The scenario is familiar to most employers that manage employees covered by a collective bargaining agreement:  a union challenges the termination of a bargaining unit member, and the parties face an uncertain outcome before an arbitrator. Rather than take their chances with the arbitrator, the parties agree to reinstate the employee with a “last chance” agreement. Ideally, such an agreement affords the employee a final opportunity for success and provides the employer with a period of increased discretion to discipline or terminate the employee without having to justify its decision to a third party.

A recent decision by a federal appeals court in Boston, however, shows that unless such agreements are carefully drafted, they could actually subject an employer to substantially greater risk and uncertainty than would the normal grievance and arbitration process. The U.S. Court of Appeals for the First Circuit, which covers federal cases in Massachusetts, New Hampshire, Rhode Island, Maine, and Puerto Rico, decided DeGrandis v. Children’s Hospital Boston on November 18, 2015. The Court held that because the last chance agreement eliminated the grievance and arbitration process with regard to a subsequent termination, a terminated employee could (1) sue the employer in court for breach of the agreement and (2) wait six years to do so.

The background facts in DeGrandis are straightforward. In 2007, the employer (a hospital) began the process of terminating an employee who was covered by a collective bargaining agreement. The union challenged the proposed termination. Ultimately, the hospital, the union, and the employee resolved the grievance by entering into a Memorandum of Agreement – one seemingly intended to be a last chance agreement – that provided:

[A]ny further failure to comply with the Employer’s generally applicable work standards during the 12 month period following the date of this agreement shall be grounds for immediate termination, and that termination on that basis shall not be subject to the grievance and arbitration provision of the parties’ collective bargaining agreement.

Several months after entering into that agreement, the hospital determined that the employee had not complied with its “generally applicable work standards” and terminated his employment. Given the Memorandum of Agreement, the union did not challenge the termination through the grievance process. The hospital likely believed the matter was resolved, but nearly six years later, the employee brought a lawsuit under the Labor Management Relations Act, claiming that the hospital violated the collective bargaining agreement by terminating his employment without cause.

Ordinarily, disputes concerning the termination of an employee covered by a collective bargaining agreement are resolved through the grievance and arbitration process of the agreement. An employee covered by a collective bargaining agreement generally may not directly sue the employer for breach of that agreement unless he or she shows that the union somehow breached its duty to fairly represent the employee in the grievance and arbitration process. Because claims against a union for breach of its duty of fair representation must be brought within six months of the event, courts generally require that a claim by an employee for breach of a collective bargaining agreement that has a grievance and arbitration process be brought within six months as well. 

In DeGrandis, however, the employer, the union, and the employee all agreed in the Memorandum of Agreement that the grievance and arbitration procedure would not apply to a subsequent termination. The Court held, therefore, that the employee did not need to exhaust that procedure before bringing suit in federal court. The Court ruled that in the absence of a grievance and arbitration procedure, the employee did not have to show that the union failed in its duty to fairly represent the employee and, thus, the standard six-month period within which to bring a claim did not apply. Instead, the Court applied a six-year limitations period, which generally applies in Massachusetts to claims for breach of a written contract. 

The employer in DeGrandis is now facing the prospect of arguing in federal court, perhaps before a jury, that in 2008 there was cause to fire the employee because he did not “comply with its generally applicable work standards.”  Instead of defending against a potential back pay claim of several months, as is generally the case in arbitration, the employer may be subject to almost a decade of back pay liability if it loses the case. Neither the employer nor the union likely intended that result when they entered into the last chance agreement.

While last chance agreements remain important tools in managing a unionized workforce, they need to be drafted with care to avoid the unintended result in DeGrandis. Eliminating the grievance and arbitration process with regard to future terminations is likely not enough to provide the protection the employer expects. Because the terms of collective bargaining agreements and circumstances of disciplinary situations can differ, there is no one-size-fits-all approach. Therefore, it is important to consult with counsel when crafting last chance agreements.