National Treasury Employees Union and U.S. Department of the Treasury, Bureau of Public Debt (Authority decision, October 31, 1991)

Final FLRA decision. This is a final order of the Federal Labor Relations Authority resolving a negotiability appeal after a court remand. An aggrieved person may seek judicial review by filing a petition in an appropriate United States court of appeals within 60 days after issuance under 5 U.S.C. § 7123(a). Filing a petition does not stay the Authority's order unless the court orders a stay under 5 U.S.C. § 7123(c).

Plain-English summary

A union contract provision required the Bureau of Public Debt to follow OMB Circular A-76 and other applicable laws and regulations when contracting out work. After a court returned the case, the Authority reconsidered whether the clause interfered with management's contracting right. It held that the clause was negotiable because it required compliance with existing legal duties and, for regulations without the force of law, was an appropriate arrangement for affected employees. The Authority ordered the agency to rescind its disapproval of the provision.

Decision snapshot

• Authority: Contracting out right under 5 U.S.C. § 7106(a)(2)(B); appropriate arrangements under § 7106(b)(3).
• Outcome: Provision held negotiable; agency ordered to rescind its disapproval.
• Key point: A clause requiring compliance with applicable contracting rules was within the duty to bargain under the Authority's analysis on remand.

Full text (FLRA public release)

[ v42 p1333 ]

42:1333(92)NG

The decision of the Authority follows:

42 FLRA No. 92

FEDERAL LABOR RELATIONS AUTHORITY

WASHINGTON, D.C.

NATIONAL TREASURY EMPLOYEES UNION

(Union)

and

U.S. DEPARTMENT OF THE TREASURY

BUREAU OF PUBLIC DEBT

(Agency)

0-NG-1516

(32 FLRA 975 (1988))

DECISION AND ORDER ON REMAND

October 31, 1991

Before Chairman McKee and Members Talkin and Armendariz.

I. Statement of the Case

This case is before the Authority on remand from the
United States Court of Appeals for the District of Columbia
Circuit. Department of Treasury, Bureau of Public Debt v.
FLRA, No. 88-1753 (D.C. Cir. July 27, 1990) (order). In the
earlier decision in this case, the Authority had concluded that
the provision at issue, which requires the Agency to comply
with OMB Circular A-76 and other applicable laws and
regulations concerning contracting out, was within the duty to
bargain. While the Agency's appeal of that decision was
pending, the Supreme Court issued a decision that concerned a
proposal that is similar to the provision that is at issue in
this case. Department of the Treasury, Internal Revenue
Service v. FLRA, 110 S. Ct. 1623 (1990) (IRS v. FLRA).
Following the Supreme Court's decision, the Court of Appeals
for the District of Columbia Circuit granted a motion for
remand of this case to the Authority.

II. The Provision

Article 41; Section 1

The Employer agrees to comply with OMB Circular
[No.] A-76 and other applicable laws and
regulations concerning contracting out.

III. Background

In the previous decision in this case, the
Authority rejected the Agency's arguments that this
provision violates management's right to make
determinations with respect to contracting out under
section 7106(a)(2)(B) of the Federal Service
Labor-Management Relations Statute (the Statute). The
Agency had contended that OMB Circular A-76 is not:
(1) an "applicable law" under section 7106 that
creates any enforceable right, or (2) a "law, rule or
regulation" under section 7103(a)(9), which can be
enforced through grievance arbitration. Additionally,
the Agency asserted that the part of the provision
requiring the Agency to comply with "'other applicable
laws and regulations concerning contracting out'" is
invalid because "arbitral review of contracting out
matters is confined by [section] 7106(a) to
application of statutes 'prescribing employee rights
and benefits - particularly procedural rights in
conjunction with adverse personnel actions.'" Agency
statement of position at 11 (emphasis in original).

The Authority held that under section 7106(a) of
the Statute, the Agency is required to exercise its
management right to contract out in accordance with
all applicable laws and regulations. Consequently,
the Authority held that the provision did not place
any requirements on the Agency that did not already
exist and that any constraints on management's right
to contract out were imposed not by the provision, but
by laws and regulations, such as OMB Circular A-76.
The Authority specifically rejected the Agency's
argument that OMB Circular A-76 did not constitute a
law, rule, or regulation within the meaning of section
7103(a)(9)(C)(ii) and held that matters related to
contracting out, including Agency compliance with OMB
Circular A-76, may be included within the scope of a
grievance procedure negotiated under section 7121 of
the Statute. In rejecting this argument, the
Authority concluded that for purposes of section
7103(a)(9)(C)(ii), rule and regulation encompasses
official declarations of policy that are binding on
officials and agencies to which they apply and that
OMB Circular A-76 meets this definition.

In rejecting the Agency's argument that arbitral
review of contracting out matters is confined by
section 7106(a) to the application of statutes
prescribing employee rights and benefits, the
Authority noted that the provision would recognize
contractually external limitations on management's
right but would not establish any substantive
limitations on management.

As noted earlier, while the appeal of this
earlier decision was pending before the Court of
Appeals for the District of Columbia Circuit, the
Supreme Court issued a decision in IRS v. FLRA, a case
that concerned issues similar to those raised in this
case. That decision addressed the Authority's
decision in National Treasury Employees Union and
Department of the Treasury, Internal Revenue Service,
27 FLRA 976 (1987) (NTEU and IRS I). In NTEU and IRS
I, the Authority found that a proposal was negotiable
that would allow the Union to grieve matters arising
out of the agency's decision to contract out, when
those matters concern an alleged failure to comply
with applicable laws, regulations and established
procedural processes. According to the Authority,
proposals that would allow the Union to grieve matters
arising from the agency's contracting out
determinations on the basis that those determinations
did not comply with law and regulation would not
change the statutorily prescribed scope and coverage
of the parties' negotiated grievance procedure. That
is, disputes involving conditions of employment
arising from the application of OMB Circular A-76
would be covered by the negotiated grievance procedure
even in the absence of the contractual provision. In
NTEU and IRS I, the Authority stated that "such
grievances require nothing that is not required by
section 7106(a)(2) of the Statute itself, namely, that
determinations as to contracting-out must be made 'in
accordance with applicable laws[.]'" NTEU and IRS I,
27 FLRA at 979.

The Authority's decision in NTEU and IRS I was
affirmed by the Court of Appeals for the District of
Columbia Circuit. Department of the Treasury,
Internal Revenue Service v. FLRA, 862 F.2d 880 (D.C.
Cir. 1988). However, in IRS v. FLRA the Supreme Court
reversed and remanded that decision.

The Court stated that the Authority's position
that section 7121 of the Statute empowers a union to
negotiate and enforce procedures for resolving any
grievance is "flatly contradicted by the language of § 7106(a)'s command that 'nothing in this chapter' . . .
shall affect the authority of agency officials to make
contracting-out determinations in accordance with
applicable laws." IRS v. FLRA, 110 S. Ct. at 1627
(emphasis omitted). The Court interpreted section
7106(a) to mean that management is free to exercise
its rights under section 7106(a) if it acts within the
limits of external legal limitations--that is, laws
outside the Statute. According to the Court, "there
are no 'external limitations' on management rights,
insofar as union powers under § 7106(a) are concerned,
other than the limitations imposed by 'applicable
laws.'" Id. at 1629 (emphasis in original).

The Court rejected the Authority's position that
the term "applicable laws" in section 7106(a) "is
coextensive with the phrase 'any law, rule, or
regulation,' {in section 7103(a)(9)(C)(ii) of the
Statute]" and, therefore, that any claimed violation
of the Circular would, by definition, constitute a
grievance within the meaning of section
7103(a)(9)(C)(ii). Id. The Court stated that "[i]t
cannot be true . . . that all actions not in
accordance with a 'law, rule, or regulation' under § 7103(a)(9) are, by definition, also actions not 'in
accordance with applicable laws' in § 7106(a)." Id.
(emphasis in original). However, the Court found that
the Authority's decision could be sustained under a
"permissible (though not an inevitable) construction
of the [S]tatute that the term 'applicable laws' in § 7106(a) extends to some, but not all, rules and
regulations[.]" Id. (footnote omitted).

Because the issue of the scope of the term
"applicable laws" in section 7106(a) had not been
decided either by the District of Columbia Circuit or
the Authority, the Court remanded the decision to the
District of Columbia Circuit to consider the issue or
"await [the Authority's] specification, on remand, of
the particular permissible interpretation of
'applicable laws' (if any) it believes embraces the
Circular." Id. at 1630.

The District of Columbia Circuit remanded the
case to the Authority for further proceedings to
determine whether the OMB Circular is an "applicable
law" and for such other consideration consistent with
the decision of the Supreme Court. We issued a
Decision and Order on Remand in National Treasury
Employees Union and U.S. Department of the Treasury,
Internal Revenue Service, 42 FLRA 377 (1991) (NTEU and
IRS II), holding that insofar as management rights
under section 7106(a)(2) are concerned, proposals that
require compliance with applicable laws do not
interfere with the exercise of such rights. Compare
American Federation of Government Employees,
Department of Education Council of AFGE Locals and
U.S. Department of Education, Washington, D.C., 38
FLRA 1068, 1075-76 (1990) (Department of Education),
request for reconsideration denied, 39 FLRA 1241
(1991), petition for review filed sub nom. enforced
sub nom. U.S. Department of Education v. FLRA, No.
91-1219 (D.C. Cir. May 10, 1991) (proposals requiring
management to exercise its rights under section
7106(a)(1) of the Statute in accordance with
applicable laws directly interfere with the exercise
of such rights).

We also held, for reasons discussed fully in NTEU
and IRS II, that the term "applicable laws" in section
7106(a)(2) includes provisions in the U.S. Code and
other lawfully enacted statutes; the U.S.
Constitution; controlling judicial decisions,
judgments, and decrees; and certain Presidential
executive orders. 42 FLRA at 389-90. In addition, we
held that the term "applicable laws" in section
7106(a)(2) includes rules and regulations that have
"the force and effect of law." Id. at 390-91. We
held that agency regulations must have certain
substantive and procedural characteristics in order to
constitute regulations having the force and effect of
law. Specifically, agency regulations have the force
and effect of law and constitute applicable laws if
they: (1) are issued pursuant to an explicit or
implicit delegation of legislative authority by
Congress, (2) affect individual rights and
obligations, and (3) are promulgated in accordance
with applicable procedural requirements. Id. at
391-93. We concluded in NTEU and IRS II that OMB
Circular A-76 has the force and effect of law and is
an applicable law within the meaning of section
7106(a)(2) of the Statute. Id. at 393-99.

IV. Analysis and Conclusions

A. OMB Circular A-76

For the reasons discussed fully in NTEU and IRS
II, we reiterate that OMB Circular A-76 is an
applicable law within the meaning of section
7106(a)(2) of the Statute. Consequently, insofar as
the provision at issue in this case requires that the
Agency comply with OMB Circular A-76 in exercising its
management right to make determinations with respect
to contracting out, it does not directly interfere
with management's right to make determinations with
respect to contracting out under section 7106(a)(2) of
the Statute.

OMB Circular A-76 constitutes a "law, rule, or
regulation" within the meaning of section
7103(a)(9)(C)(ii) of the Statute. Additionally, we
continue to adhere to the position stated in the
Authority's original decision in this case that rules
and regulations when referred to in various places in
the Statute include "'official declarations of policy
of an agency which are binding on officials and
agencies to which they apply.'" 32 FLRA at 979-80.
In NTEU and IRS II, we found that OMB Circular A-76
establishes Federal policy regarding the performance
of commercial activities and that agencies' compliance
with OMB Circular A-76 is mandatory. 42 FLRA at
397-98. Consequently, we conclude that OMB Circular
A-76, in general, constitutes an official declaration
of policy that is binding on officials and agencies to
which it applies and, consequently, also falls within
the ambit of the term "rule[] or regulation" that
appears in section 7103(a)(9)(C)(ii) of the Statute,
as well as the term "applicable laws" that appears in
section 7106(a)(2).

B. Other Applicable Laws and Regulations Concerning
Contracting Out

As to the portion of the provision relating to
other applicable laws and regulations concerning
contracting out, the Agency, relying on a dissenting
opinion in U.S. Department of Health and Human
Services v. FLRA, 822 F.2d 430 (4th Cir. 1987)
(Wilkinson, J., dissenting) (DHHS v. FLRA), argues
that arbitral review of contracting out matters is
confined to application of statutes "'prescribing
employee rights and benefits -- particularly
procedural rights in conjunction with adverse
personnel actions.'" Agency statement of position at
11-12 (emphasis in original) (quoting DHHS v. FLRA,
822 F.2d at 450).

Adopting the Agency's argument would require
interpreting the term "applicable laws" that appears
in section 7106(a)(2) as limited to statutes that
prescribe employee rights and benefits. There is no
basis, however, for interpreting that term so
narrowly. Had Congress intended such a narrow
interpretation, it easily could have used terms that
reflected such an intent in section 7106(a)(2).
Rather, it used the broad term "applicable laws."
Contrary to the interpretation suggested by the
Agency, a more natural reading of that term is that it
refers to all "laws" that apply to, or are relevant
to, the subjects set forth in section 7106(a)(2)
insofar as those subjects relate to the conditions of
employment of unit employees. This is the
interpretation that we adopt.

This broader reading of the term is consistent
with the purposes and policies of the Statute that
relate to enabling employees to participate through
labor organizations in decisions that affect them.
See 5 U.S.C. § 7101. To meet this objective, Congress
provided for a collective bargaining relationship and
a scope of collective bargaining that extend to
matters affecting the conditions of employment of
unit employees and are not limited to employee
benefits and rights.

Accordingly, we reject the Agency's argument that
arbitral review of contracting out matters is confined
to application of statutes "prescribing employee
rights and benefits." Such a narrow interpretation of
the term "applicable laws" in section 7106(a)(2) is
neither warranted by the term "applicable laws" nor
consonant with the Statute as a whole.

For the following reasons, we conclude that the
aspect of the provision that applies to applicable
laws and regulations concerning contracting out, other
than OMB Circular A-76, is not inconsistent with
section 7106 of the Statute. Insofar as the provision
refers to laws and regulations that have the force and
effect of law, we find that the provision does not
directly interfere with management's right to make
determinations with respect to contracting out. Based
on our decision in NTEU and IRS II, such laws and
regulations constitute enforceable external
limitations on the Agency's exercise of its rights
under section 7106(a)(2), and the provision would
require only that the Agency comply with enforceable
external limitations.

To the extent that the provision requires
compliance with regulations that do not have the force
and effect of law but would impose substantive
limitations on management's right to make
determinations with respect to contracting out, we
find that it directly interferes with that management
right. However, for the reasons discussed below, it
constitutes a negotiable appropriate arrangement under
section 7106(b)(3) of the Statute.

The Union does not argue specifically in this
case that this provision constitutes an appropriate
arrangement. However, in other recent decisions we
have concluded that proposals that require management
to comply with regulations in exercising management
rights constitute appropriate arrangements that are
negotiable under section 7106(b)(3) of the Statute.
See American Federation of Government Employees,
AFL-CIO, Department of Education Council of AFGE
Locals and U.S. Department of Education, 42 FLRA 527
(1991), petition for review filed sub nom. United
States Department of Education v. FLRA, No. 91-1510
(D.C. Cir. Oct. 18, 1991) (AFGE and Education)
(proposal requiring that the agency comply with its
own regulations governing personnel policies and
practices and working conditions was negotiable as an
appropriate arrangement); National Association of
Government Employees, SEIU, AFL-CIO and Veterans
Administration, Veterans Administration Medical
Center, Department of Memorial Affairs, 40 FLRA 657,
677-82 (1991) (Veterans Administration) (provision
that would require an agency to exercise its
management right to grant sick leave in accordance
with applicable Government-wide regulations was
negotiable as an appropriate arrangement); American
Federation of Government Employees, Department of
Education Council of AFGE Locals and U.S. Department
of Education, Washington, D.C., 38 FLRA 1068, 1076-77
(1990), decision on reconsideration, 39 FLRA 1241,
1242-46 (1991) (Department of Education), petition for
review filed sub nom. United States Department of
Education v. FLRA, No. 91-1219 (D.C. Cir. May 10,
1991) (proposal requiring that the agency comply with,
among other things, all applicable rules and
regulations in establishing and administering its drug
testing program was negotiable as an appropriate
arrangement).

We find that the reasoning in AFGE and Education,
Veterans Administration and Department of Education is
applicable to the provision in this case because this
provision also involves the issue of agency compliance
with regulations in the exercise of management rights.
To ignore those cases in our consideration of this
provision would lead to conflicting and anomalous
results in similar provisions. See, for example,
American Federation of Government Employees, AFL-CIO,
Local 3457 and U.S. Department of the Interior,
Minerals Management Service, New Orleans, Louisiana,
39 FLRA 1276, 1278 (1991), petition for review filed
sub nom. U.S. Department of the Interior, Minerals
Management Service, New Orleans, Louisiana, No.
91-1218 (D.C. Cir. May 10, 1991).

We find that this provision would serve as an
arrangement for employees who are adversely affected
by management's decision to contract out. By
providing a mechanism to ensure Agency compliance with
applicable regulations when contracting out, the
provision would mitigate the adverse effect on
employees of being deprived of the protections
otherwise afforded by applicable regulations.

We also find that the arrangement is appropriate
because it does not excessively interfere with
management's right to contract out under section
7106(a)(2)(B) of the Statute. The provision would
benefit employees by providing them with some
assurance that contracting out would be conducted
consistent with the applicable regulations. Moreover,
the provision would enable employees to challenge
alleged noncompliance through the negotiated grievance
and arbitration procedures. Providing access to
negotiated grievance and arbitration procedures to
challenge an agency's compliance with its regulations
constitutes a significant benefit. See AFGE and
Education, 42 FLRA at 540.

On the other hand, the provision would merely
require the Agency to comply with applicable
regulations when contracting out. As we have
previously stated, "the existence of applicable laws,
rules and regulations already serves to limit agency
action and indicates that an agency's interest in
being able to act without regard to those provisions
and without challenge to the legality of its action,
such as in arbitration procedures, is negligible."
Department of Education, 38 FLRA at 1078.
Additionally, as we have noted, "[i]t is a familiar
rule of administrative law that an agency must abide
by its own regulations." AFGE and Education, 42 FLRA
at 540, quoting Fort Stewart Schools v. FLRA, 110 S.
Ct. 2043, 2051 (1990). Moreover, like the proposal at
issue in AFGE and Education, this provision neither
precludes the Agency from revising or rescinding any
issued regulations over which it has control nor
obligates the Agency to issue any regulations. We
find, therefore, that the provision does not
excessively interfere with management's right to
contract out. See AFGE and Education, 42 FLRA at
539-41; Veterans Administration, 40 FLRA at 681-82;
Department of Education, 38 FLRA at 1078.
Accordingly, we conclude that the provision
constitutes a negotiable appropriate arrangement under
section 7106(b)(3) of the Statute to the extent that
it concerns regulations not having the force and
effect of law.

C. Summary

The provision does not directly interfere with
management's right to make determinations with respect
to contracting out to the extent that it concerns laws
and regulations that have the force and effect of law,
including OMB Circular A-76. The provision
constitutes an appropriate arrangement within the
meaning of section 7106(b)(3) of the Statute to the
extent that it concerns regulations that do not have
the force and effect of law. Consequently, the
provision is negotiable.

V. Order

The Agency shall rescind its disapproval of the
provision.(*)

FOOTNOTES:
(If blank, the decision does not
have footnotes.)

*/
In concluding that this provision is negotiable,
we make no judgment as to its merits.