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Negotiations for labor contracts can take months, spanning dozens of meetings and scores of proposals and counterproposals. When a final agreement is struck, details matter. Failure to address omissions or memorialize details of the understanding between the parties can be a costly error.
In 2012, Silgan Containers Corp., a manufacturer of metal food packaging, and Sheet Metal Workers Int’l Union, Local No. 2, began negotiations for an amended collective bargaining agreement. The existing labor contract had required Silgan to pay into each employee’s pension account $1.98 per hour worked, up to a cap of 2,000 hours. During negotiations, the parties discussed a conversion of the pension accounts into a companywide 401(k) plan and an increased contribution of $2 per hour worked. The proposals did not address the existing 2,000-hour cap.
During various iterations of the proposed retirement plan change, no mention was made of the 2,000-hour cap. After receiving a draft proposal from Silgan, Local 2’s negotiators asked how the retirement contributions would work. Silgan responded that they would “work like it had always worked in the past.” At that point, Local 2 decided “to not mention” the omission of the 2,000-hour cap in the proposal. The final agreement included a $2 per hour contribution with no cap.
Thereafter, Local 2 pursued a grievance complaining of Silgan’s application of a 2,000-hour cap on contributions. Silgan argued, among other things, that the contract provision on retirement contributions should be rescinded due to Silgan’s unilateral mistake. That is, Silgan argued that it mistook the terms of the deal and, therefore, no “meeting of the minds” took place to establish a valid contract.
An arbitrator hearing the grievance sided with Local 2, and Silgan filed a lawsuit seeking to vacate the award. The federal district court, persuaded by the argument of unilateral mistake, granted Silgan’s request for relief. Local 2 appealed.
The appeals court addressed two questions. First, can an arbitrator decide whether the parties have agreed to arbitrate an issue? In Silgan, the arbitrator’s authority under the agreement was limited to the interpretation of the contract. Since the parties did not empower the arbitrator to decide whether a contract was validly formed, the appeals court found that the lower court did not err in vacating the award.
Second, and more significantly for negotiators, can a sophisticated party obtain relief for its own mistake in understanding the terms of an otherwise enforceable contract? The appeals court noted that “[excusable] mistake cannot result from the want of such care and diligence as are exercised by persons of reasonable prudence under the same circumstances.” The appeals court highlighted that Silgan knew the negotiations were an arms-length transaction and never proposed a 2,000-hour cap nor complained of its omission (despite multiple opportunities to do so). Local 2’s silence on the issue, the appeals court found, was insufficient to support Silgan’s argument. The appeals court concluded by noting, “Where the mistake has resulted solely from the negligence or inattention of the party seeking relief, and the other party is without fault, relief should not be granted.”
Silgan Containers Corp. v. Sheet Metal Workers Int’l Union, Local No. 2, 8th Cir., No. 15-1956 (April 15, 2016).
Professional Pointer: Negotiators should pay as much attention to individual proposals as they do to the final, integrated contract. The final contract will only be as favorable as the individual agreed-to proposals. Particular care in drafting and reviewing individual proposals is paramount to a successful negotiation.
Scott M. Wich is an attorney with Clifton Budd & DeMaria.
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