U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES, SOCIAL SECURITY ADMINISTRATION, BALTIMORE, MARYLAND, Petitioner, v. FEDERAL LABOR RELATIONS AUTHORITY, Respondent, American Federation of Government Employees Council 220, Intervenor, 983 F.2d 578

OPINION WILLIAMS, Circuit Judge: The American Federation of Government Employees, Council 220 (Union), brought a grievance against the United States Department of Health and Human Services, Social Security Administration (SSA), alleging unfair labor practices. The Union contended that the Federal Service Labor-Management Relations Statute (Title VII of the Civil Service Reform Act of 1978), 5 U.S.C.A. §§ 7101-35 (West 1980 & Supp. 1992), obligated the SSA to negotiate over a proposed incentive program.

An arbitrator determined that the incentive program was not negotiable because of the SSA’s authority under Title VII to determine its own budget. See id. § 7106(a)(1). The Union appealed to the Federal Labor Relations Authority (FLRA), which determined that the incentive program was negotiable and that the arbitrator had failed to consider impact and implementation arrangements under § 7106(b)(2) and (3). The SSA then petitioned this court for review pursuant to § 7123(a)(1).

We grant the petition for review and reverse the FLRA's determination that Title VII required the SSA to bargain over its incentive program. We affirm, however, the FLRA’s determination that the arbitrator should have considered impact and implementation arrangements under § 7106(b)(2) and (3). I In October 1988, the SSA put into effect a “budget incentive pilot/gainsharing program.” Under this incentive program, money previously budgeted for specific purposes was reallocated as one lump sum for local managers to allocate at their discretion.

Fifty percent of any savings achieved at the work site would be returned to the managers and unit employees in the form of monetary rewards; the remainder would revert to the Social Security Trust Fund. The savings generated each year would be factored into the following year’s budget through revised work factors based on the previous year’s productivity. The SSA announced that the program would be put into effect unilaterally and refused the Union’s request to bargain at the national level.

The Union filed a grievance claiming that the SSA had violated the parties’ national collective bargaining agreement and had committed an unfair labor practice under Title VIL The grievance was submitted to arbitration. The arbitrator denied the grievance, holding that, under this court’s decision in Navy Charleston Naval Shipyard, v. FLRA (Charleston), 885 F.2d 185, 187 (4th Cir.1989), Title VII does not require federal agencies to negotiate over an employee incentive program based on gainsharing.

The arbitrator “was not prepared to conclude ‘that negotiation at the national Component level is warranted with respect to a gainsharing program’ ” such as the SSA had proposed. American Fed'n of Gov’t Employees Council 220, 41 F.L.R.A. (No. 21) 224, 227 (June 13, 1991) (quoting from arbitrator’s ruling). The arbitrator further held that “nothing in this decision is intended to relate in any manner whatsoever to whatever bargaining obligation or grievance rights ... may exist at the local level.” Id.

The FLRA reversed, holding that: (1) the arbitrator's decision was inconsistent with FLRA precedent; and (2) the arbitrator had failed to address the SSA's obligation to bargain over impact and implementation arrangements as required by § 7106(b)(2) & (3) when a federal agency changes an employee’s conditions of employment. Id. at 233. II Title VII grants federal employees the right “to engage in collective bargaining with respect to conditions of employment.” 5 U.S.C.A. § 7102(2). Title VII, however, excludes a number of subjects from negotiation, including several “management rights” enumerated in § 7106.

Specifically, § 7106(

a) provides that “nothing in this

chapter shall affect the authority of any management official of any agency—(1) to determine the ... budget ... of the agency.” In American Fed’n of Gov’t Employees, AFL-CIO, and Air Force Logistics Command, Wright-Patterson Air Force Base, Ohio (Wright-Patterson), 2 F.L.R.A. (No. 77) 604 (Jan. 31, 1980), enf'd on other grounds sub nom. Department of Defense v.

FLRA, 659 F.2d 1140 (D.C.Cir.1981), cert. denied, 455 U.S. 945, 102 S.Ct. 1443, 71 L.Ed.2d 658 (1982), the FLRA developed a two-prong test to determine whether a union proposal interferes with an agency’s authority to determine its own budget under § 7106(a)(1).

Under Wright-Patterson, a government agency need not negotiate over a union proposal if the agency can show that the proposal either (1) “attempt[s] to prescribe the particular programs or operations the agency would include in its budget or to prescribe the amount to be allocated in the budget for them”; or (2) involves “an increase in costs [that] is significant and unavoidable and is not offset by compensating benefits.” Id. at 608.

In the present case, the SSA contends that Title VII does not require it to negotiate over its gainsharing program because negotiation would conflict with its budgetary authority as defined in the first prong of the Wright-Patterson test. Neither party suggests that the second prong of the test applies. FLRA precedent interpreting the first prong of the Wright-Patterson test provides that federal agencies generally must negotiate over gainsharing programs because they involve the distribution of future profits, and therefore do not interfere with budgetary programs that have already been established.

American Fed’n of Gov’t Employees Council 220, 41 F.L.R.A. at 230. In the present case, the FLRA applied its precedent to determine that Title VII obligated the SSA to negotiate over its gainsharing proposal. Id. at 232. In Charleston, however, we specifically disagreed with the FLRA’s application of the first prong of the Wright-Patterson test and held that neither the uncertainty of future profits nor the use of percentages rather than actual dollar amounts lessens the impact on an agency’s budgetary prerogative.

Charleston involved a government shipyard’s profit-sharing plan under which employees would receive 50% of profits, and the remaining 50% would be used to fund capital expenditures. Id. at 186. Following the announcement of the plan, the union proposed that 80% of the profits be allocated to employee incentive bonuses, 10% to employee development, and 10% to capital expenditures. Id. We held that the shipyard did not have to negotiate with the union over the profit-sharing plan because negotiations would interfere with the shipyard’s authority to determine its budget. Id. at 188.

In so holding, we stated: The proposal here at issue admittedly is not phrased in terms of an actual dollar amount. It does, however, specify a percentage of the Shipyard’s profits to be distributed to employees. Once those profits become certain, the Council’s proposal will “ultimately dictate a specific dollar amount.” Union proposals, no matter how artfully crafted to avoid specifying dollar amounts today, nonetheless run afoul of the Wright-Patterson test if, once adopted and implemented, such proposals will have the effect of prescribing the use of agency funds in the future. Id.

In this case, as in Charleston, the percentage of the SSA’s savings to be distributed to its employees will determine the specific allocation of funds to the employees once the savings are realized. Applying Charleston, therefore, we find that Title VII does not require the SSA to negotiate with the Union over the formula used for distributing savings realized through the SSA’s gainsharing program. Ill The FLRA asks us to reexamine our holding in Charleston because of an intervening Supreme Court decision. Specifically, the FLRA points out that the panel in Charleston relied upon Nuclear Regulatory Commission v.

FLRA (NRC), 879 F.2d 1225 (4th Cir.1989) (en banc), vacated sub nom. National Treasury Employees Union v. United States Nuclear Regulatory Comm’n, 496 U.S. 901, 110 S.Ct. 2579, 110 L.Ed.2d 261, on remand, 924 F.2d 1052 (4th Cir.1990) (vacated the FLRA’s bargaining order and remanded to the FLRA with instructions to dismiss the case as moot). The Supreme Court subsequently vacated our judgment in NRC and remanded for reconsideration in light of Fort Stewart Schools v. FLRA, 495 U.S. 641, 110 S.Ct. 2043, 109 L.Ed.2d 659 (1990).

A decision by a panel of this court, or by the court sitting en banc, does not bind subsequent panels if the decision rests on authority that subsequently proves untenable. Faust v. South Carolina State Highway Dep ’t, 721 F.2d 934, 940 (4th Cir.1983), cert. denied, 467 U.S. 1226, 104 S.Ct. 2678, 81 L.Ed.2d 874 (1984); see Busby v. Crown Supply, Inc., 896 F.2d 833, 840-41 (4th Cir.1990). In evaluating the authority of Charleston, we must consider whether the portion of NRC upon which the panel in Charleston relied, namely the

interpretation of the language “to determine the ... budget" in § 7106(a), is consistent with the Supreme Court's opinion in Fort Stewart Schools. In NRC, a union sought to bargain over a salary proposal for automatic cost of living increases. 879 F.2d at 1227. We held that the NRC did not have to bargain on two alternative grounds: (1) compensation was not a “condition[ ] of employment” under 5 U.S.C.A. § 7102(2); and (2) bargaining over the union’s salary proposal would “interfere with the agency’s right to determine its own budget” under 5 U.S.C.A. § 7106(a)(1). NRC, 879 F.2d at 1228, 1231.

On the second point, we reasoned that: Although the union’s salary proposal does not prescribe a specific dollar amount, it does provide a formula which ultimately will dictate a specific dollar amount to be allocated in the NRC’s budget each time the Advisory Committee on Federal pay recommends a cost-of-living adjustment to Congress and the President. ... The union’s salary proposal would thus clearly “affect” the NRC’s authority to determine its own budget and is therefore nonnegotiable. Id. at 1232.

Although we did not explicitly mention Wright-Patterson in NRC, the discussion clearly relates to the first prong of the Wright-Patterson test. In contrast to our en banc decision in NRC, the Supreme Court in Fort Stewart Schools held that “conditions of employment” includes compensation. 495 U.S. at 647, 110 S.Ct. at 2047. The Court also held that, because the federal agency failed to prove that the compensation proposal would cause significant and unavoidable increases in cost, it had not satisfied the second prong of the Wright-Patterson test. Id. at 653, 110 S.Ct. at 2050.

The Court expressly noted that the agency had not based its challenge to the union proposal in Fort Stewart Schools on the first prong of the Wright-Patterson test. Id. at 651, 110 S.Ct. at 2049. That prong of the test, therefore, was not an issue before the Court. Moreover, because neither party challenged the standard set out in the second prong of the Wright-Patterson test, the Supreme Court expressly limited its decision to finding that the agency had failed to meet its burden of proof. Id. at 653 & n. 3, 110 S.Ct. at 2050 & n. 3. While Fort Stewart Schools clearly overruled our

interpretation of “conditions of employment,” it did not challenge our application of the first prong of the Wright-Patterson test in NRC. Thus, that portion of NRC germane to our decision in Charleston, and to our decision here, is not inconsistent with the Supreme Court’s decision in Fort Stewart Schools. The FLRA nevertheless urges us not to follow NRC (and, by extension, Charleston ) because of the Supreme Court’s vaca-tur of our judgment. We have reexamined NRC and continue to find its reasoning persuasive. Because we adhere to our

interpretation in NRC of § 7106(a)(1), we find no reason to reexamine our holding in Charleston. IV The SSA also challenges the FLRA’s determination that the arbitration award was deficient because “the Arbitrator failed to address the obligation to bargain over procedures and appropriate arrangements under

section 7106(b)(2) and (3) when an agency changes conditions of employment that constitutes [sic] the exercise of a management right.” 41 F.L.R.A. at 233. Such arrangements are normally termed “impact and implementation arrangements.” See American Fed’n of Gov’t Employees, Local 2441 v. FLRA, 864 F.2d 178, 183 n. 5 (D.C.Cir.1988) (identifying “impact and implementation” as a term of art). We will only set aside the FLRA’s determination if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” 5 U.S.C.A. § 7123(c) (incorporating 5 U.S.C. § 706(2)(A) (1988)).

The SSA argues that while changes at the local level may require bargaining under § 7106(b), no generalizations regarding the need for bargaining can be made on the national level. Bargaining over impact or implementation arrangements at the national level would therefore serve no purpose. Until implementation proposals are made at the local level, the need for bargaining cannot be addressed. Although the SSA may well be correct, the FLRA has not disagreed with the SSA’s position.

It merely held that the arbitrator had failed to address squarely whether the national or local level is appropriate for bargaining over implementation. Without further development of the record, it is impossible to determine whether the SSA is correct. In these circumstances, we cannot fault the FLRA for finding the arbitration award deficient. V In

summary, we grant the SSA’s petition for review. We reverse the FLRA and find that the formula the SSA uses to distribute savings realized through its gainsharing program falls within the SSA’s authority to determine its own budget under 5 U.S.C.A. § 7106(a)(1). We affirm, however, the FLRA’s determination that the arbitration award was deficient because the arbitrator failed to consider impact and implementation issues and grant enforcement of that part of the FLRA’s order. ENFORCEMENT GRANTED IN PART AND DENIED IN PART .

"Gainsharing" is usually used to describe profit-sharing incentive plans used in private industry. See Daniel J.B. Mitchell, Inflation, Unemployment and the Wagner Act: A Critical Reappraisal, 38 Stan.L.Rev. 1065, 1087-89 (1986). The SSA proposal extends this concept to incentive programs used to generate savings in bureaucratic overhead. . Because we adopt NRC’s reasoning, we do not address the extent, if any, to which NRC continues to have precedential weight. Compare Harris v.

Board of Governors, 938 F.2d 720, 723 (7th Cir.1991) (vacatur due to mootness on subsequent appeal does not destroy precedential weight of court’s opinion) with Ridley v. McCall, 496 F.2d 213, 214 (5th Cir.1974) (vacatur destroys precedential value of court’s opinion). .

Section 7106(

b) provides in pertinent part: Nothing in this

section shall preclude any agency and any labor organization from negotiating— (2) procedures which management officials of the agency will observe in exercising any authority under this section; or (3) appropriate arrangements for employees adversely affected by the exercise of any authority under this

section by such management officials.