect for two essential reasons.

First of all, the definition of a grievance is very broad.

It covers not only any complaint involving the violation of a rule or regulation, but also, as the union quite happily points out, covers any complaint involving any matter relating to employment.

So that if the definition of a grievance overrode the management rights provision, it would be not only that any complaint of violation of Circular A-76 could be taken to arbitration, but any complaint about subcontracting, even if there were no Circular A-76, because, as we concede, a complaint about subcontracting is a complaint about a matter relating to employment.

We do not believe that the grievance definition can override the management rights provision in that way.

Indeed, the management rights provision itself makes it clear that that cannot be so.

The management rights provision, Section 7106, which is an essential part of this statute in terms of the very special needs of the government, states that subject to Subsection (b) of this section, nothing in this chapter, and that includes the definition of a grievance, nothing in this chapter shall affect the authority of any management official of any agency in accordance with applicable law to make determinations with respect to contracting out.

Now, in our view, that means that determinations with respect to contracting out, which is what we have in this case, can be subject to the act despite the management rights provision only in two circumstances.

One is if it falls within Subsection (b) of the management rights provision.

No such contention is made here by the FLRA or the union.

The other is–

Antonin Scalia:

xxx subsection (b) of the management rights provision being–

David L. Shapiro:

–Subsection (b), 7106 (b).

Nothing in this section shall preclude any agency from negotiating.

Subsection (1) deals with matters that the election of the agency–

Antonin Scalia:

–Okay.

David L. Shapiro:

–is not applicable here.

Antonin Scalia:

Right, right, right.

David L. Shapiro:

Subsection (2) deals with procedures, and it has never been contended that that is what’s involved here.

Subsection (3) deals with the impact or effect of a determination but not with the determination itself.

The other ground on which a matter might be excluded from the coverage of the management rights provision is if the question is one of conformity with an applicable law.

If it is, then, Justice Scalia, we come to the argument that we have made under 7117.

But we contend, in accordance with every lower court judge who has discussed this issue, that Circular A-76 is not an applicable law within the meaning of the management rights provision.

And we contend that for several reasons, which we think are evident from the face of the document itself, from its source, from its purpose and from its application.

To begin with, as I indicated earlier, the document itself makes it clear that it is intended as a directive from a superior to a subordinate for the guidance of that subordinate, and that it is not designed to create any third-party rights or enforceable duties.

It says specifically that it shall not be construed to create any basis for anyone to challenge any agency action.

Now, it is not simply the evident purpose of the document that we believe leads to that conclusion, it is the nature of the document.

It is the fact that the document is issued as a policy directive on a matter of procurement policy by a branch of the Executive Office of the President, which is the President’s principal arm for the exercise of his managerial functions.

It is a document that necessarily contains in it a great deal of delegated discretion, that is… is essential for the effective operation of this document that agency heads bring their expert judgment to bear on these decisions.

And it is a document which it’s clear purpose and effect is designed essentially as any order from a superior to a subordinate would be designed.

It is, in other words, in our view, the exercise of the very kind of managerial prerogative that Section 7106 is designed to preserve.

Antonin Scalia:

Mr. Shapiro, does the government concede that applicable laws can include regulations?

I mean, I… that’s essentially what your argument seems to concede.

David L. Shapiro:

No, we do… we do concede that, Your Honor, that regulations having the force of law would be applicable laws.

We don’t believe that this is such a regulation.

We believe it is a policy statement which has always been viewed by the courts, which views itself, which is designed simply as an instruction from a superior to a subordinate.

We do not believe that Congress intended, in using the phrase applicable law, to permit the vehicle of the exercise of managerial discretion to become the instrument for eliminating managerial discretion.

And for that reason we ask that the judgment below be reversed.

If I may, I would like to reserve the rest of my time for rebuttal.

Sandra Day O’Connor:

May I ask a question before you sit down, Mr. Shapiro?

Is there anything in the legislative history to indicate that the management rights provision was not intended to limit the sphere of what is grievable under the grievance provisions?

David L. Shapiro:

Specifically, Your Honor–

Sandra Day O’Connor:

Does the legislative history give us any indications about that?

David L. Shapiro:

–Specifically, Your Honor, I am not aware that a particular statement that says that the management rights provision itself limits the scope of what is grievable or subject to arbitration.

Indeed, there are some ambiguous statements that are very heavily relied on by the union and the FLRA, by Representatives Udall and Ford, that might be read the other way.

I may address those for a minute.

In the first place, we don’t believe that these ambiguous statements could possibly override the very clear language of the chapter on the provision that says nothing in this chapter, including the definition of a grievance.

In the second place, the statement by Representative Ford was made after the enactment of the statute, and this Court has recognized that post-enactment statements are not… do not throw any light on the intent or purpose of the statute.

And finally, we think the statements can fairly be read simply as saying that if a question of conformity with applicable law does arise, that then the grievance and arbitration provisions of the statute may come into play.

Thank you.

William H. Rehnquist:

Thank you, Mr. Shapiro.

Mr. Englehart.

Robert J. Englehart:

Mr. Chief Justice, and may it please the Court:

When Congress enacted the Federal Service Labor Management Relations statute, it required that every collective bargaining agreement have a grievance procedure ending in binding arbitration.

Congress also specified the kinds of disputes that can be brought under that grievance procedure.

A dispute over whether IRS violated OMB Circular A-76 when IRS contracts out the jobs of bargaining unit employees comes within that authorized scope that Congress specified for a negotiated grievance procedure.

Byron R. White:

Under what provision?

Robert J. Englehart:

Under the provision of 7103(a)(9)(C)(ii), the definition of grievance, any claimed violation, misinterpretation or misapplication of law, rule or regulation.

At the outset, it is important to emphasize what this holding by the Federal Labor Relations Authority does not do.

It does not authorize the statute’s grievance procedure to prevail over the statute’s managements right provision.

Management has no right to make determinations that violation law, rule or regulation affecting conditions of employment–

Byron R. White:

Well, what would be your… what would be your position if there weren’t any Circular, and the agency went ahead and contracted out?

Robert J. Englehart:

–Then there would be no binding limits on management’s discretion, and that’s an important feature of the Authority’s position in this case.

Byron R. White:

And then any proposals to bargain over any aspect of contracting out wouldn’t be negotiable?

Robert J. Englehart:

Proposals that could quality for the special bargaining status under 7106(b)(2) and (b)(3), yes.

But the discretion generally that the management rights provision preserves to management is non-bargainable, and this proposal doesn’t seek to bargain over that discretion.

It seeks to hold–

Byron R. White:

And so the… so you… the issuance of the regulation really then makes bargainable something that wouldn’t have been bargainable before?

Robert J. Englehart:

–It makes grievable something that wouldn’t other–

Byron R. White:

I mean grievable, yes.

Robert J. Englehart:

–Grievable; And this provision–

Byron R. White:

Well, and then hence bargainable.

Robert J. Englehart:

–To the extent of stipulating the scope of the grievance procedure, yes.

But not the substantive exercise or in any way narrowing the scope of the exercise.

It doesn’t change that at all.

William H. Rehnquist:

Mr. Englehart, what’s your answer to the Solicitor General’s argument that when the Section 7106(a) defines management rights it says nothing in this chapter shall detract from it, and that the definition of grievance is in this chapter?

Robert J. Englehart:

Yes, the Authority does not see a conflict between the command of Section 7106 and the grievance procedure.

7106 begins “Nothing in this chapter”.

The next words are “shall affect the authority”.

The Authority’s position is that the management authority, protected from other aspects of the chapter, is the authority to make determinations in accordance with law, rule and regulation affecting conditions of employment.

That it does not give extra protection or different protection… separate protection for illegal exercise of management rights.

Antonin Scalia:

But it doesn’t say law, rule or regulation.

That is your position, that they have no right, except in accordance with applicable law, rules and regulations, to do these things.

But all the statute says is that it shall not affect the right of the management official in accordance with applicable laws to assign work.

Robert J. Englehart:

Justice Scalia, we read applicable laws in 7106 as we would Section… Subsection (b)(2) and (b)(3).

Those are exceptions when you have a conflict.

We do not read a conflict between the authority reserved to management in Section 7106 and the right to grieve when there has been an alleged violation of law, rule or regulation.

Antonin Scalia:

But surely… you keep saying law, rule or regulation, but surely the statute means something, when in some sections it very explicitly says laws, rules and regulations, as it does in… in 7103(a)(9)(C)(ii), for example, another one of the important provisions here, and a second one of the important provisions here, 7117, does.

But here it very explicitly only says laws.

You think there is just no rhyme nor reason to its just using laws in that provision?

Robert J. Englehart:

Well, we note that IRS does not contend that laws is limited to congressional enactments, that it includes laws, rules and regulations.

IRS, until its reply brief, did not contend that there was any difference between the laws, rules and regulations encompassed within that phrase from the law, rule and regulation referred to in the definition of grievance.

Only now, in the reply brief, do we see the suggestion that the applicable laws reference would be more narrow.

We’re not told why the Circular cannot qualify as a rule or regulation for applicable law purposes, if it can qualify for rule or regulation for the definition of grievance.

And in the absence of legislative history either defining applicable laws or determining how it should be construed, there seems to be no basis to compel a construction of applicable laws that is more narrow.

Antonin Scalia:

In the absence of legislative history laws means the same thing as laws, rules or regulations.

That’s the way you want to interpret the statute?

Robert J. Englehart:

IRS does not dispute the fact that applicable laws includes laws, rules and regulations.

Antonin Scalia:

Includes some regulations.

But we’re not bound by a party’s view of the thing.

Robert J. Englehart:

I understand, Your Honor.

But the fundamental difference why the Authority does not find applicable law as a question that is controlling in the case, is because the Authority does not see a reason to have an escape clause from Section 7106, if you will.

Robert J. Englehart:

There is no conflict when grievance determinations are only allowed to affect management action that violates law, rule or regulation affecting conditions of employment.

A critical point in the case is that management does not contend it has the authority to arrive at determinations that violate law, rule or regulation affecting conditions of employment.

IRS does not contend that it has this authority.

Therefore, determinations, and the Authority reviews these determinations for compliance with law, rule and regulation… that is part of the Authority’s job… determinations which are limited to stopping that exercise of management right don’t affect the Authority.

I would emphasize for this Court that in no other case, dealing with no other management right, has a court ever been urged to find that grievances are prohibited over the exercise of a management right, other than in the area of contracting out.

We have this argument in this case that… by IRS… that asks that we find that Congress put two provisions of the statute in collision.

They need not be in collision.

Byron R. White:

Yes, but the… it is contended by the government that this Circular just isn’t a law, rule or regulation, never was intended to be.

Robert J. Englehart:

The government, as I understand their position in the reply, is that there is an interest in having it not be an applicable law, even if it is a law, rule or regulation affecting conditions of employment.

Byron R. White:

Well, however you put it, that’s its characterization of its own Circular.

Robert J. Englehart:

The OMB is the issuing agency, and the OMB, we submitted in our brief on pages 34 to 45, an examination will reveal that OMB does consider the Circular a regulation–

Byron R. White:

You concede that OMB had the authority to issue this Circular?

Robert J. Englehart:

–Yes, we do.

And we also argue that–

Byron R. White:

And is the… and you understand the government to concede that the agencies must, must follow the Circular?

Robert J. Englehart:

–I don’t know that there is a dispute over that.

I believe the dispute is over where they can be held accountable, and that is really the fundamental difference in the case.

The Comptroller General is involved in reviewing these cases for compliance with the Circular.

But the IRS would argue the Comptroller General is not hampered by–

Byron R. White:

You must… you must be arguing that there is something inconsistent between the Circular and the law, and the statutes on which you rely.

Robert J. Englehart:

–I am not sure I understand Your Honor’s question.

Byron R. White:

Well, the Circular says there is only one way to review these actions of the agency under the Circular.

Robert J. Englehart:

Right.

Byron R. White:

And you say that that Circular cannot be–

Robert J. Englehart:

It is our position–

Byron R. White:

–to that extent.

Robert J. Englehart:

–It is our position that that aspect of the Circular can’t override Congress’ command in the statute.

Byron R. White:

But that… that Circular, with that provision in it, amounts to an OMB construction of its own authority and of the statute’s, I guess.

Robert J. Englehart:

We would argue that, for purposes of whether it is a law, rule or regulation under our statute, one looks at the overall effect of the regulation.

That certainly is to be taken into account, but it shouldn’t be controlling–

William H. Rehnquist:

You are really just picking and choosing what you want out of the Circular, aren’t you?

Robert J. Englehart:

–Well, the grievance procedure is not an aspect that management uses in exercising its determination to contract out.

The grievance procedure is something under the Circular that has afforded directly affected parties to challenge compliance with what the Circular would appear to concede are mandatory and non-discretionary aspects.

All that the statute does is latch onto binding rules and regulations in the Federal Government, regulations, provided that they affect conditions of employment.

And that is a very narrowing term.

This grievance procedure is not about to latch onto rules and regulations and laws that have no relationship to the conditions of employment.

And we don’t see that IRS is contesting that aspect of the case.

This would appear to be a law, rule or regulation affecting conditions of employment.

I would like to emphasize one important point that is being raised by IRS, latter in the case, is a suspicion about the intent behind the grievance procedure, that because it is in a definitional provision of the statute it perhaps is an inadvertent or unintended reference.

The legislative history of the statute shows the Congress was very well aware that it was defining the scope of the grievance procedure by use of this definitional provision.

The House committee report references the fact that the definition of grievance is broad, but that Section 7121(c) of the statute is a limiting term on the scope of the grievance procedure.

And, if you’ll notice in Section 7121(c), a small portion of management rights do appear there, so that management didn’t think that just by making something a management… I am sorry, so that Congress didn’t think that just by making something a management right it also made it non-grievable.

The conference committee report also stated that unless the parties agree otherwise, and obviously IRS is perfectly well equipped to do so, to bargain at the table for a narrower scope, the intended scope of the grievance procedure was a broad one.

The suggestion that the grievance definition is not to be trusted, I believe underlies a basic unfamiliarity that IRS has with this statute.

The other cornerstone is the collective bargaining obligation.

In Section 7114 of the statute just says under our law have a collective bargaining agreement.

One has to go to three separate definitional provisions, collective bargaining agreement and then collective bargaining and then conditions of employment, before the contours of that bargaining obligation even begin to surface.

Antonin Scalia:

Mr. Englehart, could… I assume that the position the Authority takes with regard to (2)(B) it also has to take with respect… with respect to (2)(D) of Section 7106(a).

And that is to say you would also… you would also take the position, I assume, that if the agency has an internal memorandum as to how its personnel are to behave in emergency situations, and it says this is… this confers no private rights and it will not be bargainable, that nonetheless the taking of actions during… to carry out the agency mission during emergencies would be bargainable?

Robert J. Englehart:

Your Honor–

Antonin Scalia:

Would be grievable.

Robert J. Englehart:

–Each case would turn upon analysis of whether the regulation involved was one that affected conditions of employment.

And I think you could anticipate by your question regulations that may well be valid rules and regulations and indeed laws that wouldn’t by their nature and effect primarily be directed at conditions of employment.

That is not this case.

Antonin Scalia:

But if it involved conditions of employment, even emergency actions taken by agencies would be subject to the grievance procedure.

Robert J. Englehart:

Involved, Your Honor, I submit based upon Authority analysis, wouldn’t be enough.

It would be a direct and… direct effect on the conditions of employment–

Antonin Scalia:

Direct effect–

Robert J. Englehart:

–and intended–

Antonin Scalia:

–Whatever you want.

Antonin Scalia:

Direct effect on conditions of employment would be grievable.

Robert J. Englehart:

–And an intent to affect conditions of employment, that is an aspect of why the regulation was initiated.

That would be, obviously, the test.

In the example that you gave, I think that there would also be competing considerations, the kind of considerations that you see in Authority case law in the contracting out area, that would be… that would recognize that the scope of review that arbitrators are allowed to entertain, and the remedies that arbitrators are allowed to fashion are very limited, given the nature of the right.

In this case it is important to recognize that we no longer have any legitimate complaint from IRS over what the grievance procedure does in these cases.

We’ve enumerated the Authority’s decision.

Byron R. White:

What is at issue here is whether or not the agency must bargain over the proposal you submitted.

Robert J. Englehart:

That is correct.

Byron R. White:

It isn’t a question of a grievance.

Robert J. Englehart:

Well, the proposal–

Byron R. White:

Well, it isn’t… there is nothing… you, you want to bargain so that you will have included in the collective bargaining agreement the procedure for contracting out.

Isn’t that right?

Robert J. Englehart:

–Your Honor, the proposal merely specifies the scope of the grievance procedure with respect to the contracting-out determination.

It does not in any other way change management’s discretion in the area, in the traditional way–

Byron R. White:

What is the provision you rely on, then, to say that this issue is bargainable, is negotiable, that this proposal must be, must be acceded to by the agency?

Is it–

Robert J. Englehart:

–Not must be acceded but must be on the bargaining table.

It is the rights that flow from Section 7121 of the statute that command that every collective bargaining agreement have a grievance procedure.

And grievance procedure is defined in 7103(a)(9)–

Byron R. White:

–So you don’t rely on… you don’t rely at all on 7106(2)… (b)(2)?

Robert J. Englehart:

–Your Honor, we believe that Congress intended the grievance procedure to exist even if there weren’t a (b)(2).

This may well be analyzed as a (b)(2) procedure.

But if there were no (b)(2) in the statute, Congress made its intent clear with respect to the ability to grieve alleged violations of law, rule and regulation affecting conditions of employment.

Byron R. White:

Well, you don’t really need the contracted, the contractual provision at all.

I mean, I… the hardest part of this case, I think, is why… why you need this in the contract.

If you are right about everything you say, you don’t even need a contractual provision.

Isn’t that right?

Robert J. Englehart:

That shouldn’t be the hardest part of this case, though, I submit, in that it–

Antonin Scalia:

Well, it’s the easiest part of the case to see that it is hard.

[Laughter]

Antonin Scalia:

Is… isn’t it true that if everything you say is right, you don’t, you don’t need anything in the contract?

Robert J. Englehart:

–If the grievance procedure were undefined except to entertain the statutory command of law, rule and regulation violations affecting conditions of employment, the Authority’s position is that would bring this within the scope.

That is correct.

And that this makes specific so as to obviate delay and confusion at some point on when there is an actual–

Byron R. White:

It seems to me if you are right that all you have to… the management is subject to bargaining to establish a grievance procedure about any exercise of its management rights.

Robert J. Englehart:

–Not about any exercise of its management rights.

The grievance procedure does not exempt management’s rights from scrutiny for the limited purpose of compliance with law, rule and regulation.

That is so important to this case.

The Authority has made clear that any determination by management that is within the bounds of law–

Byron R. White:

So you have to rely… to win, you have to rely on the Circular?

Robert J. Englehart:

–To win we rely on two points.

The scope of the grievance procedure is commanded by the language and the specific intent of Congress, and that the Circular is a law, rule and regulation affecting conditions of employment.

Just those two points.

William H. Rehnquist:

But don’t you have to persuade us too that 7106(a)(2), in accordance with applicable laws, means laws, rules and regulations?

Robert J. Englehart:

I don’t believe we do, Your Honor, because we don’t attach the significance to that phrase as defining the scope of the grievance procedure.

We believe the grievance procedure defines that scope.

Let me give you this hypothetical.

If applicable laws were used to define grievances that would suggest that you could never grieve the exercise of a management right that appears in (a)(1), there are a number of rights there, or that appear in (b)(1).

Or that you couldn’t have a provision in your contract that required compliance with any kind of law for an (a)(1) right or a (b)(1) right.

The Authority case law is to the contrary, and we would note that Judge, now Justice, Kennedy’s decision in U.S. Marshall Service, decided… cited at page 29 of our brief, suggests just the assertion of a 7106(b) right does not preclude a grievance.

Grievance is a specific intent and specifically defined by Congress.

William H. Rehnquist:

Yet this case isn’t about grieving.

It’s about what can be bargained, isn’t it?

Robert J. Englehart:

Only… it is directly about grievance.

William H. Rehnquist:

But I thought the issue… the issue raised… I thought the issue decided by the court of appeals was whether the Treasury can be required to bargain about this.

Robert J. Englehart:

Bargain about a provision that stipulates the scope of the grievance procedure.

So it is involving–

Byron R. White:

You weren’t going through some useless procedure, were you, in submitting this proposal?

Justice Scalia said well, why did you even have… ask… why did you even submit this proposal if you could grieve over… over this?

Robert J. Englehart:

–The Federal Labor Relations Authority didn’t submit a proposal.

Robert J. Englehart:

A union submitted a proposal, in this case National Treasury Employees Union, which an employer declared non-negotiable, and it came to the Authority in its capacity to adjudicate negotiability issues.

And the Authority issued an order that has since been appealed.

Byron R. White:

Well, I know, but why do you… you don’t, I don’t suppose the Authority goes around deciding issues that are wholly unnecessary to decide.

Robert J. Englehart:

The Authority is required to decide any negotiability dispute that is properly presented to it.

And in this case IRS declared this proposal non-negotiable.

Byron R. White:

Well, why would you… why do you think the union presented this proposal?

Robert J. Englehart:

My understanding–

Byron R. White:

Just for fun or do you think they thought that they had to have it or they couldn’t grieve?

Robert J. Englehart:

–Your Honor, I don’t think that the union thought they had to have it.

I think the union wanted to get this kind of litigation out of the way so that when a contracting-out determination came down the pipe–

Byron R. White:

Make sort of make-work–

Robert J. Englehart:

–they would be ready.

Well, the make-work has come because it is challenged by IRS, not because the union submitted it.

Indeed, the–

William H. Rehnquist:

–Your time has expired, Mr. Englehart.

Robert J. Englehart:

–Thank you.

William H. Rehnquist:

Mr. O’Duden.

Gregory O’Duden:

Mr. Chief Justice, and may it please the Court:

Byron R. White:

What’s your answer to my question?

Gregory O’Duden:

–The question why we want the proposal in the contract?

There are very sound, practical reasons for why we need this kind of proposal in the contract.

Byron R. White:

Oh, you need it?

You need it.

Without the proposal you couldn’t grieve over this–

Gregory O’Duden:

No, we certainly could.

Let me explain to you why… why we would want to make such a proposal.

It is common practice in the Federal sector to incorporate important regulatory provisions right into the contract.

That… that’s just the way things are done.

So much of the employment relationship in the Federal sector, after all, is determined by laws, rules and regulations.

The contracts are largely enforced and administered by lay people.

Gregory O’Duden:

It helps them to a great extent to have these very important laws, rules and regulations in the contract so that they can see what the relevant provisions are, so that they can be guided by them.

Furthermore, it helps employees because it puts the employer agency on notice that this is a rule… this is a regulation that you are going to have to follow.

And we hope that it thereby encourages compliance with these kinds of rules and regulations.

And furthermore, as my friend with the FLRA has already pointed out, it helps avoid future disputes about whether something is arbitrable.

So there are very sound practical reasons why we would make such a proposal, and indeed it is every day practice in the Federal sector.

Next, let me address the IRS’ contention that the applicable laws language in 7106 should be read to have a narrower scope than laws, rules and regulations.

We have heard them concede today that the A-76 Circular is indeed a rule within the meaning of the grievance procedure, but they say that is not good enough.

They suggest that we have to show something more than that.

And we would submit that that is untenable.

There are many rules, many rules in the Federal sector, for example those in the Federal Personnel Manual, that have always been routinely grievable, but under the IRS’ construction of the statute, they would read applicable laws to cancel out the express statutory right to file grievances over those rules.

To put it a somewhat different way, under the IRS’ construction of the statute, and we believe it is a rather strange one, it would mean that the agency actually has a right to violate rules and regulations that do not meet its definition of applicable law.

And we would say that that is an untenable… an untenable view of the statute, indeed.

Finally, let me add that even if the government, the IRS, were somehow correct here, that we had to demonstrate that the Circular was a regulation with the force of law, that is, a substantive rule or a legislative rule, and we would emphasize that we do not believe that that is our burden here, but even if that were correct we would strongly suggest that we meet even that most stringent test.

And let me explain why.

First of all, what we have here is a Circular that was issued pursuant to statutory authority.

It is unquestionably binding on executive agencies.

They gave notice, they asked for comment, they held hearings and, perhaps most important, they incorporated the provisions of A-76 right into the code of Federal regulations within the subpart that describes the Federal acquisition regulations.

If that isn’t a substantive rule or regulation, I suppose I am not sure what is.

So, for these reasons we would say that by any stretch of the imagination the A-76 Circular is indeed a law, rule or regulation within the meaning of the grievance procedure, which we would submit controls here, or it is an applicable law even under the IRS’ most stringent definition.

Antonin Scalia:

–Mr. O’Duden, do we… do we owe any deference to anybody here?

Gregory O’Duden:

I would say you do, Your Honor.

I would say–

Antonin Scalia:

To who?

Gregory O’Duden:

–that the FLRA–

Antonin Scalia:

The FLRA–

Gregory O’Duden:

–is entitled to great deference here, as Your Honor well knows.

Antonin Scalia:

–Have we said that in any of our cases?

Gregory O’Duden:

Excuse me, Your Honor?

Antonin Scalia:

Have we said that in any of our cases?

Gregory O’Duden:

You have said that in the BATF case, Your Honor.

Gregory O’Duden:

It is a well established principle of course that the administrative agency charged with interpreting the statute is entitled to deference, unless its views are clearly unreasonable.

And that clearly is not the case here.

Perhaps it would help me to spend just a moment to talk a bit about the relationship of the management rights clause and the grievance procedure, because I think that perhaps there is some uncertainty as to how these two provisions fit together.

The management rights clause is there to protect management’s authority to make substantive decisions.

It insulates management from having to bargain about substantive rules.

The grievance arbitration procedure has an entirely different scope.

It says that to the extent that management is already bound by rules and regulations, even those that you couldn’t bargain about, it is bound to follow them.

And it gives employees the right to file grievances whenever–

Byron R. White:

So the–

Gregory O’Duden:

–management steps out of line.

Byron R. White:

–So the Circular, in effect, does make grievable, you say, things that might not be grievable in the absence of the Circular?

Gregory O’Duden:

It is not the… it is not the Circular that makes anything grievable, Your Honor.

It is the statute that does that.

Byron R. White:

Well, I know, but without the Circular, then what would be grievable?

Gregory O’Duden:

Oh, I agree that it is necessary for us to have the Circular here in order to pursue a successful grievance, because without the Circular there would be no binding requirements on the agencies.

So the Circular is important–

Byron R. White:

It’s kind of odd that it’s just a mistake by OMB then to think that it had the authority to exclude the grievance procedure under its regulation.

That is just inconsistent with the statute, you are saying?

Gregory O’Duden:

–The Circular itself says that it does not apply if it is inconsistent with law.

So OMB is indeed–

Byron R. White:

So… so its provision that… its provision purporting to establish an exclusive appeals procedure is inconsistent with the statute.

Gregory O’Duden:

–It is inconsistent with the statute.

It cannot override a determination–

Antonin Scalia:

Well, wait.

It’s effective… it’s effective with respect to the Administrative Procedure Act, presumably.

It may well be effective to exclude judicial review–

Gregory O’Duden:

–Well–

Antonin Scalia:

–of these determinations.

Gregory O’Duden:

–It might, I suppose–

Antonin Scalia:

You don’t want to give that away, either?

Gregory O’Duden:

–No, I don’t want to give it away.

Certainly not, Your Honor.

I suppose that would enter into the calculation of whether it is a binding rule with the force of law.

Antonin Scalia:

It’s at least conceivable that it would have that effect, even though it doesn’t have… it is conceivable that it could have that effect without having the effect of preventing grieving.

Gregory O’Duden:

It is conceivable, of course.

But in the end, of course, a determination as to whether something is a binding rule for purposes of the APA does not turn alone on the agency’s characterization of the rule or regulation.

Unless there are further questions, I have nothing more to add.

Thank you very much.

William H. Rehnquist:

Thank you, Mr. O’Duden.

Mr. Shapiro, do you have rebuttal?

David L. Shapiro:

Yes.

Thank you, Mr. Chief Justice.

Just a few points.

First of all, if the FLRA’s position in this case is correct, the union’s bargaining proposal is not simply superfluous, it is far narrower than the actual matters that can be grieved and taken to arbitration, because it is not limited to matters covered by the internal appeals procedure.

It would embrace all matters within the Circular, and indeed any decision with respect to subcontracting.

Second, we have been, I think, accused of making several concessions that we have never made.

We do not concede that the term “applicable laws” is to be given the same meaning as the term “law, rule or regulation” elsewhere in the statute.

We believe that the FLRA’s reading of the grievance definition is too broad, but we contend quite vigorously that, whatever the proper reading of that definition, the phrase applicable laws is considerably narrower in its purpose and scope.

Finally, I–

Antonin Scalia:

Precisely how?

I… that is what I really don’t understand, Mr. Shapiro.

What kind of rules and regulations are under applicable laws?

David L. Shapiro:

–Your Honor, if we start with the use of the phrase laws, rules or regulations in 7117, Congress indicated there that they regarded the phrase to be broad enough to include governmentwide policy directives.

They did not want the parties bargaining in matters inconsistent with governmentwide policy directives on any subject.

But when they use the phrase applicable laws in 7106, we contend that they meant only statutes and regulations having the force of law in the sense that they conferred enforceable rights and duties.

We do not believe that phrase embraces policy statements of the kind involved here.

Now, I think perhaps the critical difference between the IRS and the Authority here is with respect to the role the management rights provision plays.

As I understand the Authority’s position, it is that all that the management rights provision does is to exercise constraint on arbitrators when they are deciding cases.

They should not interfere with managerial discretion.

We contend that the management rights provision, when it is fully applicable, must go to the threshold question of grievability, arbitrability, as well as negotiability.

David L. Shapiro:

That the management rights provision means that managerial decisions, whether they are discretionary or not, should not be turned over to a third-party decision maker.

And the… what happened in the Blytheville case, which is an example of the consequences of that kind of authorization, we believe strongly supports our position.

And indeed, Major Ketler, who discusses the Blytheville case in detail in the only study I know of this problem, agrees with us that there was in that case a significant arbitral interference which was upheld by the FLRA with the exercise of managerial authority.

In other words, the key to this case for us is that the management rights provision, when it is fully applicable, as it is here because none of the exceptions in the provision apply, that provision excludes not only negotiability but grievability and arbitrability.

Byron R. White:

xxx if you just repeal the Circular, just withdrew the Circular.

David L. Shapiro:

Well, but that would be a painful act, Your Honor, because this is a very important directive by the President to the heads of agencies about how procurement policy is to be conducted.

So it might get us out of this case, but it would get us into–

Byron R. White:

Well, is there some… as long as it… it’s a directive they have to follow, but you say it’s… really shouldn’t be considered a rule or regulation.

David L. Shapiro:

–Not an applicable law, Your Honor.

I think it’s a directive that has to be followed, as any order from a superior to a subordinate must be followed, not in the sense of creating externally enforceable rights or duties.

Byron R. White:

What happens if the agency says well, I heard this argument up in court and I know this isn’t a… law or regulation, so I just won’t obey it.

David L. Shapiro:

As I understand–

Byron R. White:

What does that President have to do?

Or what can he do?

Anything?

David L. Shapiro:

–As I understand it, the only thing the President can do is to exercise the authority that any superior can exercise over subordinate, which is to see to it that the insubordinate person is somehow disciplined for insubordination.

Byron R. White:

You mean like the member of an agent… independent agency?

David L. Shapiro:

This applies to executive agencies, as I understand it.

Byron R. White:

It doesn’t… it doesn’t apply to independent agencies?

David L. Shapiro:

It applies to agencies that are within the jurisdiction of the executive branch.

Anthony M. Kennedy:

I take it it follows the President could excuse compliance anytime he wishes?

David L. Shapiro:

In the sense, I suppose, that a superior can overlook insubordination by a subordinate, if it chooses.

Anthony M. Kennedy:

Well, he could give advance approval, I take it–

David L. Shapiro:

Yes.

Anthony M. Kennedy:

–to depart from the Circular?

David L. Shapiro:

Yes.

Byron R. White:

Well, the agency itself, as I understand under 75… 7106, could elect to bargain over some of its management rights.

David L. Shapiro:

I don’t it could allow… I think bargaining over this is fairly precluded, in our view.

There are certain elections–

Byron R. White:

Well, Section (b), 7106(b) says at the election of the agency some of the management rights could be–

David L. Shapiro:

–Yes, but I don’t think contracting out is included.

Byron R. White:

–Well,–

David L. Shapiro:

And in any event, I don’t think an agency… that is, if an agency were to choose to bargain over some–

Byron R. White:

–Well, it says nothing in this section shall preclude any agency and any labor organization from negotiating about procedures which management officials will observe in exercising any authority under this section.

So they may bargain about it if they want to.

Isn’t that right?

David L. Shapiro:

–I don’t think that the decision to turn over management authority to a third-party arbitrator would be bargaining over procedure.

Indeed, the FLRA has never suggested that (b)(2) is broad enough to cover this case.

If an agency were to decide that its election to bargain in violation of A-76, that might well be an act of insubordination with respect to the direction of the Circular itself.

If there are no more–

John Paul Stevens:

May I ask… yes, may I just ask one question, Mr. Shapiro?

We have been talking all about 7106(a)(2)(B), and what if we talked about 7106(a)(2)(A), to hire, assign, direct, lay off and so forth… that provision.

And supposing instead of 70… Circular 7… Circular 76 we had a circular general personnel policies about hiring and the like.

Would your same argument apply that that would also not be an applicable law?

David L. Shapiro:

–I think it would depend on a close analysis of the circular to determine whether it was an applicable law.

John Paul Stevens:

And the circular that is in effect, what about the one–

David L. Shapiro:

Well, what is in effect is the… Federal Personnel Manual, which covers a whole wall on people’s bookshelves.

John Paul Stevens:

–Is that an applicable law?

That is my question.

David L. Shapiro:

As a whole, Your Honor, I don’t think I could answer that question.

I think that there is one critical difference between the Manual and this Circular, and that is that there is no general statement at the outset that it is not intended to or designed to create any enforceable rights.

Particular questions about the Federal Personnel Manual have arisen in the FLRA, but to my knowledge so far have not been resolved in the courts of appeals.

I think it would turn on the extent to which those provisions were applicable laws.

They are, of course,–

Antonin Scalia:

Is that the same question, Mr. Shapiro, as whether you, a private party, could bring an APA suit with regard to them?

David L. Shapiro:

–I think–

Antonin Scalia:

I mean, I would like to have some body of law that, you know, that the lower courts are looking at.

Just to say well, it depends on whether it’s an applicable law.

Don’t we have any body–

David L. Shapiro:

–I think if–

Antonin Scalia:

–of law we can refer to on these questions?

David L. Shapiro:

–I think if a private party could bring an APA action, that that would be very strong, if not conclusive, evidence that the… you are dealing with an applicable law.

It might be that you have procedures that can fairly be considered to confer enforceable rights and duties and ways that do not include judicial review.

There may be such cases, and I don’t want to exclude them from possibility.

Thank you, Your Honor.

William H. Rehnquist:

Thank you, Mr. Shapiro.

The case is submitted.