 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued September 15, 2006         Decided October 27, 2006

                       No. 05-1405

         NATIONAL TREASURY EMPLOYEES UNION,
                     PETITIONER

                            V.

          FEDERAL LABOR RELATIONS AUTHORITY,
                     RESPONDENT


   On Petition for Review of a Decision and Order of the
             Federal Labor Relations Authority




     Barbara A. Atkin argued the cause for petitioner. With
her on the briefs were Gregory O’Duden and Elaine Kaplan.

     James F. Blandford, Attorney, Federal Labor Relations
Authority, argued the cause for respondent. With him on the
brief was William R. Tobey, Acting Solicitor.

   Before: RANDOLPH and GRIFFITH, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.

   Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
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     WILLIAMS, Senior Circuit Judge: The National Treasury
Employees Union petitions for review of a decision of the
Federal Labor Relations Authority setting aside an arbitrator’s
award favorable to the union. The underlying dispute
involves arrangements between local union chapters and
certain IRS regions, under which the IRS regions promised
time-off awards to employees who volunteered for seasonal
customer service duty.

    When the IRS refused to award the promised time off
during the 2003 tax filing season, the union pursued
grievances, claiming that the refusal was a violation of the
local agreements and constituted an unfair labor practice
under 5 U.S.C. § 7116. An arbitrator agreed with the union,
and the IRS filed exceptions with the FLRA. The Authority
ruled that provision of the awards was barred by 5 U.S.C.
§ 4502(e), which allows time-off awards only for “superior
accomplishment or other personal effort that contributes to the
quality, efficiency, or economy of Government operations.”
The Authority supposed that the agreements called for awards
even to volunteers who performed customer service duties
below a minimally successful level.

    We find, however, that the agreements are ambiguous
about whether they obliged the IRS to give awards even to
inadequate volunteers, and note that the record evidence may
be in conflict as to the parties’ contemporaneous
understanding. Because the Authority did not address the
ambiguities in the agreements, we set aside its holding and
remand for further proceedings.

                              * * *

    Each year during tax filing season, January 1 through
April 15, the IRS experiences a surge of taxpayer inquiries
through its phone lines, e-mail accounts, and walk-in centers.
                              3

To manage this seasonal variation in demand, the IRS has
historically “borrowed” employees, such as revenue officers,
tax auditors, and tax attorneys, from other activities for
temporary reassignment to customer service work.

     In recent years, the IRS’s agreement with the national
union over these filing-season secondments has authorized
local negotiations on the issue; for the 2003 filing season the
national agreement preserved then extant local provisions
except as modified by a national agreement or local
negotiations. On its face, then, the national agreement kept in
place for 2003 the memoranda of understanding (“MOUs”)
negotiated by NTEU Chapters 22, 34, and 60, under which
qualified employees who volunteered for customer service
duties and were used in that role would receive extra time off.
The three agreements provided, in pertinent part, that

    [a]s an incentive for volunteering, all volunteers who are
    utilized [for seasonal customer-service work] will receive
    one hour for every forty hours of customer service
    worked as a Time Off Incentive Award . . . . Volunteers
    who are selected for full time positions would receive a
    minimum of 12 hours. In order to receive the 12 hours,
    full time volunteers must serve in their details for the
    entire filing season. All other volunteers who are utilized
    will receive a minimum of 6 hours.

Joint Appendix (“J.A.”) 170. The agreement with Chapter 60
was identical except for an additional sentence not material to
our decision.

     Despite the national agreement allowing such MOUs, the
IRS refused to honor the applicable time-off provisions in
2003, arguing that awards under such terms would be contrary
to law; it therefore didn’t grant time-off awards during the
2003 tax filing season. The IRS rested on 5 U.S.C. § 4502(e),
                                4

which (as we said) authorizes agencies to award employees,
pursuant to regulations promulgated by the Office of
Personnel Management (“OPM”), extra time off                   “in
recognition of superior accomplishment or other personal
effort that contributes to the quality, efficiency, or economy of
Government operations.” OPM regulations, in turn, permit
agencies to grant such awards “on the basis of . . . [a]
suggestion, invention, superior accomplishment, productivity
gain, or other personal effort that contributes to the efficiency,
economy, or other improvement of Government operations.”
5 C.F.R. § 451.104 (2006).

     The IRS claimed that awards called for by the agreements
failed to provide the statutorily required contribution “to the
quality, efficiency, or economy of Government operations”
because of the possibility that volunteers performing less than
minimally successful work would be entitled to awards.

    The arbitrator rejected the IRS defense, reasoning that in
volunteering an IRS employee contributed to the efficiency of
government operations by “allowing the IRS to have a willing
employee interacting with the public, rather than an employee
who was detailed with no desire to be in that position.” J.A.
30.

     The IRS filed exceptions with the FLRA pursuant to
5 U.S.C. § 7122, and the FLRA set aside the award, reasoning
that the arbitrator’s decision had required awards even for
volunteers whose customer-service work fell below a
minimally successful level. Such work would not, it said,
contribute to the efficiency, economy or improvement of
Government operations. Nat’l Treasury Employees Union
Chapters 22, 34, & 60, 61 F.L.R.A. No. 33 (2005).

    The union filed a timely petition for review.
                               5

                            * * *

     Under 5 U.S.C § 7123(c), we must set aside a FLRA
decision that is “arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law.” Bureau of Alcohol,
Tobacco and Firearms v. FLRA, 464 U.S. 89, 97 n.7 (1983).
We will uphold the Authority’s decision “if, but only if, we
can discern a reasoned path from the facts and considerations
before the [agency] to the decision it reached.” U.S.
Information Agency v. FLRA, 960 F.2d 165, 169 (D.C. Cir.
1992). The FLRA’s findings of fact are “conclusive” if
supported by substantial evidence on the record, 5 U.S.C.
§ 7123(c), and its “reasonable inferences” receive deference
on review. American Fed’n of Government Employees, Local
2441 v. FLRA, 864 F.2d 178, 184 (D.C. Cir. 1988).

     As to the MOUs themselves, courts interpret labor
agreements in light of the “practice, usage and custom” of the
parties. Transportation-Communication Employees Union v.
Union Pac. Ry. Co., 385 U.S. 157, 161 (1966). In particular,
where the terms of a bargaining agreement are ambiguous, we
look to evidence of the parties’ contemporaneous
understanding. See Commonwealth Communications, Inc. v.
NLRB, 312 F.3d 465, 468 (D.C. Cir. 2002); American Postal
Workers Union v. U.S. Postal Service, 940 F.2d 704, 707–08
(D.C. Cir. 1991). We see no reason to suppose that either the
arbitrator or the FLRA could disregard those principles of
interpretation.

     The FLRA opinion rests heavily on the assertion that the
arbitrator directed the IRS to award time off without regard to
an employee’s actual performance and thus potentially in the
absence of any contribution to the efficiency, economy or
improvement of Government operations. But as FLRA
Member Pope recognized in dissent, the arbitrator made no
finding whether the agreements contemplated time-off awards
                               6

when an employee’s performance was less than minimally
successful.

     Nor do the agreements, on their face, resolve the question
of awards to underperforming individuals. The text makes no
explicit mention of performance, stating only that “all
volunteers who are utilized” will get time off. J.A. 170.
Without the words “are utilized,” the agreements would
perhaps best be understood to require awards for the mere act
of volunteering. But the “utilized” phrase may impose a
minimum performance threshold; the IRS arguably does not
“utilize” non-performing employees. Alternatively, “utilize”
might simply refer to an individual’s selection for duty by the
IRS out of the initial pool of volunteers for customer service
work, with no implied performance floor. Although we afford
deference to the FLRA’s interpretation of union bargaining
proposals, Nat’l Treasury Employees Union v. FLRA, 30 F.3d
1510, 1514 (D.C. Cir. 1994), here the Authority did not
address the MOUs’ textual ambiguities or offer any
independent interpretation of the agreements.

     In fact, the record contains arguably contradictory
evidence about the parties’ contemporaneous understanding of
the MOUs. Lovett, the union representative, testified that the
union never expected awards merely for volunteering, but
rather for an employee’s “raising [his] hand [and] doing the
work that was asked of [him] at a fully successful level.”
Lovett testimony at 140 (Aug. 31, 2004) J.A. 76. Lovett
explained that the IRS retained “absolute authority” to remove
an underperforming employee from customer service duty and
that such removal would “either eliminate or minimize any
[time-off] award that they would receive.” Lovett testimony
at 133 (Sept. 1, 2004) J.A. 124.

     But the union’s position may be undercut by its rejection
of the IRS’s negotiating proposal to include an explicit quality
                               7

criterion that would have changed the award formula from
“one hour for every forty hours of customer service worked”
to “one hour for every forty hours [of customer service]
successfully worked.” See Canning testimony at 57–59, 80–
81, J.A. 105, 110–11 (emphasis added). An IRS witness
recalled that “there was absolutely no conceptual agreement
that the performance had to be of a satisfactory nature.” Id. at
80, J.A. 110.

     Another IRS witness testified that in the event of a
volunteer’s serious underperformance, such as falling asleep
on the job, the IRS’s “practice was to let the employee know
and also let the union know that this person was falling asleep
at the desk and we can’t have that.” Wolfson testimony at 34-
35, J.A. 99. There was evidence that those managing filing
season employees in fact held expectations that volunteers
would really work. Id. at 36, J.A. 99. But the record provides
nothing more specific on whether underperforming employees
ever actually claimed or received awards.

     In our view, the Authority’s failure to address the MOUs’
textual ambiguities and the arguably conflicting evidence as to
the parties’ contemporaneous understanding or subsequent
practices renders its decision arbitrary and capricious. We
therefore vacate and remand for further proceedings consistent
with this opinion; given the deference we owe the Authority
on factual matters, we are not in a position to resolve factual
disputes or to decide whether the evidence can in fact be
reconciled (insofar as it controls the outcome).

                                                    So ordered.
