United States Court of Appeals

For the First Circuit

No. 04-2275

UNITED PARCEL SERVICE, INC.,

Plaintiff, Appellant,

v.

UNIÓN DE TRONQUISTAS DE PUERTO RICO, LOCAL 901,

Defendant, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jaime Pieras, II, U.S. Senior District Judge]

Before

 Torruella, Circuit Judge,

Coffin, Senior Circuit Judge,

and Lipez, Circuit Judge.

Pedro J. Manzano-Yates, Carlos M. Aquino-Ramos, and Fiddler

González & Rodríguez, PSC on brief for appellant.

José E. Carreras Rovira on brief for appellee.

October 20, 2005
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COFFIN, Senior Circuit Judge. Appellee Unión de Tronquistas

de Puerto Rico, Local 901 (the union), represents a group of United

Parcel Service (UPS) employees who claim that the company owes them

back wages for unpaid vacation time. The unpaid vacation consists

primarily of days that accrued under expired collective bargaining

agreements. When the union submitted the claim to arbitration, UPS

contended that the arbitrator could not adjudicate such “out-oftime” claims. The arbitrator concluded otherwise, ruling that the

claims could proceed. The district court refused to vacate the

arbitration award, relying on the well established principle of

deference to arbitrators’ rulings. On appeal, the company argues

that the district court utilized the wrong standard of review and

misapplied the law on survival of arbitration provisions. Although

we find legal error in the court’s approach, we conclude that it

correctly left the dispute in the hands of the arbitrator. We

therefore affirm its dismissal of the case.

I. Background

UPS and the union have been parties to a series of collective

bargaining agreements dating back to at least 1985, each of which

included a comprehensive procedure for handling employee grievances

and broadly provided for arbitration of disputes. The union

submitted the grievance in this case to arbitration in March 1999,

seeking compensation for accrued vacation time on behalf of dozens

of employees. The employees assert that UPS in 1998 “erased”
 It is unclear whether the disputed benefits derive solely from 1

the collective bargaining agreement that immediately preceded the

one in effect from 1997 to 2002 – i.e., the one covering 1993 to

1997 – or from multiple prior agreements. Because it appears that

the prior agreements all were substantially the same, and our

analysis would be the same whether one or more prior agreements are

involved, we presume for simplicity’s sake that the disputed

benefits all accrued under the 1993-97 agreement.

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vacation time they had accumulated before that year. The

collective bargaining agreement then in effect covered the period

between August 1, 1997 and July 31, 2002. Most, if not all, of the

alleged vacation leave at issue had accrued, however, under prior

collective bargaining agreements. UPS’s position is that the

obligation to arbitrate the dispute over that vacation pay expired

when the earlier agreements expired, and, indeed, the company

appears to contend that the employees have retained no right at all

to pursue claims arising from the earlier agreements. 

1

 The arbitrator, however, ruled that she had the authority to

order payment of any compensation determined to be owed. In

dismissing UPS’s petition to vacate the arbitration award, the

district court observed that it was obliged to enforce the award

“as long as the arbitrator is even arguably construing or applying

the contract and acting within the scope of his authority.”

Opinion and Order at 1 (internal citation omitted). The court

found no flaw in the arbitrator’s award and accordingly entered

judgment in the union’s favor.
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On appeal, UPS argues that the court made a pivotal error at

the outset of its inquiry by implicitly deferring to the arbitrator

on the threshold question of arbitrability. The company maintains

that it was up to the court to decide in the first instance whether

the arbitrator was empowered to decide the employees’ vacation

dispute, and it therefore asserts that the district court’s first

step should have been to consider that issue de novo.

UPS goes on to argue that, had the court properly assumed its

authority to make the threshold arbitrability determination, it

should have found the dispute non-arbitrable on the grounds

asserted above – i.e., that the applicable arbitration provision

expired along with the rest of the prior collective bargaining

agreement and that the arbitrator had no authority under the

current agreement to delve into the issue. In brief, UPS’s

argument is that the arbitrator lacked jurisdiction under any

agreement to entertain the union’s claim on behalf of the

employees.

We agree with UPS that the district court should have made the

initial decision on arbitrability. The district court apparently

thought of this as a case requiring interpretation of the contract

and therefore a matter for determination in the first instance by

the arbitrator. But “[w]hether or not a company is bound to

arbitrate . . . is a matter to be determined by the court,” Litton

Fin. Printing Div. v. N.L.R.B., 501 U.S. 190, 208 (1991) (citing
 An exception to that general principle exists when “‘the parties 2

clearly and unmistakably provide otherwise.’” Howsam v. Dean

Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (quoting AT&T Techs.,

Inc. v. Communications Workers, 475 U.S. 643, 649 (1986)). No such

statement of contrary intent is asserted here. 

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AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643 (1986));2

see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83

(2002) (“[A] gateway dispute about whether the parties are bound by

a given arbitration clause raises a ‘question of arbitrability’ for

a court to decide.”). Such a duty must be performed even though it

may require the court to interpret a bargaining agreement

provision. See Litton, 501 U.S. at 209. Because we conclude,

however, that the arbitrator does have authority to resolve the

vacation pay dispute, the court’s threshold error was harmless. We

explain below the legal and factual foundation for that conclusion.

II. Discussion

As we have noted, UPS maintains that the vacation pay dispute

may not be arbitrated because there is no applicable arbitration

provision: the one in the current collective bargaining agreement

does not apply to benefits accrued before that agreement took

effect, and the one that existed when the asserted benefits accrued

has since expired. In our view, the case law is to the contrary.

In Litton, the Supreme Court confirmed that a presumption

exists “in favor of postexpiration arbitration of matters unless

‘negated expressly or by clear implication’” in the collective

bargaining agreement. 501 U.S. at 204 (quoting Nolde Bros., Inc.
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v. Bakery Workers, 430 U.S. 243, 255 (1977)). The presumption is

limited by a “vital qualification”: the arbitration must concern

“matters and disputes arising out of the relation governed by the

contract.” Id. A dispute “can be said to arise under the

contract”

only where it involves facts and occurrences

that arose before expiration, where an action

taken after expiration infringes a right that

accrued or vested under the agreement, or

where, under normal principles of contract

interpretation, the disputed contractual right

survives expiration of the remainder of the

agreement.

Id. at 205-06. Our inquiry is thus two-pronged; we must determine

if the particular dispute “has its real source in the contract,”

id. at 205, and if so, we must consider whether postexpiration

arbitration of the issue was negated expressly or by clear

implication.

UPS confusingly blends these two inquiries in its brief, and

offers its argument on whether the disputed vacation time accrued

under the prior agreement only in cursory fashion, embedded within

its discussion of the arbitration clause’s survivability.

Nonetheless, viewing its effort generously, we consider UPS’s

implicit assertion that Article 34 of the 1993-97 collective

bargaining agreement (titled “Vacation”) resolves the first prong

of the inquiry in its favor. We focus, as did the parties,

specifically on whether the dispute involves “a right that accrued
 The union asserts that UPS infringed that right in 1998, after 3

expiration of the agreement under which the vacation days were

earned, when it “erased” previously accrued leave.

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or vested under the agreement.”3

 Section 3 of Article 34 provides that “[e]arned vacation will

be taken each year.” The section goes on to state that “[o]nly one

year earned vacation can be taken in each calendar year.” UPS

maintains that the combined force of the “clear and unequivocal

language” in these two statements confirms that vacation time does

not accrue from year to year and likewise could not accrue from one

collective bargaining agreement to the next. 

In our view, UPS overstates the reach of section 3. That

vacations may be taken only in the year earned does not necessarily

foreclose the employees from seeking compensation for unused,

accrued vacation time. The idea of pay in lieu of vacation time is

incorporated, in fact, in the 1997-2002 collective bargaining

agreement, which allows employees to elect pay instead of time off

for all days in excess of ten vacation days. See Article 34,

Section 1©). The lack of an explicit paid vacation option in the

earlier agreement does not negate its possible existence as a

matter of practice; indeed, the provision in the later agreement

may have been added to reflect just such a practice. We thus

reject the notion that the limitation on when vacation time may be

enjoyed leads inevitably to the conclusion that vacation time not

taken as specified is lost entirely.
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The nature of earned vacation time, moreover, is materially

different from the contractual right that the Supreme Court ruled

did not vest or accrue in favor of the employees in Litton. At

issue there was the right to seniority in the case of layoffs. The

agreement specified that layoffs would be based on aptitude and

ability, as well as seniority. The Supreme Court observed that

aptitude and ability do not remain constant, but change over time,

and that the layoff provision there consequently “cannot be said to

create a right that vested or accrued during the term of the

Agreement or a contractual obligation that carries over after

expiration.” Litton, 501 U.S. at 210.

Here, however, the right at issue is objectively quantifiable;

the vacation benefit accrued according to a specified formula (one

and five-twelfths days for each month in which the employee has

worked at least eighty hours), and the total time earned by a given

employee presumably may be ascertained through a check of company

records revealing how much time was worked. Records also

presumably would show how many vacation days already were taken.

Vacation time strikes us as the classic example of a benefit that

– barring explicit provision to the contrary – accrues during the

term of the agreement under which it is earned. Cf. Foster v.

Dravo Corp., 420 U.S. 92, 99-100 (1975) (observing that the

presence of a work requirement for vacation benefits generally is

strong evidence that the benefits were “intended as a form of
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shortterm compensation for work performed”). The measure of that

benefit in days earned would remain constant over time, much like

a deposit in a bank. We therefore conclude that Litton’s first

prerequisite for post-expiration arbitrability is met here, namely

that the dispute “has its real source in the contract.”

Whether employees were entitled under the 1993-97 agreement to

compensation in lieu of time off and whether such compensation

could be claimed years after the vacation time was earned are, of

course, separate matters. In deciding arbitrability, we are not

called upon to finally resolve either of those merits-based

questions. The answers lie between the lines of the collective

bargaining agreement and involve precisely the sort of contractual

dispute that the parties agreed to arbitrate. Our role with

respect to the merits of the dispute is limited to determining

whether the grievance – an allegation that employees were

wrongfully deprived of earned vacation time – could be said to

arise under the contract. Having concluded that the employees’

right to vacation time accrued under the earlier agreement and,

consequently, that the underlying dispute arises under that

agreement, we must assign substantive resolution of the dispute to

the arbitrator – unless the agreement negates the presumption of

arbitrability expressly or by clear implication. We thus turn to

that second prong of the inquiry.
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UPS cites three contractual provisions to support its

contention that the expired agreement negated by “clear

implication” the post-expiration survival of the arbitration clause

with respect to disputes over vacations. First, it invokes section

3 of Article 34 on vacations, the section we previously have

discussed. Second, it points to a provision in the 1997-2002

agreement stating that any complaints or disputes the parties may

have “with regard to the interpretation or administration of the

present Agreement” will be resolved through specified procedures

that culminate with arbitration, see Article 16, sections 1 & 2 of

the 1997-2002 agreement (emphasis added), and it notes that both of

the prior agreements had materially similar provisions. Finally,

it refers us to a provision in the 1997-2002 agreement denying the

arbitrator authority to “amend or modify this Agreement or

establish new terms and conditions under this Agreement.” See

Article 16, section 4(a). UPS maintains that the latter two

provisions reflect that an arbitrator may only resolve

controversies that arise under the current agreement and may not

modify the current agreement to cover untimely claims.

We find no evidence in these provisions – clear or otherwise

– that the parties agreed to depart from the presumption that

matters arising under a particular collective bargaining agreement

will remain arbitrable even after the contract has terminated.

Although the provision on vacation time is, as we have explained,
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at the core of the dispute on the merits, it sheds no light on the

threshold question of arbitrability. It simply does not address

the procedures to be used in resolving conflicts over entitlement

to vacation pay. The two remaining provisions are likewise

inapplicable to our inquiry. Both refer to the arbitrator’s

authority under the agreement currently in effect, but they say

nothing to negate the presumption that an arbitrator possesses

continuing authority to resolve appropriate disputes arising from

prior agreements.

Thus, because the vacation pay dispute arises under the

agreement and because the agreement does not rebut the presumption

of arbitrability, the merits of the union’s claim must be

arbitrated. Our reading of the arbitrator’s decision indicates

that this substantive review of the dispute has not yet occurred.

In the decision that was the subject of UPS’s appeal to the

district court, the arbitrator described “the specific matter”

before her as “determin[ing] our jurisdiction to formulate remedies

regarding a salary claim which extends retroactively beyond the

effectiveness of the Collective Bargaining Agreement.” The award

issued stated that “[w]e have jurisdiction to grant remedies for

vacations earned prior to the effectiveness of the Collective

Bargaining Agreement under which this Complaint is filed.”

This ruling was faulty because, as we have explained, the

arbitrator did not have authority to decide the issue of her
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jurisdiction. In turn, the district court improperly deferred to

the arbitrator’s determination on arbitrability. The end result,

however – that the merits of this case are to be handled by an

arbitrator – was correct. We therefore hold that the case was

properly dismissed, and we presume that the parties will now return

to arbitration to address the employees’ specific entitlement to

compensation for unpaid vacation time.

The judgment of the district court is affirmed.