Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-13-01066/USCOURTS-caDC-13-01066-0/pdf.json

Parties Involved:
Federal Labor Relations Authority
Petitioner
United States Department of the Treasury Internal Revenue Service Office of Chief Counsel Washington D.C.
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 7, 2013 Decided January 3, 2014

No. 12-1456

UNITED STATES DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

OFFICE OF CHIEF COUNSEL WASHINGTON D.C.,

PETITIONER

v.

FEDERAL LABOR RELATIONS AUTHORITY,

RESPONDENT

NATIONAL TREASURY EMPLOYEES UNION,

INTERVENOR

Consolidated with 13-1066

On Petition for Review and Cross-Application for 

Enforcement of a Final Decision of the Federal Labor 

Relations Authority

Howard S. Scher, Attorney, U.S. Department of Justice, 

argued the cause for petitioner. With him on the briefs were 

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Stuart F. Delery, Principal Assistant Deputy Attorney 

General, and Leonard Schaitman, Attorney.

Zachary R. Henige, Attorney, Federal Labor Relations 

Authority, argued the cause for respondent. On the brief was 

Rosa M. Koppel, Solicitor. David Shewchuk, Deputy Solicitor, 

Federal Labor Relations Authority, entered an appearance.

Peyton H. N. Lawrimore argued the cause for intervenor 

National Treasury Employees Union. With her on the brief 

were Gregory O=Duden and Larry J. Adkins.

Matthew W. Milledge, David A. Borer, and Andres M. 

Grajales were on the brief for amicus curiae American 

Federation of Government Employees, AFL-CIO in support 

of respondent.

Before: TATEL and KAVANAUGH, Circuit Judges, and 

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

TATEL, Circuit Judge: Section 7106(b)(3) of the Federal 

Service Labor Management Relations Statute (FSLMRS), 5 

U.S.C. § 7101 et seq., provides that collective bargaining 

agreements reached between federal agencies and their 

employees’ bargaining representatives may contain provisions 

that, although interfering with certain managerial 

prerogatives, constitute “appropriate arrangements for 

employees adversely affected by the exercise” of such 

management rights. 5 U.S.C. § 7106(b)(3). In determining 

whether a given “arrangement[]” is “appropriate,” the Federal 

Labor Relations Authority (“the Authority”)—which is 

charged with administering the FSLMRS—has, depending on 

how the issue comes before it, applied two different 

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substantive tests that might yield different results for the very 

same arrangement. As explained in this opinion, by adopting

two inconsistent interpretations of the same statutory 

language, the Authority has acted arbitrarily and capriciously.

I.

The FSLMRS establishes the framework governing

labor-management relations in the federal government. The 

statute requires federal agencies and labor organizations

representing their employees to “meet and negotiate in good 

faith for the purposes of arriving at a collective bargaining 

agreement,” 5 U.S.C. § 7114(a)(4), and sets forth various 

requirements for both the bargaining process and the content 

of any agreement.

At issue here is section 7106 of the Act. Section 7106(a) 

provides: “Subject to subsection (b) of this section, nothing in 

[the FSLMRS] shall affect the authority of any management 

official of any agency” to exercise certain management rights, 

which include the authority to “hire, assign, direct, layoff, and 

retain employees in the agency, or to suspend, remove, reduce 

in grade or pay, or take other disciplinary action against such 

employees,” id. § 7106(a)(2)(A), and “to assign work, to 

make determinations with respect to contracting out, and to 

determine the personnel by which agency operations shall be 

conducted,” id. § 7106(a)(2)(B). Section 7106(b), in turn, 

provides in relevant part that “[n]othing in this section shall 

preclude any agency and any labor organization from 

negotiating,” among other things, “appropriate arrangements 

for employees adversely affected by the exercise of any

authority under this section by such management officials.”

Id. § 7106(b), (b)(3).

We addressed the interaction between sections 7106(a) 

and 7106(b)(3) in American Federation of Government 

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Employees, Local 2782 v. FLRA, 702 F.2d 1183 (D.C. Cir. 

1983) (“AFGE I”). There the Authority had held that any 

“arrangement” that interferes with the management rights set 

forth in section 7106(a) was necessarily not “appropriate” 

within the meaning of section 7106(b)(3). See id. at 1185–86. 

Rejecting this reading, we explained that section 7106(b)(3) 

establishes “an exception to the otherwise governing 

management prerogative requirements of subsection (a).” Id.

at 1187. Thus, the provision contemplates that the 

management rights set forth in section 7106(a) will give way, 

to some extent, to “appropriate arrangements” for adversely 

affected employees. See id. Finding that an arrangement is

inappropriate simply because it interferes with the enumerated 

management rights would, we concluded, render the section 

7106(b)(3) exception entirely meaningless. See id. at 1188.

We observed, however, that “some arrangements may be 

inappropriate because they impinge upon management 

prerogatives to an excessive degree,” and we declined to 

“speculate as to what the word ‘appropriate’ may lawfully be 

interpreted to exclude.” Id.

Significantly for the issue before us, questions regarding 

section 7106’s application may come before the Authority in 

at least three ways. First, an agency may assert during 

collective bargaining that a particular union proposal falls

outside the agency’s duty to bargain because it would 

contravene section 7106. Agencies are not required to bargain 

over all issues relating to conditions of employment, but may 

instead declare a particular union proposal to be 

“nonnegotiable” if, for example, the proposal would be 

“inconsistent with any ‘Federal law or any government-wide 

rule or regulation.’” American Federation of Government 

Employees v. FLRA, 778 F.2d 850, 852 (D.C. Cir. 1985)

(“AFGE II”) (quoting 5 U.S.C. § 7117(a)(1)). The union may 

seek expedited review of such nonnegotiability 

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determinations before the Authority. See 5 U.S.C. § 7117(c). 

Second, any agreement ultimately reached between the 

agency’s bargaining representatives and the union is “subject 

to approval by the head of the agency,” id. § 7114(c)(1), with 

such approval required “if the agreement is in accordance 

with the provisions of [the FSLMRS] and any other 

applicable law, rule, or regulation,” id. § 7114(c)(2). An

agency head may reject a provision on the ground that it

contravenes section 7106, a decision the union may then 

appeal to the Authority. See id. § 7105(a)(2)(E). Third, an 

agency might take exception to a provision imposed in 

arbitration, asserting before the Authority that the arbiter’s

award violates section 7106. See id. § 7122(a)(1).

In a series of decisions, the Authority has delineated the 

substantive tests it will use in each of these three sorts of 

appeals to determine what constitutes a section 7106(b)(3) 

“appropriate arrangement[].” Following our decision in AFGE 

I, the Authority first addressed the issue in National Ass’n of 

Government Employees, Local R14-87, 21 F.L.R.A. 24 (1986) 

(“KANG”), a case that arose in the context of an agency 

head’s determination under section 7114(c) that a collective 

bargaining provision was impermissible. See id. at 24. The 

Authority adopted what it characterized as the “excessive 

interference test enunciated” in AFGE I, holding: 

In this and future cases where the Authority 

addresses a management allegation that a union 

proposal of appropriate arrangements is 

nonnegotiable because it conflicts with management 

rights . . . , the Authority will consider whether such 

an arrangement is appropriate for negotiation within 

the meaning of section 7106(b)(3) or[] whether it is 

inappropriate because it excessively interferes with 

the exercise of management’s rights.

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Id. at 30–31. The Authority went on to describe the factors it 

would consider in evaluating whether a given arrangement 

“excessively interferes,” among them whether the “negative 

impact on management’s rights [is] disproportionate to the 

benefits to be derived from the proposed arrangement.” Id. at 

31–33.

Soon thereafter, the Authority applied the same

“excessive interference” test in a case that arose in the context 

of a union’s appeal from an agency declaration during 

collective bargaining that a particular proposal was 

nonnegotiable. See American Federation of Government 

Employees, Local 1923, 21 F.L.R.A. 178, 186 & n.2 (1986)

(“Local 1923”).

But the Authority has treated somewhat differently 

agency claims that a provision in an arbitrator’s award 

impermissibly interferes with management rights and should

be set aside as “contrary to . . . law” pursuant to section 

7122(a)(1). Although initially applying the “excessive 

interference” test in such cases, see Washington Plate 

Printers Union Local No. 2, 31 F.L.R.A. 1250, 1256 (1988), 

the Authority later changed course, holding that only when an 

award “abrogates” a management right—which occurs when 

the award “precludes an agency from exercising” the right—

would the Authority grant the agency relief, Department of 

the Treasury, U.S. Customs Service, 37 F.L.R.A. 309, 314 

(1990). After some further oscillation, see Department of 

Justice, Federal Bureau of Prisons, 58 F.L.R.A. 109, 110

(2002) (returning to the “excessive interference” test), the 

Authority eventually settled on this “abrogation” standard, see

U.S. EPA, 65 F.L.R.A. 113, 116–17 (2010) (“EPA”).

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Then, overruling its prior decision in KANG, the 

Authority extended this “abrogation” test to appeals brought

when an agency head disapproves a provision under section 

7114(c). See National Treasury Employees Union, 65 

F.L.R.A. 509, 512 (2011) (“NTEU I”). The Authority made 

clear, however, that it would continue to apply the “excessive 

interference” standard when, during bargaining, an agency

asserts that a proposal is nonnegotiable. Id. at 512 n.4. 

Member Beck dissented, contending, among other things, that 

the Authority had no basis for holding that “the same proposal 

that is legally invalid if it ‘excessively interferes’ with 

management rights at the bargaining table magically becomes 

valid and binding when it lands on the agency head’s desk.”

Id. at 519 (Beck, M., dissenting). The Department of the 

Treasury, petitioner here, sought review, but we dismissed the 

case for lack of jurisdiction because Treasury had failed to 

properly present its arguments to the Authority. See

Department of the Treasury v. FLRA, 670 F.3d 1315, 1316 

(D.C. Cir. 2012).

This case arose after the IRS Office of Chief Counsel—a 

component of Treasury—and the National Treasury

Employees Union renegotiated their collective bargaining 

agreement. Reviewing the agreement pursuant to section 

7114(c), the agency head found eight provisions contrary to 

law. The only provision still at issue here governs sick leave.

The agency head contended that this provision—whose 

details are unimportant to the issue before us—impermissibly 

interfered with management’s right to discipline employees. 

See 5 U.S.C. § 7106(a)(2)(A). 

On appeal, the Authority found in favor of the union, 

ordering Treasury to rescind its disapproval of the sick leave 

provision. National Treasury Employees Union, 66 F.L.R.A.

809, 813 (2012) (“NTEU II”). The Authority agreed with the 

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agency that the provision affected the management right to 

discipline secured by section 7106(a). Id. at 812. But applying 

its newly-adopted “abrogation” standard—and rejecting

Treasury’s argument that it should return to the “excessiveinterference” standard, id. at 812 n.8—the Authority 

concluded that the provision was an “appropriate arrangement 

under § 7106(b)(3),” id. at 813. It reasoned that the “provision 

merely limits the circumstances in which management may 

exercise its right to discipline; it does not preclude the Agency 

from exercising that right.” Id. at 812. It rebuffed Treasury’s 

reliance on two prior Authority decisions, National 

Federation of Federal Employees, Local 858, 42 F.L.R.A.

1169 (1991), and American Federation of Government 

Employees, Local 1156, 42 F.L.R.A. 1157 (1991), which had 

found that similar sick leave provisions were not “appropriate 

arrangements,” explaining that in those cases it had “applied 

an excessive-interference standard, rather than an abrogation 

standard.” NTEU II, 66 F.L.R.A. at 812. Member Beck again 

dissented for the reasons given in his NTEU I dissent. Id. at 

815–16 (Beck, M., dissenting).

II.

Treasury now petitions for review, contending that the 

Authority’s decision to continue applying two different legal 

standards in assessing whether a section 7106(b)(3)

“arrangement[]” is “appropriate” is arbitrary and capricious 

within the meaning of the Administrative Procedure Act. See

5 U.S.C. § 706(2)(A) (an agency decision may be set aside if 

it is “arbitrary, capricious, an abuse of discretion, or otherwise 

not in accordance with law”); see also id. § 7123(c) (adopting 

section 706’s arbitrary and capricious standard for judicial 

review of FLRA decisions). Although we generally defer to 

the Authority’s reading of the FSLMRS, see Chevron, U.S.A., 

Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 

837, 842–43 (1984), under the arbitrary and capricious 

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standard, we may affirm the Authority’s interpretation and 

application of its governing statute only if it has “provide[d] a 

rational explanation for its decision.” Ass’n of Civilian 

Technicians, Puerto Rico Army Chapter v. FLRA, 370 F.3d 

1214, 1220 (D.C. Cir. 2004) (internal quotation marks 

omitted). Here, the Authority has failed to satisfy that 

obligation. 

In deciding to apply an “abrogation” standard in some 

circumstances and an “excessive interference” standard in 

others, the Authority invoked nothing in section 7106(b)(3)’s 

text. Instead, it concluded that using these different standards 

was justified by the distinction between, on the one hand, the 

text of the statutory provisions governing agency-head review 

of collective bargaining agreements and agency challenges to

arbitration awards, and, on the other hand, the text of the 

provision governing an agency’s power to declare a union 

proposal nonnegotiable during collective bargaining. See

NTEU I, 65 F.L.R.A. at 512–13. Specifically, both section 

7114(c)(2), governing agency-head review, and section 

7122(a)(1), governing exceptions to arbitration awards, are 

phrased in terms of a provision’s consistency with law. See 5 

U.S.C. § 7114(c)(2) (agency head “shall approve” agreement 

reached by collective bargaining representatives if “the 

agreement is in accordance with the provisions of [the 

FSLMRS] and any other applicable law, rule, or regulation”);

id. § 7122(a)(1) (FLRA may set aside arbitration award if it is 

“contrary to any law, rule, or regulation”). By contrast, 

section 7117(c), which governs an agency’s authority to 

refuse to bargain over a proposed provision, speaks in terms 

of the agency’s “duty to bargain,” not the provision’s legality.

The language of these subsections, the Authority reasoned, 

demonstrates that “the mere fact that a proposal is outside the 

duty to bargain does not mean that it is contrary to law, rule, 

or regulation.” NTEU I, 65 F.L.R.A. at 512. That distinction, 

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the Authority continued, in turn justifies applying two

different standards when evaluating whether an arrangement 

qualifies as “appropriate” under 7106(b)(3). See id. at 512–13.

It is true, as the Authority asserts, that certain provisions

that fall outside the duty to bargain would not, if agreed to, be 

contrary to law. The Authority generally designates such 

matters as “permissive” subjects of bargaining. See NTEU I, 

65 F.L.R.A. at 512; EPA, 65 F.L.R.A. at 119 n.12. Thus, for 

example, an agency has no obligation to bargain over 

proposals relating to the conditions of supervisors’

employment because the duty to bargain extends only to

bargaining unit employees’ conditions of employment, and 

supervisors are outside the bargaining unit. See International

Ass’n of Fire Fighters Local F-61, 3 F.L.R.A. 437, 444–45 

(1980). But because nothing in the statute prohibits the 

agency from negotiating over such matters, the Authority has 

held that an agency nonetheless may engage in collective 

bargaining regarding the conditions of supervisory

employment if it so chooses. See American Federation of 

Government Employees Local 3302, 52 F.L.R.A. 677, 681–82 

(1996); but see U.S. Department of Navy v. FLRA, 952 F.2d 

1434, 1441 (D.C. Cir. 1992) (suggesting that permitting the 

“union to seek to regulate, through collective bargaining, the 

conditions of employment of employees in other bargaining 

units and management personnel (who are excluded by the 

FSLMRS from membership in any bargaining unit) . . . is 

flatly at odds with both the FSLMRS and the [National Labor 

Relations Act]”). Likewise, section 7106(b)(1) expressly

identifies certain matters that, although interfering with 

section 7106(a) management rights, may nonetheless be 

negotiated “at the election of the agency.” 5 U.S.C.

§ 7106(b)(1). Accordingly, an agency’s bargaining 

representatives could elect to negotiate over and agree to a 

proposal regarding matters set forth in section 7106(b)(1) that, 

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while outside the duty to bargain, would nonetheless be 

consistent with federal law. 

But the foregoing is beside the point because the 

distinction between mandatory and permissive subjects of

bargaining has nothing to do with section 7106(b)(3). That is, 

a proposed section 7106(b)(3) arrangement that falls outside 

the agency’s duty to bargain does so precisely because it is 

contrary to law, as the Authority appeared to acknowledge 

when it first adopted the “excessive interference” test. See

Local 1923, 21 F.L.R.A. at 186–88; KANG, 21 F.L.R.A. at 

29–30. Thus, any time the agency’s bargaining 

representatives could properly refuse to negotiate over a 

proposal because it does not qualify as a section 7106(b)(3) 

“appropriate arrangement[],” that proposal will be contrary to 

law and rejectable by the agency head for precisely the same 

reason.

That this is so follows directly from section 7106’s text 

and structure. Section 7106(a) establishes certain management 

rights, and provides that nothing in the FSLMRS will affect 

those rights. Section 7106(b)(3) sets forth an exception to

section 7106(a)’s mandate, so that, if a proposal constitutes a

section 7106(b)(3) “appropriate arrangement[],” it does not 

violate section 7106(a) and is thus consistent with federal law.

See AFGE I, 702 F.2d at 1187. The agency then must 

negotiate over such a proposal. See National Ass’n of 

Government Employees, Local R14-87, 21 F.L.R.A. 313, 

317–18 (1986). If, however, the arrangement is inappropriate, 

the section 7106(b)(3) exception is inapplicable, and, unless 

another exception applies, the proposal violates section 

7106(a) and is thus both contrary to law and outside the 

agency’s duty to bargain. As the Authority explained in NLRB 

Union Local 21, 36 F.L.R.A. 853 (1990), in rejecting the 

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argument that an agency had waived its claim that a provision 

violated section 7106(a): 

[T]he proposal concerns the exercise of 

management’s right under section 7106(a)(1) of the 

Statute, rather than under section 7106(b)(1). 

Therefore, the issues of “election” and “waiver” that 

would be involved if the proposal concerned a 

permissive matter under section 7106(b)(1) do not 

arise. A reserved management right under section 

7106(a)(1) cannot be waived by collective 

bargaining.

Id. at 860. The same reasoning applies here. Unlike section 

7106(b)(1), section 7106(b)(3) is all or nothing—it gives the 

agency no discretion to “elect” to address certain subjects

during collective bargaining. Instead, it draws a line between 

what is and is not permissible under section 7106(a), and thus 

what is and is not consistent with law.

Neither in its decisions adopting the abrogation standard 

nor in its briefing before this court does the Authority address 

this basic point. In NTEU I, after discussing at some length 

the fairly noncontroversial proposition that some subjects 

outside the duty to bargain might nonetheless be consistent 

with law, the Authority relied on its prior decision in EPA for 

the key proposition that this distinction was somehow relevant

to section 7106(b)(3) specifically. See NTEU I, 65 F.L.R.A. at 

512–13. The EPA decision simply summarized the two 

examples of permissive subjects of bargaining discussed 

above, then stated: “No basis is provided to conclude that the 

situation is any different when management rights under 

§ 7106(a) are involved.” EPA, 65 F.L.R.A. at 118. The 

“basis” for such a difference, however, is clear: unlike section 

7106(b)(1), or the provisions governing conditions of 

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supervisory employment, sections 7106(a) and 7106(b)(3) 

leave no room for agency representatives to reach agreements 

on terms outside the scope of the duty to bargain but within 

the range of lawful provisions. 

Here, for the first time the Authority addresses section

7106(b)(3)’s language, arguing that what is “appropriate” may 

“vary[] depending on the circumstances.” Respondent’s 

Br. 27. But the “circumstances” relevant to determining 

whether an arrangement is “appropriate” within the meaning 

of section 7106(b)(3) are those governing how, in a particular 

agency, the arrangement will affect the exercise of the 

management rights listed in section 7106(a), not how the issue 

comes before the Authority. The Authority’s current 

interpretation of the statute could, as it concedes, mean that 

the propriety of two identical provisions, each affecting the 

exercise of management rights in precisely the same way,

would rise or fall on the point at which the agency asserts the 

arrangement is inappropriate. Section 7106(b)(3) provides no 

basis for this sort of “magical[]” transformation, as Member 

Beck put it. NTEU I, 65 F.L.R.A. at 519 (Beck, M., 

dissenting). If it is a “normal rule of statutory construction 

that identical words used in different parts of the same act are 

intended to have the same meaning,” Commissioner v. Lundy, 

516 U.S. 235, 250 (1996) (internal quotation marks omitted), 

then a word that Congress uses only once in a statute certainly

cannot have more than one meaning.

The Authority also argues that its differing substantive

standards are justified by the differing degrees of deference

owed to agency heads and agency bargaining representatives. 

It contends that its decision “rests significantly on the policy 

of deferring to the choices that parties make at the bargaining 

table,” and that “applying the ‘excessive-interference’ test” 

with respect to agency-head review “would require agency 

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heads to ‘second guess’ the bargaining parties’ choices.” 

Respondent’s Br. 22; see NTEU I, 65 F.L.R.A. at 514; EPA, 

65 F.L.R.A. at 118. In this context, however, we see little 

reason to prefer the bargaining representatives’ assessment of 

a provision to that of the agency head. Although it may be 

true that the agency’s bargaining representatives are better 

positioned to understand the meaning of a particular provision

and why it was included in an agreement, see NTEU I, 65 

F.L.R.A. at 514, and while Congress may well have intended 

to preclude agency heads from second-guessing the legitimate 

concessions made during negotiations, see AFGE II, 778 F.2d 

at 858 & n.12, agency heads seem equally capable of 

assessing a given provision’s consistency with section 7106, 

and section 7114(c) expressly commits such legal questions to 

the agency head. Indeed, the legislative history suggests that 

Congress enacted section 7114(c) in part due to the agency 

head’s privileged high-level view of the agency’s obligations, 

and that its concern over “second-guessing” was unrelated to 

legal questions of the sort involved in this review. See id. In 

any event, whatever the validity of the Authority’s policy 

rationale, it has failed to justify its atextual construction of 

section 7106(b)(3). As we have said: “The agency’s policy 

preferences cannot trump the words of the statute.” National 

Treasury Employees Union v. Chertoff, 452 F.3d 839, 865 

(D.C. Cir. 2006).

In sum, when an agency asserts that a contract provision

falls outside section 7106(b)(3)’s exception to section

7106(a), whether the question concerns the agency’s duty to 

bargain, see 5 U.S.C. § 7117(c), or the provision’s 

consistency with law, see id. §§ 7114(c), 7122(a)(1), the 

underlying legal issue is precisely the same: does the 

provision represent an “appropriate arrangement[]”? In 

applying two different standards in these contexts, the 

Authority has set forth two inconsistent interpretations of the 

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very same statutory term, and thus acted arbitrarily and 

capriciously.

Because we must therefore vacate the Authority’s

decision, and because the Authority has given no indication 

that it plans to abandon its “excessive interference” test, we 

have no need to address Treasury’s alternative contention that 

the “abrogation” standard, even if applied in all cases,

represents an impermissible construction of section

7106(b)(3)’s “appropriate arrangements” language. Nor need 

we decide, as Treasury urges, whether the particular sick 

leave provision at issue here was necessarily an inappropriate 

arrangement under the “excessive interference” test. Instead, 

consistent with our usual practice, we will permit the 

Authority to address those contentions in the first instance. 

E.g., AFGE I, 702 F.2d at 1188. We therefore grant 

Treasury’s petition, vacate the underlying decision, and 

remand for further proceedings consistent with this opinion.

So ordered.

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