National Federation of Federal Employees, Local 1442 v. Department of the Army (810 F.3d 1272, 2015)

SCHALL, Circuit Judge.

These related cases are appeals from arbitrators’ decisions denying grievances filed by locals of the National Federation of Federal Employees (“NFFE” or “Union”). In the first appeal, Nat’l Fed’n of Fed. Emps., Local 1442 v. Dep’t of the Army, No. 2014-3175 (“Appeal 3175”), NFFE Local 1442 filed a group grievance on behalf of 138 NFFE bargaining unit employees at Letterkenny Army Depot (“LEAD”) in Chambersburg, Pennsylvania. In the second appeal, Nat’l Fed’n of Fed. Emps., Local 2109 v. Watervliet Arsenal, No. 2014-3189 (“Appeal 3189”), NFFE Local 2109 filed two grievances on behalf of all of NFFE’s bargaining unit employees at Watervliet Arsenal (“WVA”) in Watervliet, New York. In both the LEAD and WVA grievances, the Union challenged the furloughing of bargaining unit employees for six discontinuous days between July and September in Fiscal Year 2013. The furloughs were the result of an automatic process of federal agency spending reductions known as “sequestration.”

On June 13, 2014, Arbitrator Roger P. Kaplan ruled that the furloughs of the specified bargaining unit employees at LEAD were in accordance with law. He therefore denied the grievance filed by the Union on their behalf. Nat’l Fed’n of Fed. Emps., Local 1442 v. Dep’t of the Army, FMCS Case No. 14-00370-1 (June 13, 2014) (“LEAD Opinion”). On July 7, 2014, Arbitrator James A. Gross ruled that the furloughs of bargaining unit security employees at WVA were not in accordance with law. He therefore sustained the grievance filed by the Union on their behalf. Arbitrator Gross also ruled, however, that the furloughs of non-security bargaining unit employees at WVA were in accordance with law. He therefore denied the grievance filed by the Union on behalf of those employees. Natl Fed’n of Fed. Emps., Local 2109 v. Watervliet Arsenal, FMCS Case No. [ AXX-XXXXX-X ] (July 7, 2014) (“WVA Opinion ”).

In Appeal 3175, the Union appeals Arbitrator Kaplan’s decision denying the group grievance it filed on behalf of 138 bargaining unit employees at LEAD. In Appeal 3189, the Union appeals Arbitrator Gross’s decision denying the grievance it filed on behalf of non-security bargaining unit employees at WVA. In this opinion, we treat the arguments made in the two appeals conjointly. For the reasons set forth below, we affirm the decisions of the arbitrators in both appeals.

Background

I.

LEAD serves as a maintenance depot, primarily performing maintenance on tactical missiles and ammunition. LEAD Joint Appendix (“J.A.”) 256. It is subordinate to the Army’s Aviation and Missile Command Life Cycle Management Command, which reports to the Army Materiel Command. LEAD Op. at 5. WVA is subordinate to the Army’s Tank Automotive Command (“TACOM”) Life Cycle Manage ment Command, which also reports to the Army Materiel Command. WVA supports the Life Cycle Management Command’s responsibility for the development, acquisition, logistical support, and materiel readiness of the Army’s tank automotive, and armament systems. WVA Op. at 11; WVA J.A. 456, 462.

Both LEAD and WVA are Army Working Capital Fund (“AWCF”) entities. Working capital funds (‘WCF”) were established by Congress under 10 U.S.C. § 2208 to help control and account for the cost of programs and work performed within the Department of Defense (“DOD”). See 10 U.S.C. § 2208(a); WVA J.A. 410. WCFs are created and controlled by the Office of the Secretary of Defense. 10 U.S.C. § 2208(a), (b), (e). The AWCF is shared by two activity groups: Industrial Operations and Supply Management. WVA J.A. 411. Both LEAD and WVA are Industrial Operations activities under the AWCF.

The primary customers of WCF entities are other DOD entities that transfer their own congressionally-appropriated funds to make “purchases” from WCFs. See id. 409-10. Thus, DOD entities are both the customer and the service-provider, with appropriated funds from the ordering entity’s account being transferred to the WCF’s account. In that way, after receiving initial working capital through appropriation, WCF entities are self-supporting and function from the fees charged for the services they provide.

Appropriated funds flow from a DOD customer to a WCF entity as work is performed by the WCF entity. Id. 410. When work is ordered from WCF entities and the work is funded (i.e., funds have been “obligated” for the work), but the work is not completed by the end of the fiscal year, the obligated funds are kept by the WCF entity as “carryover.” Id. 466-467; DOD Financial Management Regulation, Vol. 2B, Chapter 9, 090207 (defining “carryover” as the “dollar value of work that has been ordered and funded (obligated) by customers ..., but not yet completed by [Defense Working Capital Fund] activities ... at the end of the fiscal year”). Obligated funds can be de-obligat-ed by a customer, even in the middle of a WCF entity’s performance of ordered work. E.g., WVA J.A. 107-08 at 86:15-87:25; LEAD J.A. 74 at 152:2-10.

Finally, DOD may transfer money in and out of WCF accounts to meet other needs. See 10 U.S.C. § 2208(r). Pursuant to § 2208(r)(l), however, a transfer of funds from a WCF, including a transfer of funds to another WCF, requires the Secretary of Defense to submit to the appropriate congressional committees, in advance, notification of the proposed transfer. '

II.

The sequestration of federal funds in Fiscal Year 2013 forms the backdrop for these appeals. On March 1, 2013, as a result of testimony regarding the “flexibility” that the furloughs provided was presented in the arbitration hearing relating to the WVA furloughs. WVA J.A. 106, 108. Further, in a September 16, 2013, declaration, Under Secretary of Defense Hale explained that, during Fiscal Year 2013, DOD had sought permission from Congress to reprogram funds, and that it had exercised its own authority as well to reallocate funds to support priority activities. Id. 393-95.

We, like the arbitrators, must base our review of the agency’s decision on the circumstances it faced when the furlough decisions were made, and not on events that did or did not occur at a later date. E.g., Clerman v. Interstate Commerce Comm’n, 35 M.S.P.R. 190, 194 (1987) (an agency’s decision to release employees by reduction in force is judged based on the agency’s ceilings when the actions were taken). From that perspective, in the period immediately after March 1, 2013, it was reasonable for DOD to determine that savings from furloughing WCF employees would be part of an overall effort to reduce expenditures in the face of decreased funding resulting from budget reductions. We therefore conclude that Arbitrators Kaplan and Gross had substantial evidence before them demonstrating that the furlough decisions were reasonable management solutions to the financial restrictions placed on DOD by the sequester, thus promoting the efficiency of the service.

We find unpersuasive NFFE’s argument that the fact that no LEAD or WVA employees were furloughed during the government shutdown that occurred in October 2013, Fiscal Year 2014, demonstrates that the furloughs in Fiscal Year 2013 were unreasonable and unnecessary. The Union argues that, if, as the Army and WVA urge, LEAD and WVA are properly viewed as under the umbrella of DOD rather than as independent entities, then they necessarily should have been. adversely impacted and required to lay off employees when Congress did not enact DOD’s annual appropriations bill for Fiscal Year 2014. NFFE reasons that, if appropriated money really could have been saved through furloughs in Fiscal Year 2013, then layoffs during the shutdown in Fiscal Year 2014 necessarily should have taken place also.

The fact that no LEAD or WVA employees were laid off in October 2013 does not undermine the arbitrators’ findings that the furloughs at LEAD and WVA, in Fiscal Year 2013, promoted the efficiency of the service. NFFE’s argument ignores that it was reasonable for DOD to base its furlough decisions at LEAD and WVA on the situation that existed on May 14, 2013, when, in the face of President Obama’s sequestration order, Defense Secretary Hagel ordered the furloughs that are at issue. See Cross v. Dep’t of Transp., 127 F.3d 1443, 1447-48 (Fed.Cir.1997) (finding that “[conducting a [reduction in force (“RIF”)] because of an anticipated shortage of funds does not require that the shortage exist at the time of the RIF” and that whether an agency “reasonably anticipated a budgetary shortfall” is a question of fact based on credibility determinations). NFFE’s argument also ignores the fact that LEAD and WVA were able to continue operating during the shutdown in Fiscal Year 2014 because they had sufficient funds due to the fact that, as explained above, they were authorized to carry over funds from Fiscal Year 2013. See WVA J.A. 466-67. NFFE’s argument thus fails.

Finally, our holding today is consistent with this court’s recent decision in Einboden v. Department of the Navy, 802 F.3d 1321 (Fed.Cir.2015). Einboden involved an appeal by a civilian employee of the Navy from a decision of the Board affirming the action of the Navy furloughing him for six days in July and August 2013 pursuant to the sequester. Mr. Einboden, who worked at a Navy WCF entity, argued that the government could not show that his furlough promoted the efficiency of the service because the WCF at which he worked never suffered a budgetary shortfall. In affirming the Board’s decision, we left undisturbed the Board’s finding that, “although [the WCF entity at which Mr. Einboden worked] may have had adequate funding to avoid a furlough ..., it was reasonable for DOD to consider its budget situation holistically, rather than isolating the situation of each individual Navy organization or component.” Einboden, 122 M.S.P.R. at 309. In addition, we rejected the proposition that the Navy was “required to show actual reprogramming of the funds saved by [the] furlough” in order to meet the efficiency of the service standard. Einboden, 802 F.3d at 1325. We also rejected the notion that “subsequent,” “ameliorating]” events could undermine the reasonableness of a managerial decision based on a prospective budgetary shortfall. Id.

Conclusion

For the foregoing reasons, we hold that' Arbitrator Kaplan, in Appeal 3175, and Arbitrator Gross, in Appeal 3189, did not err in finding that the furloughs of bargaining unit employees at LEAD and WVA in Fiscal Year 2013 due to sequestration promoted the efficiency of the service and were in accordance with law. We therefore affirm the arbitrator’s decision in Appeal 3175 and the arbitrator’s decision in Appeal 3189.

AFFIRMED.

Costs

Each party shall bear its own costs.

. The Budget Control Act and the Taxpayer Relief Act made amendments to the Balanced Budget and Emergency Deficit Control Act of 1985, Pub. L. No. 99-177, 99 Stat. 1038, which is codified in pertinent part at 2 U.S.C. § 901 et seq. The amendments established spending limits for agencies of the federal government and required automatic “sequestration” under certain statutory conditions. See generally 2 U.S.C. §§ 901-903. The Taxpayer Relief Act required the President to issue a sequestration order on March 1, 2013, in the middle of Fiscal Year 2013. 126 Stat. at 2370. On that date, President Obama issued a sequestration order requiring reductions in spending from most federal budget accounts for Fiscal Year 2013. Sequestration Order, 78 Fed. Reg. 14,633 (Mar. 1, 2013).

. " ‘Furlough’ means the placing of an employee in a temporary status without duties and pay because of lack of work or funds or other nondisciplinary reasons.” 5 U.S.C. § 7511(a)(5).

. On August 6, 2013, Defense Secretary Hagel reduced the number of furlough days for most DOD civilians from eleven to six. WVA J.A. 383.

. In our recent decision in Vassallo v. Department of Defense, 797 F.3d 1327 (Fed.Cir.2015), we addressed whether the word "agency” in 5 U.S.C. § 3304(f)(1), a provision of the Veterans Employment Opportunities Act of 1998, Pub. L. No. 105-339, 112 Stat. 3182 ("VEOA”), means “Executive Agency.” In Vassallo, the government argued that "agency” in § 3304(f)(1) refers to DOD, and not a subcomponent or sub-agency of DOD. We found the statutory scheme of the VEOA ambiguous on the question. We resolved the issue by deferring to the Office of Personnel Management’s definition of “agency” in 5 C.F.R. § 315.611(b) for purposes of § 3304(f)(1). That regulation defines “agency” to mean “executive agency as defined in 5 U.S.C. [§ ] 105.” Vassallo, 797 F.3d at 1331 (quoting 5 C.F.R. § 315.611(b)). We have no interpretation of “agency” in § 7513(a) to defer to here. Our decision is nonetheless consistent .with the result in Vassallo.

. In resolving cases involving employees furloughed during sequestration, the Board has issued a series of precedential and non-prece-dential opinions following the same rationale as in Yee. See, e.g., Einboden v. Dep’t of the Navy, 122 M.S.P.R. 302 (2015), aff'd, 802 F.3d 1321 (Fed.Cir.2015); Furtek v. Dep’t of the Navy, No. SF-0752-13-2167-I-1, 2015 WL 3830294 (M.S.P.B. June 22, 2015) (unpublished); AR Fort Leavenworth, KS v. Dep’t of Army, No. DE-0752-13-1962-I-1, 2015 WL 3794440 (M.S.P.B. June 18, 2015) (unpublished); Office of the Sec'y v. Dep’t of Def., No. DC-0752-14-0624-1-1, 2015 WL 1655544 (M.S.P.B. Apr. 14, 2015) (unpublished); Will v. Dep’t of the Navy, No. DC-0752-13-4673-1-1, 2015 WL 1284270 (M.S.P.B. Mar. 20, 2015) (unpublished); Moser v. Dep’t of the Navy, No. DC-0752-13-2643-1-1, 2015 WL 892796 (M.S.P.B. Mar. 3, 2015) (unpublished).