Thursday, September 11, 2008

Parties' Mutual Mistake Does Not Reopen Bargaining

Berkeley Unified School District (PERB Dec. No. 1976-E) (Issued on 9/9/08)

In 2005, the Berkeley Unified School District (District) and the Berkeley Federation of Teachers (Federation) were engaged in contract negotiations. The Federation alleged that during bargaining the District asserted that it was legally prohibited from using parcel tax revenue to fund its mandatory reserve. This had the practical effect of reducing the amount of money available to fund employee wages and benefits.

After negotiations concluded and a new contract was agreed to, the Federation discovered that the District could in fact legally use parcel tax revenue to fund its reserve. The Federation then demanded that the District reopen negotiations on a provision that the Federation said it would not have agreed to but for the District’s original representation. When the District refused to reopen negotiations, the Federation filed an unfair practice charge alleging bad faith bargaining.

The Board analyzed the bad faith bargaining charge as a refusal to bargain, a per se violation. The key issue was whether the District had an obligation to reopen negotiations on the disputed provision. The Federation argued that the disputed provision was a product of a “mutual mistake of fact” and thus subject to rescission. The Board then embarked on an analysis of both PERB and NLRB law to determine whether a mutual mistake of fact triggered a duty to bargain over the disputed contract.

The Board noted that both PERB and the NLRB recognized that a “unilateral mistake of fact” could trigger a bargaining obligation in limited circumstances. Specifically, both PERB and the NLRB recognized the legal significance of a contract provision based on mistake of fact when: (1) the mistake is a unilateral one; and (2) rescission is raised as a defense to a bad faith bargaining charge.” However, the Board emphasized that demonstrating a unilateral mistake of fact is extremely difficult. First, the unilateral mistake cannot be caused by a party’s lack of “ordinary diligence.” Second, the mistake must be so obvious that the other party should be put on notice.

The Board then went on to consider the significance of a mutual “mistake of fact.” The Board held that unlike unilateral mistakes of fact, mutual ones do not trigger a bargaining obligation. The Board noted that neither PERB nor NLRB cases recognized mutual mistakes of fact as creating a bargaining obligation. Further, citing to public policy, the Board reasoned that:

“Allowing a party to use rescission based on mutual mistake as a means to reopen the CBA would undermine the integrity and stability of the bargaining process by putting the CBA in a perpetual state of uncertainty. Moreover, such a rule would lead to careless bargaining by discouraging parties from verifying each other’s statements during negotiations in the hopes that it will lead to an opportunity to renegotiate an unfavorable contract provision in the future. Neither result is desirable.”


This is an interesting decision. At first blush, the decision seems to be a departure from PERB’s general practice of following the California statutory contract law. (Barstow Unified School Dist. (1996) PERB Dec. No. 1138-E (PERB generally follows California Civil Code in the interpreting contract language).) Under the California Civil Code, every contract requires that there be “free” and “mutual assent.” (Civ. Code, §1550, 1565.) The Civil Code further provides that consent is not free when obtained through mistake, which can be either a mistake of fact or law. (Civ. Code, §1576, 1577.) California court cases have recognized that contracts can be rescinded in situations involving both unilateral mistakes and mutual ones. Indeed, it has generally been the rule that it is easier to unilaterally rescind a contract based on a mutual mistake of fact, rather than a unilateral one.

Thus, for PERB to follow California contract law with respect to unilateral mistakes of fact but not mutual mistakes of fact initially seems strange. This is especially true since this case arguably involved a mutual mistake of law which is a recognized grounds for contract rescission provided all the criteria are met.

The key to understanding this decision—at least in the mind of this practitioner—can be found in the last paragraph of the decision, which states:

“We recognize, of course, that mutual mistakes of fact will occur in the bargaining process. But the proper place to resolve such mistakes is at the bargaining table. Further, when a party is unwilling to voluntarily surrender a windfall it has received as the result of a mutual mistake, the other party may bring an action in court to rescind the contract. The Board's holding thus places the duty for correcting a mutual mistake of fact in the hands of the parties, where it appropriately belongs, and as a last resort in the courts, with their expertise in matters of contract law.”

This paragraph seems to be a recognition that PERB’s role in bargaining is limited to ensuring the fairness of the process, as opposed to the fairness of the outcome. In short, we (employers and unions) need to take responsibility for our actions and not expect PERB to save us from our mistakes. When mistakes do occur, the proper forum to seek rescission is in the courts who are better equipped to handle such actions. This approach by the Board seems reasonable and fair.

Quite frankly, for consistency sake the Board may want to consider taking this approach with unilateral mistakes as well. After all, the policy arguments advanced by the Board for not recognizing mutual mistakes as triggering a bargaining obligation can apply equally to unilateral mistakes. If a unilateral mistake warrants rescission, why not make the party seeking rescission go to court, just as a party seeking rescission based on a mutual mistake must do. Further, PERB’s continued recognition of unilateral mistakes as potentially reopening bargaining may serve as a loophole to this decision. For example, if this exact case occurs again, what would prevent the Federation from arguing that this was a unilateral mistake, as opposed to a mutual one? It will be interesting to see how this case plays out in the future.