The National Treasury Employees Union sued the Internal Revenue Service on Thursday, October 29, 2026, accusing the agency of ignoring an arbitration ruling that ordered it to restore telework arrangements for employees affected by President Donald Trump's return-to-office policy.
The lawsuit, filed in Washington, D.C., federal court, comes after the IRS instructed managers to continue enforcing its telework restrictions despite a July 17 ruling that found the agency violated its labor agreement by canceling remote and hybrid work arrangements.
Six days after the ruling, the IRS told supervisors that its existing policy remained in effect, allowing employees up to five occasional telework days annually. Agency officials maintained that terminating the collective bargaining agreement with NTEU had stripped the arbitrator of authority to resolve the dispute.
The union argues that the ruling remains binding because its grievance was filed before the labor agreement ended. NTEU is asking a federal judge to overturn the IRS directive, accusing the agency of unlawfully disregarding the decision and depriving employees of the remedies they were awarded.
The dispute began in January 2025, when Trump directed federal agencies to bring employees back to their offices full-time, subject to certain exemptions. The Treasury Department issued its return-to-work plan on February 28, prompting the IRS to cancel frequent and recurring telework arrangements and its remote work pilot program.
Under the union's contract, managers were required to evaluate changes to approved telework schedules individually, considering operational needs, employee performance or conduct. NTEU challenged the blanket cancellations in a national grievance filed March 5, alleging that the agency bypassed those protections.
Trump subsequently issued a March 27 executive order excluding the IRS and several other agencies from federal collective bargaining requirements. The IRS continued processing the grievance, meeting with union representatives the following day. After missing the contractual deadline for a written response, the agency denied the grievance on May 27, more than a week after NTEU submitted the dispute to arbitration.
The IRS maintained the labor agreement for nearly another year before notifying the union on February 27, 2026, that it was terminating the contract. A month later, the agency withdrew from pending arbitration proceedings, telling the parties' arbitrators that they no longer had authority over IRS disputes.
Arbitration continued under a provision of the former agreement allowing hearings to proceed when one party refuses to participate. The IRS skipped the May 14 hearing and submitted no written arguments.
On July 17, the arbitrator ruled in favor of NTEU, finding that the agency violated its labor agreement and remote work memorandum by canceling telework arrangements without following negotiated procedures. He also found that the IRS committed unfair labor practices.
The decision ordered the agency to stop the violations, reverse related personnel actions, notify affected employees and reimburse the union for specified arbitration expenses. The arbitrator determined that his authority extended to the grievance because the dispute arose while the agreement was still in effect.
For employees who had worked remotely for years, the restrictions brought new commuting expenses and longer workdays. Two IRS workers identified in the complaint, Janice Schultz and Amanda Bowman, lost their regular telework schedules and reported increased gasoline costs, additional wear on their vehicles and more time spent traveling to work. Bowman previously worked from home three or four days a week.
Despite the arbitration victory, the IRS maintained its restrictions. Its July 23 directive cited Trump's executive order, the termination of the labor agreement and the agency's withdrawal from arbitration as grounds for rejecting the decision.
NTEU says the agency also declined to seek legal review of the award, even as it continued withholding the relief ordered for employees. The union argues that terminating a labor agreement does not erase rights established under that contract while it was in force.
The complaint also challenges the IRS's reasoning under the Administrative Procedure Act, which allows federal courts to set aside certain agency decisions that violate the law or lack adequate justification. NTEU contends that the agency failed to explain why withdrawing from arbitration eliminated the arbitrator's authority over a grievance already underway.
The lawsuit is separate from the union's challenges to Trump's executive order and the termination of federal labor agreements. NTEU is asking the court to declare the IRS directive unlawful, set it aside and award attorneys' fees and costs where permitted by law.
