 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT




Argued November 7, 2013              Decided January 3, 2014

                       No. 12-1456

      UNITED STATES DEPARTMENT OF THE TREASURY
               INTERNAL REVENUE SERVICE
       OFFICE OF CHIEF COUNSEL WASHINGTON D.C.,
                       PETITIONER

                             v.

          FEDERAL LABOR RELATIONS AUTHORITY,
                     RESPONDENT

         NATIONAL TREASURY EMPLOYEES UNION,
                     INTERVENOR



                Consolidated with 13-1066



     On Petition for Review and Cross-Application for
    Enforcement of a Final Decision of the Federal Labor
                    Relations Authority


   Howard S. Scher, Attorney, U.S. Department of Justice,
argued the cause for petitioner. With him on the briefs were
                             2
Stuart F. Delery, Principal Assistant Deputy Attorney
General, and Leonard Schaitman, Attorney.

   Zachary R. Henige, Attorney, Federal Labor Relations
Authority, argued the cause for respondent. On the brief was
Rosa M. Koppel, Solicitor. David Shewchuk, Deputy Solicitor,
Federal Labor Relations Authority, entered an appearance.

   Peyton H. N. Lawrimore argued the cause for intervenor
National Treasury Employees Union. With her on the brief
were Gregory O=Duden and Larry J. Adkins.

    Matthew W. Milledge, David A. Borer, and Andres M.
Grajales were on the brief for amicus curiae American
Federation of Government Employees, AFL-CIO in support
of respondent.

   Before: TATEL and KAVANAUGH, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.

    Opinion for the Court filed by Circuit Judge TATEL.

     TATEL, Circuit Judge: Section 7106(b)(3) of the Federal
Service Labor Management Relations Statute (FSLMRS), 5
U.S.C. § 7101 et seq., provides that collective bargaining
agreements reached between federal agencies and their
employees’ bargaining representatives may contain provisions
that, although interfering with certain managerial
prerogatives, constitute “appropriate arrangements for
employees adversely affected by the exercise” of such
management rights. 5 U.S.C. § 7106(b)(3). In determining
whether a given “arrangement[]” is “appropriate,” the Federal
Labor Relations Authority (“the Authority”)—which is
charged with administering the FSLMRS—has, depending on
how the issue comes before it, applied two different
                               3
substantive tests that might yield different results for the very
same arrangement. As explained in this opinion, by adopting
two inconsistent interpretations of the same statutory
language, the Authority has acted arbitrarily and capriciously.

                               I.
     The FSLMRS establishes the framework governing
labor-management relations in the federal government. The
statute requires federal agencies and labor organizations
representing their employees to “meet and negotiate in good
faith for the purposes of arriving at a collective bargaining
agreement,” 5 U.S.C. § 7114(a)(4), and sets forth various
requirements for both the bargaining process and the content
of any agreement.

     At issue here is section 7106 of the Act. Section 7106(a)
provides: “Subject to subsection (b) of this section, nothing in
[the FSLMRS] shall affect the authority of any management
official of any agency” to exercise certain management rights,
which include the authority to “hire, assign, direct, layoff, and
retain employees in the agency, or to suspend, remove, reduce
in grade or pay, or take other disciplinary action against such
employees,” id. § 7106(a)(2)(A), and “to assign work, to
make determinations with respect to contracting out, and to
determine the personnel by which agency operations shall be
conducted,” id. § 7106(a)(2)(B). Section 7106(b), in turn,
provides in relevant part that “[n]othing in this section shall
preclude any agency and any labor organization from
negotiating,” among other things, “appropriate arrangements
for employees adversely affected by the exercise of any
authority under this section by such management officials.”
Id. § 7106(b), (b)(3).

   We addressed the interaction between sections 7106(a)
and 7106(b)(3) in American Federation of Government
                              4
Employees, Local 2782 v. FLRA, 702 F.2d 1183 (D.C. Cir.
1983) (“AFGE I”). There the Authority had held that any
“arrangement” that interferes with the management rights set
forth in section 7106(a) was necessarily not “appropriate”
within the meaning of section 7106(b)(3). See id. at 1185–86.
Rejecting this reading, we explained that section 7106(b)(3)
establishes “an exception to the otherwise governing
management prerogative requirements of subsection (a).” Id.
at 1187. Thus, the provision contemplates that the
management rights set forth in section 7106(a) will give way,
to some extent, to “appropriate arrangements” for adversely
affected employees. See id. Finding that an arrangement is
inappropriate simply because it interferes with the enumerated
management rights would, we concluded, render the section
7106(b)(3) exception entirely meaningless. See id. at 1188.
We observed, however, that “some arrangements may be
inappropriate because they impinge upon management
prerogatives to an excessive degree,” and we declined to
“speculate as to what the word ‘appropriate’ may lawfully be
interpreted to exclude.” Id.

     Significantly for the issue before us, questions regarding
section 7106’s application may come before the Authority in
at least three ways. First, an agency may assert during
collective bargaining that a particular union proposal falls
outside the agency’s duty to bargain because it would
contravene section 7106. Agencies are not required to bargain
over all issues relating to conditions of employment, but may
instead declare a particular union proposal to be
“nonnegotiable” if, for example, the proposal would be
“inconsistent with any ‘Federal law or any government-wide
rule or regulation.’” American Federation of Government
Employees v. FLRA, 778 F.2d 850, 852 (D.C. Cir. 1985)
(“AFGE II”) (quoting 5 U.S.C. § 7117(a)(1)). The union may
seek expedited review of such nonnegotiability
                               5
determinations before the Authority. See 5 U.S.C. § 7117(c).
Second, any agreement ultimately reached between the
agency’s bargaining representatives and the union is “subject
to approval by the head of the agency,” id. § 7114(c)(1), with
such approval required “if the agreement is in accordance
with the provisions of [the FSLMRS] and any other
applicable law, rule, or regulation,” id. § 7114(c)(2). An
agency head may reject a provision on the ground that it
contravenes section 7106, a decision the union may then
appeal to the Authority. See id. § 7105(a)(2)(E). Third, an
agency might take exception to a provision imposed in
arbitration, asserting before the Authority that the arbiter’s
award violates section 7106. See id. § 7122(a)(1).

     In a series of decisions, the Authority has delineated the
substantive tests it will use in each of these three sorts of
appeals to determine what constitutes a section 7106(b)(3)
“appropriate arrangement[].” Following our decision in AFGE
I, the Authority first addressed the issue in National Ass’n of
Government Employees, Local R14-87, 21 F.L.R.A. 24 (1986)
(“KANG”), a case that arose in the context of an agency
head’s determination under section 7114(c) that a collective
bargaining provision was impermissible. See id. at 24. The
Authority adopted what it characterized as the “excessive
interference test enunciated” in AFGE I, holding:

     In this and future cases where the Authority
     addresses a management allegation that a union
     proposal        of   appropriate     arrangements     is
     nonnegotiable because it conflicts with management
     rights . . . , the Authority will consider whether such
     an arrangement is appropriate for negotiation within
     the meaning of section 7106(b)(3) or[] whether it is
     inappropriate because it excessively interferes with
     the exercise of management’s rights.
                               6

Id. at 30–31. The Authority went on to describe the factors it
would consider in evaluating whether a given arrangement
“excessively interferes,” among them whether the “negative
impact on management’s rights [is] disproportionate to the
benefits to be derived from the proposed arrangement.” Id. at
31–33.

     Soon thereafter, the Authority applied the same
“excessive interference” test in a case that arose in the context
of a union’s appeal from an agency declaration during
collective bargaining that a particular proposal was
nonnegotiable. See American Federation of Government
Employees, Local 1923, 21 F.L.R.A. 178, 186 & n.2 (1986)
(“Local 1923”).

     But the Authority has treated somewhat differently
agency claims that a provision in an arbitrator’s award
impermissibly interferes with management rights and should
be set aside as “contrary to . . . law” pursuant to section
7122(a)(1). Although initially applying the “excessive
interference” test in such cases, see Washington Plate
Printers Union Local No. 2, 31 F.L.R.A. 1250, 1256 (1988),
the Authority later changed course, holding that only when an
award “abrogates” a management right—which occurs when
the award “precludes an agency from exercising” the right—
would the Authority grant the agency relief, Department of
the Treasury, U.S. Customs Service, 37 F.L.R.A. 309, 314
(1990). After some further oscillation, see Department of
Justice, Federal Bureau of Prisons, 58 F.L.R.A. 109, 110
(2002) (returning to the “excessive interference” test), the
Authority eventually settled on this “abrogation” standard, see
U.S. EPA, 65 F.L.R.A. 113, 116–17 (2010) (“EPA”).
                              7
     Then, overruling its prior decision in KANG, the
Authority extended this “abrogation” test to appeals brought
when an agency head disapproves a provision under section
7114(c). See National Treasury Employees Union, 65
F.L.R.A. 509, 512 (2011) (“NTEU I”). The Authority made
clear, however, that it would continue to apply the “excessive
interference” standard when, during bargaining, an agency
asserts that a proposal is nonnegotiable. Id. at 512 n.4.
Member Beck dissented, contending, among other things, that
the Authority had no basis for holding that “the same proposal
that is legally invalid if it ‘excessively interferes’ with
management rights at the bargaining table magically becomes
valid and binding when it lands on the agency head’s desk.”
Id. at 519 (Beck, M., dissenting). The Department of the
Treasury, petitioner here, sought review, but we dismissed the
case for lack of jurisdiction because Treasury had failed to
properly present its arguments to the Authority. See
Department of the Treasury v. FLRA, 670 F.3d 1315, 1316
(D.C. Cir. 2012).

     This case arose after the IRS Office of Chief Counsel—a
component of Treasury—and the National Treasury
Employees Union renegotiated their collective bargaining
agreement. Reviewing the agreement pursuant to section
7114(c), the agency head found eight provisions contrary to
law. The only provision still at issue here governs sick leave.
The agency head contended that this provision—whose
details are unimportant to the issue before us—impermissibly
interfered with management’s right to discipline employees.
See 5 U.S.C. § 7106(a)(2)(A).

    On appeal, the Authority found in favor of the union,
ordering Treasury to rescind its disapproval of the sick leave
provision. National Treasury Employees Union, 66 F.L.R.A.
809, 813 (2012) (“NTEU II”). The Authority agreed with the
                                8
agency that the provision affected the management right to
discipline secured by section 7106(a). Id. at 812. But applying
its newly-adopted “abrogation” standard—and rejecting
Treasury’s argument that it should return to the “excessive-
interference” standard, id. at 812 n.8—the Authority
concluded that the provision was an “appropriate arrangement
under § 7106(b)(3),” id. at 813. It reasoned that the “provision
merely limits the circumstances in which management may
exercise its right to discipline; it does not preclude the Agency
from exercising that right.” Id. at 812. It rebuffed Treasury’s
reliance on two prior Authority decisions, National
Federation of Federal Employees, Local 858, 42 F.L.R.A.
1169 (1991), and American Federation of Government
Employees, Local 1156, 42 F.L.R.A. 1157 (1991), which had
found that similar sick leave provisions were not “appropriate
arrangements,” explaining that in those cases it had “applied
an excessive-interference standard, rather than an abrogation
standard.” NTEU II, 66 F.L.R.A. at 812. Member Beck again
dissented for the reasons given in his NTEU I dissent. Id. at
815–16 (Beck, M., dissenting).

                               II.
      Treasury now petitions for review, contending that the
Authority’s decision to continue applying two different legal
standards in assessing whether a section 7106(b)(3)
“arrangement[]” is “appropriate” is arbitrary and capricious
within the meaning of the Administrative Procedure Act. See
5 U.S.C. § 706(2)(A) (an agency decision may be set aside if
it is “arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law”); see also id. § 7123(c) (adopting
section 706’s arbitrary and capricious standard for judicial
review of FLRA decisions). Although we generally defer to
the Authority’s reading of the FSLMRS, see Chevron, U.S.A.,
Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837, 842–43 (1984), under the arbitrary and capricious
                               9
standard, we may affirm the Authority’s interpretation and
application of its governing statute only if it has “provide[d] a
rational explanation for its decision.” Ass’n of Civilian
Technicians, Puerto Rico Army Chapter v. FLRA, 370 F.3d
1214, 1220 (D.C. Cir. 2004) (internal quotation marks
omitted). Here, the Authority has failed to satisfy that
obligation.

     In deciding to apply an “abrogation” standard in some
circumstances and an “excessive interference” standard in
others, the Authority invoked nothing in section 7106(b)(3)’s
text. Instead, it concluded that using these different standards
was justified by the distinction between, on the one hand, the
text of the statutory provisions governing agency-head review
of collective bargaining agreements and agency challenges to
arbitration awards, and, on the other hand, the text of the
provision governing an agency’s power to declare a union
proposal nonnegotiable during collective bargaining. See
NTEU I, 65 F.L.R.A. at 512–13. Specifically, both section
7114(c)(2), governing agency-head review, and section
7122(a)(1), governing exceptions to arbitration awards, are
phrased in terms of a provision’s consistency with law. See 5
U.S.C. § 7114(c)(2) (agency head “shall approve” agreement
reached by collective bargaining representatives if “the
agreement is in accordance with the provisions of [the
FSLMRS] and any other applicable law, rule, or regulation”);
id. § 7122(a)(1) (FLRA may set aside arbitration award if it is
“contrary to any law, rule, or regulation”). By contrast,
section 7117(c), which governs an agency’s authority to
refuse to bargain over a proposed provision, speaks in terms
of the agency’s “duty to bargain,” not the provision’s legality.
The language of these subsections, the Authority reasoned,
demonstrates that “the mere fact that a proposal is outside the
duty to bargain does not mean that it is contrary to law, rule,
or regulation.” NTEU I, 65 F.L.R.A. at 512. That distinction,
                               10
the Authority continued, in turn justifies applying two
different standards when evaluating whether an arrangement
qualifies as “appropriate” under 7106(b)(3). See id. at 512–13.

     It is true, as the Authority asserts, that certain provisions
that fall outside the duty to bargain would not, if agreed to, be
contrary to law. The Authority generally designates such
matters as “permissive” subjects of bargaining. See NTEU I,
65 F.L.R.A. at 512; EPA, 65 F.L.R.A. at 119 n.12. Thus, for
example, an agency has no obligation to bargain over
proposals relating to the conditions of supervisors’
employment because the duty to bargain extends only to
bargaining unit employees’ conditions of employment, and
supervisors are outside the bargaining unit. See International
Ass’n of Fire Fighters Local F-61, 3 F.L.R.A. 437, 444–45
(1980). But because nothing in the statute prohibits the
agency from negotiating over such matters, the Authority has
held that an agency nonetheless may engage in collective
bargaining regarding the conditions of supervisory
employment if it so chooses. See American Federation of
Government Employees Local 3302, 52 F.L.R.A. 677, 681–82
(1996); but see U.S. Department of Navy v. FLRA, 952 F.2d
1434, 1441 (D.C. Cir. 1992) (suggesting that permitting the
“union to seek to regulate, through collective bargaining, the
conditions of employment of employees in other bargaining
units and management personnel (who are excluded by the
FSLMRS from membership in any bargaining unit) . . . is
flatly at odds with both the FSLMRS and the [National Labor
Relations Act]”). Likewise, section 7106(b)(1) expressly
identifies certain matters that, although interfering with
section 7106(a) management rights, may nonetheless be
negotiated “at the election of the agency.” 5 U.S.C.
§ 7106(b)(1). Accordingly, an agency’s bargaining
representatives could elect to negotiate over and agree to a
proposal regarding matters set forth in section 7106(b)(1) that,
                              11
while outside the duty to bargain, would nonetheless be
consistent with federal law.

     But the foregoing is beside the point because the
distinction between mandatory and permissive subjects of
bargaining has nothing to do with section 7106(b)(3). That is,
a proposed section 7106(b)(3) arrangement that falls outside
the agency’s duty to bargain does so precisely because it is
contrary to law, as the Authority appeared to acknowledge
when it first adopted the “excessive interference” test. See
Local 1923, 21 F.L.R.A. at 186–88; KANG, 21 F.L.R.A. at
29–30. Thus, any time the agency’s bargaining
representatives could properly refuse to negotiate over a
proposal because it does not qualify as a section 7106(b)(3)
“appropriate arrangement[],” that proposal will be contrary to
law and rejectable by the agency head for precisely the same
reason.

     That this is so follows directly from section 7106’s text
and structure. Section 7106(a) establishes certain management
rights, and provides that nothing in the FSLMRS will affect
those rights. Section 7106(b)(3) sets forth an exception to
section 7106(a)’s mandate, so that, if a proposal constitutes a
section 7106(b)(3) “appropriate arrangement[],” it does not
violate section 7106(a) and is thus consistent with federal law.
See AFGE I, 702 F.2d at 1187. The agency then must
negotiate over such a proposal. See National Ass’n of
Government Employees, Local R14-87, 21 F.L.R.A. 313,
317–18 (1986). If, however, the arrangement is inappropriate,
the section 7106(b)(3) exception is inapplicable, and, unless
another exception applies, the proposal violates section
7106(a) and is thus both contrary to law and outside the
agency’s duty to bargain. As the Authority explained in NLRB
Union Local 21, 36 F.L.R.A. 853 (1990), in rejecting the
                              12
argument that an agency had waived its claim that a provision
violated section 7106(a):

     [T]he proposal concerns the exercise of
     management’s right under section 7106(a)(1) of the
     Statute, rather than under section 7106(b)(1).
     Therefore, the issues of “election” and “waiver” that
     would be involved if the proposal concerned a
     permissive matter under section 7106(b)(1) do not
     arise. A reserved management right under section
     7106(a)(1) cannot be waived by collective
     bargaining.

Id. at 860. The same reasoning applies here. Unlike section
7106(b)(1), section 7106(b)(3) is all or nothing—it gives the
agency no discretion to “elect” to address certain subjects
during collective bargaining. Instead, it draws a line between
what is and is not permissible under section 7106(a), and thus
what is and is not consistent with law.

     Neither in its decisions adopting the abrogation standard
nor in its briefing before this court does the Authority address
this basic point. In NTEU I, after discussing at some length
the fairly noncontroversial proposition that some subjects
outside the duty to bargain might nonetheless be consistent
with law, the Authority relied on its prior decision in EPA for
the key proposition that this distinction was somehow relevant
to section 7106(b)(3) specifically. See NTEU I, 65 F.L.R.A. at
512–13. The EPA decision simply summarized the two
examples of permissive subjects of bargaining discussed
above, then stated: “No basis is provided to conclude that the
situation is any different when management rights under
§ 7106(a) are involved.” EPA, 65 F.L.R.A. at 118. The
“basis” for such a difference, however, is clear: unlike section
7106(b)(1), or the provisions governing conditions of
                              13
supervisory employment, sections 7106(a) and 7106(b)(3)
leave no room for agency representatives to reach agreements
on terms outside the scope of the duty to bargain but within
the range of lawful provisions.

     Here, for the first time the Authority addresses section
7106(b)(3)’s language, arguing that what is “appropriate” may
“vary[] depending on the circumstances.” Respondent’s
Br. 27. But the “circumstances” relevant to determining
whether an arrangement is “appropriate” within the meaning
of section 7106(b)(3) are those governing how, in a particular
agency, the arrangement will affect the exercise of the
management rights listed in section 7106(a), not how the issue
comes before the Authority. The Authority’s current
interpretation of the statute could, as it concedes, mean that
the propriety of two identical provisions, each affecting the
exercise of management rights in precisely the same way,
would rise or fall on the point at which the agency asserts the
arrangement is inappropriate. Section 7106(b)(3) provides no
basis for this sort of “magical[]” transformation, as Member
Beck put it. NTEU I, 65 F.L.R.A. at 519 (Beck, M.,
dissenting). If it is a “normal rule of statutory construction
that identical words used in different parts of the same act are
intended to have the same meaning,” Commissioner v. Lundy,
516 U.S. 235, 250 (1996) (internal quotation marks omitted),
then a word that Congress uses only once in a statute certainly
cannot have more than one meaning.

     The Authority also argues that its differing substantive
standards are justified by the differing degrees of deference
owed to agency heads and agency bargaining representatives.
It contends that its decision “rests significantly on the policy
of deferring to the choices that parties make at the bargaining
table,” and that “applying the ‘excessive-interference’ test”
with respect to agency-head review “would require agency
                              14
heads to ‘second guess’ the bargaining parties’ choices.”
Respondent’s Br. 22; see NTEU I, 65 F.L.R.A. at 514; EPA,
65 F.L.R.A. at 118. In this context, however, we see little
reason to prefer the bargaining representatives’ assessment of
a provision to that of the agency head. Although it may be
true that the agency’s bargaining representatives are better
positioned to understand the meaning of a particular provision
and why it was included in an agreement, see NTEU I, 65
F.L.R.A. at 514, and while Congress may well have intended
to preclude agency heads from second-guessing the legitimate
concessions made during negotiations, see AFGE II, 778 F.2d
at 858 & n.12, agency heads seem equally capable of
assessing a given provision’s consistency with section 7106,
and section 7114(c) expressly commits such legal questions to
the agency head. Indeed, the legislative history suggests that
Congress enacted section 7114(c) in part due to the agency
head’s privileged high-level view of the agency’s obligations,
and that its concern over “second-guessing” was unrelated to
legal questions of the sort involved in this review. See id. In
any event, whatever the validity of the Authority’s policy
rationale, it has failed to justify its atextual construction of
section 7106(b)(3). As we have said: “The agency’s policy
preferences cannot trump the words of the statute.” National
Treasury Employees Union v. Chertoff, 452 F.3d 839, 865
(D.C. Cir. 2006).

     In sum, when an agency asserts that a contract provision
falls outside section 7106(b)(3)’s exception to section
7106(a), whether the question concerns the agency’s duty to
bargain, see 5 U.S.C. § 7117(c), or the provision’s
consistency with law, see id. §§ 7114(c), 7122(a)(1), the
underlying legal issue is precisely the same: does the
provision represent an “appropriate arrangement[]”? In
applying two different standards in these contexts, the
Authority has set forth two inconsistent interpretations of the
                             15
very same statutory term, and thus acted arbitrarily and
capriciously.

     Because we must therefore vacate the Authority’s
decision, and because the Authority has given no indication
that it plans to abandon its “excessive interference” test, we
have no need to address Treasury’s alternative contention that
the “abrogation” standard, even if applied in all cases,
represents an impermissible construction of section
7106(b)(3)’s “appropriate arrangements” language. Nor need
we decide, as Treasury urges, whether the particular sick
leave provision at issue here was necessarily an inappropriate
arrangement under the “excessive interference” test. Instead,
consistent with our usual practice, we will permit the
Authority to address those contentions in the first instance.
E.g., AFGE I, 702 F.2d at 1188. We therefore grant
Treasury’s petition, vacate the underlying decision, and
remand for further proceedings consistent with this opinion.

                                                  So ordered.
