12.58 - (2) State Court Cases

• Jurisdiction: New York

(2) State Court Cases

On the state level, the New York courts continue to support an arbitrator’s broad remedial powers. Recognizing that public policy considerations are arguably involved in every labor dispute, the Court of Appeals has taken great care to reaffirm its approval of collective bargaining and private dispute resolution, and it has carefully delineated its own limited role.

The best expression of the Court’s view is in Sprinzen v. Nomberg,⁵⁹⁵⁹ a private sector case. Writing for a unanimous court, Judge Jasen cautioned that, while an award that is violative of public policy will not be permitted to stand,

[t]he courts . . . must exercise due restraint in this regard, for the preservation of the arbitration process and the policy of allowing parties to choose a nonjudicial forum, embedded in freedom to contract principles, must not be disturbed by courts, acting under the guise of public policy, wishing to decide the dispute on its merits. . . . [T]here are now but a few matters of concern which have been recognized as so intertwined with overriding public policy considerations as to either place them beyond the bounds of the arbitration process itself or mandate the vacatur of awards which do violence to the principles upon which such matters rest. ⁵⁹⁶⁰

The petitioner in Sprinzen challenged an arbitrator’s award enforcing the terms of a restrictive covenant of employment as being contrary to public policy. The Court denied the claim, holding that the award was enforceable, even to the extent that it “enjoin[ed] an individual from engaging in like employment for a reasonable period of years in the future.”⁵⁹⁶¹ In Hackett v. Milbank, Tweed, Hadley & McCloy,⁵⁹⁶² the Court of Appeals upheld an arbitration award enforcing the terms of a law firm’s partnership agreement, which provided that certain payments to a withdrawing partner would be reduced in proportion to the partner’s new earned income. Because the provision was not “inevitably anticompetitive on its face,”⁵⁹⁶³ public policy was not violated by the arbitrator’s award.

Examples of private sector matters “so intertwined with overriding public policy considerations”⁵⁹⁶⁴ as to be either “beyond the bounds of the arbitration process”⁵⁹⁶⁵ or to mandate vacatur of arbitration awards, include the power to award punitive damages,⁵⁹⁶⁶ to rule on claims concerning the liquidation of insolvent insurance companies,⁵⁹⁶⁷ to enforce state antitrust laws,⁵⁹⁶⁸ to compel performance of an agreement rendered illegal by federal law⁵⁹⁶⁹ and to determine whether a purported sales agreement is, in fact, an illegal usurious loan.⁵⁹⁷⁰

The same standards apply in private and public sector arbitration.⁵⁹⁷¹

Even before Sprinzen,⁵⁹⁷² the Court of Appeals stated that “[o]nly when the award contravenes a strong public policy, almost invariably involving an important constitutional or statutory duty or responsibility, may it be set aside.”⁵⁹⁷³ The Court further indicated that the public policy argument “may not be advanced to overturn every arbitration award that impairs the flexibility of management of a school district.”⁵⁹⁷⁴

The standard of determining whether a public sector arbitration award would be vacated on the grounds of public policy was set forth by the Court of Appeals in Cohoes City School District v. Cohoes Teachers’ Association:⁵⁹⁷⁵

[T]he general rule that any matter in controversy between a board of education and its teachers may be the subject of collective bargaining is limited “by plain and clear, rather than express, prohibitions in the statute or decisional law” as well as in some instances by “[p]ublic policy, whether derived from, and whether explicit or implicit in statute or decisional law, or in neither.” ⁵⁹⁷⁶

The Court, in a later case, emphasized that, “[u]nder our modern arbitration jurisprudence, judicial intervention on public policy grounds constitutes a narrow exception to the otherwise broad power of parties to agree to arbitrate all of the disputes arising out of their juridical relationships, and the correlative, expansive power of arbitrators to fashion fair determinations of the parties’ rights and remedies.”⁵⁹⁷⁷ The Court of Appeals also has held that, in order to justify preemptive judicial intervention, the public policy considerations must forbid in an absolute sense the issues that the arbitrator is considering.⁵⁹⁷⁸

The Appellate Division, First Department, applied the public policy exception to vacate an award in Phillips v. Manhattan & Bronx Surface Transit Op. Auth.,⁵⁹⁷⁹ finding it to be “one of the relatively rare cases” in which an arbitration award, reinstating a sexual harassment offender, was found to counter the strong public policy against sexual harassment in the workplace.⁵⁹⁸⁰

The public policy exception was also recently applied in In re Livermore-Johnson (New York State Dept. of Corrections and Community Supervision),⁵⁹⁸¹ where an arbitrator dismissed charges against an employee who had improperly accessed a confidential database 14 times and had, at least one time, shared confidential information with a parolee in violation of Public Officers Law § 74(3)(c). The Appellate Division explained that, considering this established violation of the law, the arbitrator’s decision to dismiss the charges with no penalty or repercussions for her misconduct, and reinstate the employee to a position where she would continue to have access to confidential information, violated public policy, thereby requiring the award’s vacatur.

Public sector challenges to job security,⁵⁹⁸² assignment of work to public employees during an emergency,⁵⁹⁸³ job performance,⁵⁹⁸⁴ sick leave transfer,⁵⁹⁸⁵ attorney fee reimbursement,⁵⁹⁸⁶ payment of damages for breach of contract,⁵⁹⁸⁷ sabbatical leave provisions,⁵⁹⁸⁸ the reclassification of police officers who perform investigative functions,⁵⁹⁸⁹ use of civilian inspection employees in a fire department,⁵⁹⁹⁰ restrictions on placement of derogatory materials in confidential personnel files,⁵⁹⁹¹ advisory procedures,⁵⁹⁹² class-size limitations,⁵⁹⁹³ parity/tie-in formulas,⁵⁹⁹⁴ attacks on negotiated substitutions for statutory pretermination review procedures,⁵⁹⁹⁵ and the recall of excessed teachers who are deemed only minimally qualified,⁵⁹⁹⁶ have all proven unsuccessful. Other public sector challenges to arbitrators’ awards that (1) precluded the preassignment of teachers to attend meetings during planning/preparation times,⁵⁹⁹⁷ (2) permitted a teacher to collect a paid-up health insurance benefit,⁵⁹⁹⁸ (3) provided county cars to employees who must transport clients,⁵⁹⁹⁹ and (4) declared that a superintendent need not approve a course in order for a teacher to receive a salary increment have likewise all been unsuccessful.⁶⁰⁰⁰

In cases in which courts have declined to overturn arbitration decisions on public policy grounds, the arbitrator’s award has been consistent with applicable contract terms. The New York State Court of Appeals’ decision in New York City Transit Authority v. Transport Workers Union of America⁶⁰⁰¹ is one case. There, the employer sought to terminate an employee who had assaulted a member of the public on a subway platform. The parties’ agreement provided that, for an assault charge, the arbitrator could modify the penalty only if termination was “clearly excessive in light of the employee’s record and past precedent.”⁶⁰⁰² The arbitrator modified the penalty to suspension without pay based on these contractual factors, and the court refused to vacate the arbitrator’s reinstatement on public policy grounds.⁶⁰⁰³

Other decisions indicate that it does not violate public policy for an arbitrator to overturn a mayor’s dismissal of a municipal employee who had admitted accepting bribes,⁶⁰⁰⁴ or reinstate an employee who was found guilty of sexual harassment,⁶⁰⁰⁵ or reinstate a teacher who was found guilty of engaging in inappropriate communications of an intimate nature with a student,⁶⁰⁰⁶ or reinstate a school bus driver who tested positive for marijuana after a random drug test, ⁶⁰⁰⁷ or reinstatement of an employee involved in a traffic accident with employer’s vehicle while under the influence of alcohol.⁶⁰⁰⁸

The New York State Court of Appeals has, however, granted petitions to vacate arbitration awards based on this exception under certain circumstances. For example, in City of Oswego v. Oswego City Firefighters Ass’n, Local 2707,⁶⁰⁰⁹ the Court granted a petition to vacate an arbitration award that permitted the grievants to retain their noncontributory retirement benefit plan even though it was no longer authorized by law.⁶⁰¹⁰ The Court concluded that the “final result” of the award created “an explicit conflict with other laws” and “the strong and well-defined policy considerations” embodied in those laws. ⁶⁰¹¹

The Court of Appeals also decided, in a pair of decisions which dealt with a motion made by the transit authority to vacate arbitration awards on public policy grounds that, despite a statute granting the transit authority the broad power to “manage, control and direct,” by full use of its authority, the operation of transportation facilities, the arbitrator’s decision to reduce the penalty originally imposed by the transit authority did not violate public policy.⁶⁰¹² The Court reasoned that the transit authority’s enabling statute did not prevent the authority from relinquishing partial control by initially agreeing to submit employee grievances to arbitration. Nor did the actual award itself “‘violate[ ] a well-defined constitutional, statutory or common law of this State.’”⁶⁰¹³ The Court, therefore, in accordance with the arbitrator’s decision, reinstated the employees.

On the other hand, the Second Department vacated that portion of an award that imposed a two-month suspension, rather than discharge, on a hospital respiratory therapist who used the same syringe to draw blood from several critically ill patients after being warned several times of the danger of that...