12.54 - (2) Violation Of Contract Limitations

• Jurisdiction: New York

(2) Violation of Contract Limitations

An award will not be vacated as exceeding the limitations placed on the arbitrator “unless the limitation on the arbitrator’s powers is contained, explicitly or by reference, in the arbitration clause itself.”⁵⁸⁶⁶ In Silverman,⁵⁸⁶⁷ the Court of Appeals refused to vacate an arbitrator’s award, which directed repayments of principal without the consent of creditors, even though consent was specifically required by the agreement.

The majority decision in Silverman, which provoked a strong dissent, represents an important refinement of existing authority, with broad implications for both the public and private sectors.⁵⁸⁶⁸ For the first time, the Court clearly and unequivocally stated that a limitation on the arbitrator’s power will not be inferred from an agreement’s substantive provision: “To exclude a substantive issue from arbitration . . . requires specific enumeration in the arbitration clause itself of the subjects intended to be put beyond the arbitrator’s reach.”⁵⁸⁶⁹

The rationale for the Court’s policy of non-enforcement of substantive limitations is rooted in CPLR 7501’s proscription of judicial involvement in the dispute’s merits.⁵⁸⁷⁰ As explained in Silverman:

[A]ny limitation upon the power of the arbitrator must be set forth as part of the arbitration clause itself, for to infer a limitation from the substantive provisions of an agreement containing an arbitration clause calling for arbitration of all disputes . . . or . . . some other broadly worded formulation, is to involve the courts in the merits of the dispute—interpretation of the contract’s provisions—in violation of the legislative mandate. ⁵⁸⁷¹

To the extent that Granite Worsted Mills⁵⁸⁷² conflicts with Silverman, it has been specifically overruled.

Even before Silverman, most attempts to vacate arbitration awards on the ground that the arbitrator exceeded contract limitations were unsuccessful.⁵⁸⁷³ The courts have been particularly unimpressed with efforts by public employers who have submitted disputes to arbitration to have awards set aside for violating so-called advisory procedures. With one exception, where the court was unclear as to what the arbitrator had concluded was the scope of his authority,⁵⁸⁷⁴ submission of the grievance has been held to waive any claim that the arbitrator fashioned a remedy in excess of his authority.⁵⁸⁷⁵

If, however, a specifically enumerated limitation on the arbitrator’s powers is expressly set forth as part of the arbitration clause itself, courts have vacated the award where the arbitrator ignores that limitation.⁵⁸⁷⁶ For example, a collective bargaining agreement provided that if a charge involving employee theft was presented to an arbitrator and the arbitrator sustained the charge, the penalty imposed by the employer had to be affirmed by the arbitrator.⁵⁸⁷⁷ An arbitrator’s award pursuant to such an agreement, which sustained a charge of theft but imposed a lesser penalty, was vacated on the grounds that the arbitrator exceeded his authority by modifying the penalty of dismissal imposed by the employer.⁵⁸⁷⁸ Likewise, that portion of an arbitration award that granted an employee a prospective right to take unpaid personal leave time for religious observance was vacated where the arbitrator violated a specific limitation of the contract’s arbitration clause expressly restricting him to “determinations of guilt or innocence and the appropriateness of proposed penalties.”⁵⁸⁷⁹

In Manhattan & Bronx Surface Transit Operating Authority v. Transport Workers Union of America,⁵⁸⁸⁰ the court concluded that an arbitrator exceeded his authority pursuant to the collective bargaining agreement by modifying it to create a right for employees not contained therein. The grievance concerned sick leave. The collective bargaining agreement denied the arbitrator the authority to “amend, modify or change the agreement, or to interfere with the employer in operating, controlling, and directing the maintenance and operation of the transit facilities, or with the . . . employer’s managerial responsibility to run the transit lines safely, efficiently, and economically.”⁵⁸⁸¹ The employer argued that the arbitrator’s findings made it “virtually impossible” for the employer to control the use of sick leave “in order to operate more efficiently and to preserve its scarce resources.”⁵⁸⁸² The Second Department agreed. Because the arbitrator ignored the collective bargaining agreement’s plain language concerning sick leave, he exceeded his power in impermissibly modifying the agreement.⁵⁸⁸³

In another case involving the same parties, the court found that the arbitrator exceeded his power pursuant to the collective bargaining agreement when he barred a transit authority from implementing changes in its bus routes because it infringed upon the drivers’ contractual seniority rights, notwithstanding the transit authority’s clear right to do so.⁵⁸⁸⁴ In that case, the collective bargaining agreement limited the arbitrator’s power to make awards to those that did not “amend, modify or change this agreement or any of its terms.”⁵⁸⁸⁵

In Three Village Teachers’ Association v. Three Village Central School District,⁵⁸⁸⁶ the Appellate Division upheld a decision to vacate where an arbitrator required a school district to provide a compelling reason for its hiring decision. Because the collective bargaining agreement limited the arbitrator to considering whether the district’s decision to hire was arbitrary and capricious, she exceeded her authority pursuant to the contract in requiring the district to justify its decision.⁵⁸⁸⁷

Further, in Kowaleski (New York State Department of Correctional Services),⁵⁸⁸⁸ the Court of Appeals upheld a decision to vacate an award on the basis that the arbitrator exceeded a specifically enumerated limitation on his power, where the arbitrator failed to separately consider a correction officer’s defense that the Department of Correctional Services discharged her in retaliation for reporting a fellow officer’s misconduct.⁵⁸⁸⁹ The Court based its determination on Civil Service Law § 75-b, which specifically requires arbitrators to separately consider and determine the merits of a public employee’s “whistle-blower” retaliation defense when an employee raises that defense.⁵⁸⁹⁰

Where a collective bargaining agreement authorized the arbitrator only to order the employer to take actions to...