Applying the Public Policy-Exception to Labor Arbitration Awards
Petersen, Donald J., Boller, Harvey R., Dispute Resolution Journal
The public-policy exception to the enforcement of arbitration awards opens the door to courts' second-guessing the decision of the arbitrator. This article examines the case law to determine when and how the exception is being applied.
The use of "public policy" as a ground to seek to vacate labor arbitration awards ordering reinstatement of a grievant is a relatively new development. The public-policy exception to enforcement of awards, although explicitly recognized by the U.S. Supreme Court, raises the issue of uniform application, as well as the question of whether it is being misunderstood or misused by courts, allowing them to substitute their judgment for those of arbitrators.
This article examines the pertinent Supreme Court cases and how other courts have applied the public-policy exception, particularly in awards reinstating grievants, but in other situations as well.
Prior to World War II, there were only a few arbitration clauses contained in collective bargaining agreements (CBAs). Yet, by the War's end, largely due to the success of the old War Labor Board, approximately 60% of employers with union contracts included in their grievance procedures provisions for binding arbitration. Today, more than 97% of all CBAs contain an arbitration clause, which provides for arbitration of grievances that cannot be resolved at a lower step of the grievance procedure. Parties that are displeased with the arbitration award may seek to have the award vacated on the grounds provided in the Federal Arbitration Act. However, some courts entertain arguments to vacate awards on judicially created grounds, among them the controversial public-policy exception.
Basic Labor Arbitration Principles
The Supreme Court has held that as long as a labor arbitration award draws its essence from a CBA, the award must not be disturbed by the courts. In three decisions involving the United Steelworkers of America union, all decided in 1960, the Court enhanced the legitimacy and importance of labor arbitration. In Steelworkers v. American Manufacturing Co.,1 the Court stated that courts must not deprive a party to a CBA of its right to an arbitration hearing. It also extolled the "therapeutic value" of arbitration, even if the case is obvious.2
Moreover, in Steelworkers v. Enterprise Wheel,3 the Supreme Court said that ambiguity in an award, or even a misinterpretation of the contract, were not sufficient reasons to vacate the award. It also cautioned courts not to substitute their judgment regarding a remedy formulated by an arbitrator. In addition, it stated that it was federal policy4 to settle labor disputes through arbitration and that this policy would be undermined if courts had the final say regarding the merits of an arbitration award.
In Steelworkers v. Warrior & Gulf Navigation,5 the Court further said that arbitrators are "especially competent" to resolve industrial disputes and that courts should not be suspicious of arbitration awards.
However, in Enterprise Wheel, the Court stated that courts will not enforce an award if an "arbitrator dispensed his own brand of industrial justice," or failed to draw his award from the "essence of the contract" and the language and practices in the CBA.6
Supreme Court Decisions on Public Policy
The Supreme Court has faced the issue of whether to invalidate an award on public-policy grounds three times and each time it upheld the award, while providing some guidance to the lower courts.
The issue came up in two cases in the 1980s. In the first, W.R. Grace & Co. v. Local Union 759,7 decided in 1983, the Court upheld the arbitrator's award against a public-policy challenge. The award was in favor of an employee who had been denied a promotion contrary to seniority provisions in the CBA. The award was based on the CBA, instead of a subsequent conflicting "conciliation agreement" that Grace had entered into with the Equal Employment Opportunity Commission to settle claims of discrimination under Title VII of the Civil Rights Act. …