Association of American Railroads v. Surface Transportation Board

Opinion for the Court filed by Circuit Judge TATEL.

Separate opinion dissenting from Part II filed by Circuit Judge WALD.

Separate opinion concurring in Parts I, II and IV and dissenting from Part III filed by Circuit Judge SENTELLE.

TATEL, Circuit Judge:

Petitioners challenge the Surface Transportation Board’s initial implementation of the ICC Termination Act’s labor protection provisions for employees affected by short-line rail acquisitions. Agreeing with petitioners, we hold that the Board’s order extending “severance pay” not just to employees who lose their jobs, but also to employees displaced to lower-paying jobs, violates the statute. We agree with the Board that its method of calculating severance payment offsets represents a reasonable interpretation of an ambiguous statutory term, and that it has authority under Circuit precedent to require mandatory arbitration of labor protection disputes.

I

In 1995, Congress abolished the Interstate Commerce Commission and replaced it with the Surface Transportation Board. See ICC Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803 (1995) (codified at 49 U.S.C.A. § 10101 et seq. (1997)). Congress strictly confined the new agency’s authority to impose labor protection conditions on Class II (mid-size) railroads involved in short-line rail acquisitions. See 49 U.S.C.A. § 10902 (1997). Under-the prior statutory scheme, the ICC had authority to require railroads seeking expedited agency approval of rail line acquisitions to provide “a fair and equitable arrangement to protect the interests of the railroad employees affected.” Railroad Revitalization and Regulatory Reform Act, Pub. L. No. 94-210, sec. 402(a), § 5(2)(f), 90 Stat. 31, 62 (1976) (amending Interstate Commerce Act). Pursuant to this authority, the ICC developed a standard basket of labor protection requirements known as the New York Dock conditions. These requirements included up to six years of income protection for terminated or displaced rail employees, training and relocation allowances, advance notice to labor unions, and mandatory arbitration. See New York Dock Ry.-Control-Brooklyn Eastern Dist. Terminal, 360 I.C.C. 60, aff'd sub nom. New York Dock Ry. v. United States, 609 F.2d 83 (2d Cir.1979). The ICC Termination Act specifies certain mandatory labor protection conditions, but expressly deprives the new Board of discretion to impose other labor protection conditions. See 49 U.S.C.A. § 10902(c) (the Board “may require compliance with conditions (other than labor protection conditions) the Board finds necessary in the public interest”). The labor protections mandated for mid-size railroads are as follows:

The Board shall require any Class II rail carrier which receives [expedited approval of a rail line acquisition] to provide a fair and equitable arrangement for the protection of the interests of employees who may be affected thereby. The arrangement shall consist exclusively of one year of severance pay, which shall not exceed the amount of earnings from railroad employment of the employee during the 12-month period immediately preceding the date on which the application for such certificate is filed with the Board. The amount of such severance pay shall be reduced by the amount of earnings from railroad employment of the employee with the acquiring carrier during the 12-month period immediately following the effective date of the transaction....

Id. § 10902(d).

In the first proceedings under new section 10902(d), petitioner Wisconsin Central (a Class II railroad) sought expedited Board approval of its acquisition of two short rail lines from Union Pacific. Running for 17.8 miles, the lines provide local service between Hayward Junction and Hayward, Wisconsin, and terminal service in the pocket between Wausau and Schofield. To comply with section 10902(d)’s mandatory labor protection *103requirement, Wisconsin Central proposed making severance payments to each of the nine rail employees who would’ lose their jobs with Union Pacific in amounts equal to their railroad earnings during the previous twelve months. Severed employees rehired by Wisconsin Central would, as. authorized by section 10902(d)’s offset provision, have their severance pay reduced each month by their Wisconsin Central earnings. See Wisconsin Central Ltd.-Acquisition Exemption-Lines of Union Pacific R.R. Co., Finance Docket No. 33116, at 2 (STB Nov. 15, 1996), available in 1996 WL 681474.

Announcing that “[t]he labor protective arrangement that results from this proceeding may be used as a model for conditions we impose governing the minimum labor protective arrangements we require with respect to acquisitions by Class II railroads,” the Board sought public comment on “whether [Wisconsin Central’s] proposed arrangement meets the statutory requirements, and on whether and to what extent we should establish and/or oversee the procedural aspects of labor protective arrangements under this statute.” Id at 1. The Transportation Trades Department of the AFL-CIO (“TTD”) urged the Board to define “affected” employees broadly to include displaced as well as terminated employees, to calculate the offset on the basis of the number of hours worked during the previous twelve months, to impose a 90-day notice requirement before consummation of proposed line acquisitions, and to require arbitration of disputes. See Wisconsin Central Ltd.-Acquisition Exemption-Lines of Union Pacific R.R. Co., Finance Docket No. 33116, at 3 (STB Apr. 16, 1997), available in 1997 WL 186804. Petitioners Wisconsin Central and the Association of American Railroads submitted comments arguing that the ICC Termination Act limits the Board’s oversight role to assuring compliance with the statute’s straightforward one-year severance pay requirement for employees who lose their jobs with the selling rail carrier, that it authorizes no protection for displaced employees, and that it deprives the Board of authority to impose additional “procedural” labor protection requirements, including arbitration. See id at 2-3.

The Board adopted virtually all of TTD’s proposals. First, it “agree[d] with TTD that affected employees should be defined not only as including employees losing positions with the selling carrier, but also to cover those employees who, in order to continue working on the selling carrier, must exercise seniority and employees of the selling carrier who are adversely affected by those other workers’ exercise of seniority.” Id at 5 (emphasis added). In other words, the Board extended labor protection to employees forced by an acquisition to transfer to different — and presumably lower-paying — jobs elsewhere on the selling carrier. Second, the Board adopted TTD’s suggestion that “the employee’s earnings should be based on the same number of hours worked during each comparable month before and after the transaction.” Id at 5 & n. 7. Finally, it required arbitration of disputes, permitting appeal pursuant to the substantially deferential Lace Curtain standard, under which the Board reviews recurring or otherwise significant issues of general importance and reverses an arbitrator’s decision only for egregious error. See id at 5-6 (citing Chicago & North Western Transp. Co.-Abandonment-Near Dubuque & Oelwein, Ia., 3 I.C.C.2d 729 (1987) (Lace Curtain), aff'd sub nom. International Bhd. of Elec. Workers v. ICC, 862 F.2d 330 (D.C.Cir.1988)).

Subject to these conditions, the Board approved Wisconsin Central’s acquisition of Union Pacific’s rail lines. With respect to TTD’s suggestion for an advance notice requirement, the Board noted that Wisconsin Central had already satisfied any such requirement and postponed the issue for another proceeding, eventually imposing a 60-day notice requirement. See Acquisition of Rail Lines Under 49 U.S.C. 10901 and 10902-Advance Notice of Proposed Transactions, Ex Parte No. 562 (STB Sept. 2, 1997), available in 1997 WL 555638. We sustained that requirement in Association of American Railroads v. STB, No. 97-1624, 1998 WL 791857, 161 F.3d 58 (D.C.Cir. Nov. 17, 1998).

Wisconsin Central and the American Association of Railroads now petition for review, challenging each element of the labor protection conditions the Board imposed on *104Wisconsin Central’s proposed line acquisition. Specifically, they argue that the extension of severance pay to displaced employees, the calculation of earnings based on time worked, and the arbitration requirement run counter to the plain meaning of section 10902(d). Taking up each argument in turn, we review the Board’s interpretation of the ICC Termination Act under Chevron’s two-step analysis. See Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We ask first “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43, 104 S.Ct. 2778. But “if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843, 104 S.Ct. 2778.

II

We begin with petitioners’ challenge to the Board’s inclusion of displaced employees within section 10902(d)’s “severance pay” requirement for “affected” employees. In defense of its position, the Board relies on section 10902(d)’s requirement of “a fair and equitable arrangement for the protection of the interests of employees who may be affected” by line sales. According to the Board, the class of employees “affected” by line sales includes, but is not limited to, employees whose employment relationship is severed; displaced employees are also “affected” by line sales. The Board reads section 10902(d)’s second sentence — “[t]he arrangement shall consist exclusively of one year of severance pay” — not as a limitation on the class of employees protected by the Act (as petitioners urge), but rather as a limit on the amount of compensation that “affected” employees may receive. In other words, all affected employees, whether severed or displaced, must receive one year of severance pay.

We cannot square the Board’s position with the statute’s plain language. To begin with, section 10902(d)’s use of the term “severance pay” indicates that Congress intended to limit the class of covered employees to those whose employment with the selling carrier was terminated as a result of a transaction. Webster’s defines “severance pay” as “an allowance usufally] based on length of service that is payable to an employee on severance.” WebsteR’s THIRD New International Dictionary (1993). “Severance” means the “termination of a contractual association (as employment).” Id.; see also Blaok’s Law Dictionary (6th ed.1990) (defining severance pay as “[p]ayment by an employer to employee beyond his wages on termination of his employment”). Making clear Congress’s understanding that the “arrangement” applies to severed employees, the conference report describes section 10902(d)’s arrangement as: “Class II rail earners acquiring a line under this section are subject to a mandatory 1 year severance pay requirement for severed employees.... ” See H.R. Conf. Rep. No. 104-422, at 180 (1995) (emphasis added), reprinted in 1995 U.S.C.C.A.N. 850, 865 (“Conference Report”). During floor debate, moreover, several members described the arrangement now contained in section 10902(d) as providing one year of severance pay for severed employees. See, e.g., 141 Cong. Reo. H12,301 col. 2 (daily ed. Nov. 14,1995) (Rep. DeFazio) (explaining the provision as “one [year] of severance for the employees who lose their jobs”); id. at H12,302 eol.l (Rep. Rayhall) (characterizing the provision as a “dramatically reduced 1 year of severance pay, when the employee is eligible, in the event he or she loses a job as a result of a merger or other transaction of that nature”); id. at H12,303 eol.l (Rep. Johnson) (describing the provision as providing that “[e]mployees who lose their jobs get a 1 year severance”).

Not only does the use of the term “severance pay” demonstrate Congress’s intention to apply the “arrangement” to severed employees, but section 10902(d)’s limiting language and structure make it equally clear that Congress left no room for the Board to extend benefits to other employees. Mirroring the first sentence’s requirement of “a fair and equitable arrangement for the protection of the interests of employees who may be *105affected,” section 10902(d)’s second sentence provides quite specifically that “[t]he arrangement shall consist exclusively of one year of severance pay.” Because section 10902(d) defines the arrangement for the protection of affected employees as consisting exclusively of one year of severance pay, and because severance pay is paid only to employees who actually lose their jobs, the Board has no authority to extend severance pay to displaced employees. Confirming this interpretation, section 10902(d)’s third sentence requires that “[t]he amount of such severance pay shall be reduced by the amount of the earnings from railroad employment of the employee ivith the acquiring carrier.” The only employees who could possibly have “earnings ... with the acquiring carrier” are employees who lose their jobs on the selling carrier as a result of the line sale and then take jobs on the acquiring carrier.

The legislative evolution of section 10902(d) also confirms that Congress intended to limit protection to severed employees. The Interstate Commerce Act, as amended in 1940, contained only the first sentence of what has now become section 10902(d)— “[T]he Commission shall require a fair and equitable arrangement to protect the interests of the railroad employees affected.” Transportation Act of 1940, ch. 722, sec. 7, § 5(2)(f), 54 Stat. 899, 906 (1940) (amending Interstate Commerce Act). It was on the basis of this language that the ICC developed the extensive New York Dock protections, which covered both severed and displaced employees. See New York Dock Ry., 609 F.2d at 87-90. As originally introduced in Congress, the ICC Termination Act eliminated all substantive labor protections. See H.R. 2539, 104th Cong., 141 Cong. Reo. H12,266-96. Concerned about “employees who lose their jobs because of a merger,” members who favored labor protection focused on the harm caused by layoffs and the loss of jobs, and urged a compromise that would “leave the essential employee protections in place.” 141 Cong. Rec. H12,258 col.l (statement of Rep. Vento) (emphasis added); see also, e.g., id. at 12,260 col.l (statement of Rep. Oberstar) (urging protection for “rail-workers ... [who] lose their jobs due to mergers and line sales”). Although Congress eventually incorporated the Interstate Commerce Act’s “fair and equitable arrangement” language into the final bill, it added the requirement that “the arrangement shall consist exclusively of one year of severance pay.” See Conference Report at 179-80. The addition of the words “shall consist exclusively of’ to the previous Act’s “fair and equitable arrangement” shows that Congress intended to deprive the new Board of authority to impose New York Dock-style conditions for the benefit of displaced employees.

We also think it significant that to accommodate its interpretation of the statute, the Board found it necessary not just to ignore the Act’s plain language, but to change it. The Board realized that extending section 10902(d)’s offset provision to displaced employees could “create the anomaly where an affected employee electing not to work for WCL, but remaining with UP, would double his previous year’s income.” Wisconsin Central Ltd.-Acquisition Exemption-Lines of Union Pacific R.R. Co., supra, at 106. The Board therefore ruled that the severance payment offset applies to “earnings from the employee’s railroad employment” irrespective of whether the selling or acquiring railroad is the employer. In other words, the Board rewrote the statute to read: “The amount of such severance pay shall be reduced by the amount of the earnings from railroad employment of the employee with the acquiring earner- during the 12-month period immediately following the effective date of the transaction....”

Judge Wald argues that interpreting section 10902(d) to exclude displaced employees “doesn’t make sense.” Dissenting Op. at 109 (Wald, J.). Although she (and the Board) may be correct that displaced employees deserve protection, Congress could just as sensibly have decided to limit benefits only to employees whose employment with the selling carrier is actually terminated. Indeed, we recently rejected an agency’s attempt to redraft a statute in order to avoid what the agency characterized as the “absurd results” that would flow from the statute’s language because we found it “not inconceivable that Congress meant what the statute says.” See *106Mova Pharmaceutical Corp. v. Shalala, 140 F.3d 1060, 1072 (D.C.Cir.1998).

Finding Congress’s intent clear from the statute’s language, structure, and legislative history, we have no need to proceed, as the Board urges, to Chevron’s second step.

Ill

Petitioners next challenge the Board’s interpretation of section 10902(d)’s requirement that severance pay shall be “reduced by the amount of earnings from railroad employment of the employee with the acquiring carrier during the 12-month period immediately following the effective date of the transaction.” According to petitioners, calculating “the amount of earnings” is mechanical and self-executing, leaving no room for Board interpretation; employees’ severance payments must be reduced by their one-year aggregate earnings on the acquiring carrier. Finding the term “earnings” ambiguous, the Board interprets the offset provision in a way that matches earnings in the year following the line sale to earnings in the prior year based on the number of hours worked. Earnings from the acquiring carrier that are attributable to hours worked in excess of hours worked in the previous year are in effect considered extra earnings and excluded from the offset calculation.

The Board adopted this proposal in response to TTD’s suggestion that “the monthly comparison [should be] ‘apples to apples’; i.e., the comparison [should be] made for the same number of hours worked in a month so that the employee who works at a position at a lower hourly rate for more hours does not lose protective benefits and reduce the carrier’s obligations by working more hours for less pay.” See Comments of TTD, Wisconsin Central Ltd. — Acquisition Exemption—Lines of Union Pacific R.R. Co., Finance Docket No. 33116, at 14-15 (filed with STB Jan. 15, 1997). TTD illustrated its point with the following example: If a severed employee earned $2,500 monthly for 160 hours of work with the selling carrier and then earns $2,500 monthly for 320 hours of work with the acquiring carrier, the employee would be entitled to a monthly severance payment of $1,250 under the Board’s “apples to apples” approach but would receive no benefits under petitioners’ interpretation.

This issue is quite different from the Board’s extension of severance benefits to displaced employees, where Congress’s use of the term “exclusively,” together with the statute’s structure and legislative history, demonstrated that the Board had exceeded its statutory authority. See supra at 104-06. In contrast, Congress has not “directly spoken” to the question of precisely how the earnings offset should be calculated. Although section 10902(d) limits the offset to the 12-month period following the transaction, the statute contains no definition of “earnings.” Are “earnings” based on gross earnings or net earnings? Are overtime earnings “earnings”? How do payroll deductions for health insurance and employer contributions to pension benefits count in the employee’s “earnings”? Neither legislative history nor any other tool of statutory construction aids us in ascertaining Congress’s intent with respect to the measurement of earnings under this statute.

Had Congress intended to limit the term earnings in the way that petitioners and Judge Sentelle read it, it could have used the words “full” or “total” prior to “earnings.” As Congress demonstrated in section 10902(d)’s second sentence, where it used the words “[t]he arrangement shall consist exclusively of one year of severance pay,” it knows how to limit the Board’s authority to interpret statutory language. Although Congress knew of the ICC’s practice of calculating earnings offsets based on comparable hours worked, it left “earnings” unmodified in the new statutory scheme. We therefore read section 10902(d) as a “legislative delegation to [the] agency” to elucidate the statute’s earnings offset provision. Chevron, 467 U.S. at 844, 104 S.Ct. 2778.

Moving to Chevron’s second step, we cannot say that the Board’s “apples to apples” approach represents an impermissible construction of the offset requirement. The Board crafted its interpretation of earnings to respond to a practical problem identified by TTD — that acquiring carriers paying lower wages could avoid making severance pay*107ments by simply requiring employees to work more hours than they had in the previous year. TTD argued that this adverse incentive could potentially “destroy the effectiveness of the protection imposed by Congress” and “lead to abuse by employers and dangerous situations for tired employees.” Intervenor-Respondents’ Br. at 17, 18. Whether this amounts to a serious problem or whether the Board has fashioned the best solution is for the Board to decide, not us. Our deference to an agency’s reasonable interpretation of its governing statute “is a product both of an awareness of the practical expertise which an agency normally develops, and of a willingness to accord some measure of flexibility to such an agency as it encounters new and unforeseen problems over time.” International Bhd. of Teamsters v. Daniel, 439 U.S. 551, 566 n. 20, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979). And unlike the Board’s extension of the severance pay arrangement to displaced employees, which compelled it to disregard explicit statutory language to accommodate its interpretation, here the Board ignores no words in the statute, but merely interprets the term “earnings.”

IV

Petitioners next claim that the Board unlawfully delegated resolution of disputes arising under section 10902(d) to private arbitrators. According to petitioners, because the statute nowhere authorizes arbitration, the Board cannot require it.

Circuit precedent forecloses petitioners’ argument. In Brotherhood of Locomotive Engineers v. ICC, we considered a similar argument (in that case advanced by the labor union) that “the Commission, by submitting the labor disputes to arbitration ... failed to exercise its ‘primary jurisdiction’ in accordance with [the section requiring the Commission to impose labor protective conditions].” 808 F.2d 1570, 1579 n. 75 (D.C.Cir. 1987). Holding that “[ajrbitration is a legitimate method of resolving labor disputes and does not divest the Commission of its jurisdiction,” we declined to “mandate that the Commission adjudicate disputes that it properly determines to be arbitrable.” Id. We reached a similar result in International Brotherhood of Electrical Workers v. ICC, supra. Observing that “[n]othing in the Act either requires or forecloses the agency’s use of arbitration in employee disputes,” we concluded that “[t]he ICC acted within its sound discretion in electing to use arbitration; had it not done so, all disputes over employee protective conditions would have remained solely within the primary jurisdiction of the agency.” 862 F.2d at 336. Because the ICC Termination Act makes no change with respect to the Board’s inherent authority to require arbitration, IBEW and Brotherhood of Locomotive Engineers control here.

V

We grant the petition for review and hold that the Board’s order requiring compensation of displaced employees violates section 10902(d) of the ICC Termination Act. We sustain the Board’s interpretation of earnings based on comparable hours worked and its requirement of mandatory arbitration as permissible constructions of the statute.

So ordered.