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The
Supreme Court Narrows The Public
Policy Exception To Arbitral Finality
By John D. Canoni Bio
email
Nixon Peabody LLP
Our
diverse society has many important public policies. When they collide, lawsuits are born and, before long, the
United States Supreme Court must step in to restore order and provide
guidance. Arbitral finality
is a key employment policy. Judicial
review following an arbitration award that the parties meant to be final
and binding is very limited. Courts
will overturn arbitration awards only very rarely, especially on public
policy grounds. In the
unionized context, employers and unions both favor extremely limited
judicial review of arbitration awards.
Broader judicial review, especially on public policy grounds,
only pressures every losing party to run to court.
Non-union employers favor arbitral finality as well because
arbitration is supposed to be an inexpensive, quick alternative to
litigation and not simply a prelude to a lawsuit.
There
is also a strong public policy against drug and alcohol use on the job.
This competing public policy has frequently collided with
arbitral finality, most recently in Eastern Associated Coal Corp. v.
United Mine Workers of America, District 17, 2000 U.S. LEXIS 8083
(November 28, 2000). Although
this was a unanimous Supreme Court decision, the Court once again
declined to establish a bright line test.
A smaller number of arbitration awards will continue to be
overturned on public policy grounds provided the lower courts properly
apply the Supreme Court’s latest guidance.
Our
story begins with Isiah Cooper. He
operated a dangerous machine, a slitter-rewinder, in a power mill.
Isiah was fired after he was found in the back seat of a car in
the company’s parking lot surrounded by marijuana smoke and with
“marijuana gleanings” in the ashtray in the front seat.
An arbitrator ordered Isiah reinstated and the Supreme Court,
reversing the lower courts, upheld that award despite the employer’s
public policy arguments, United Paperworkers International Union v.
Misco, 484 U.S. 29 (1987). The
Supreme Court held that public policy must be derived from “laws and
legal precedents” rather than from “general considerations of
supposed public interest.” The
Court left open (footnote 12) the tantalizing question whether an
arbitration award could only be overturned on public policy grounds when
the award violates a statute, regulation or other “positive law” or
compels conduct by the employer that would violate such laws.
The
question expressly left open in Misco was answered thirteen years
later in Eastern Associated Coal.
James Smith had worked as a drilling operator for Eastern for 15
years when he successfully bid for a mobile equipment operator’s job.
That required him to drive heavy trucks on the public highways
and subjected him to Department of Transportation random drug testing
regulations. Soon after he
began driving, Smith tested positive for marijuana in a March 1996
random drug test. Eastern
fired him under its substance abuse policy.
That policy required removal from any safety-sensitive position
of any employee who tested positive and made the employee “subject to
disciplinary action up to and including termination.”
Smith’s union convinced Arbitrator Jerome Ross to reduce
Smith’s discharge to a thirty-day suspension without pay with required
participation in a substance abuse program and random drug testing for
the next five years. Eastern did not challenge this first arbitration award and
Smith returned to his driving job.
Sixteen
months later, after passing four earlier random drug tests, Smith again
tested positive for marijuana. Eastern
again fired him and the new Arbitrator, Jerome Barrett, once again
reduced his discharge to an unpaid suspension, this time for three
months. Smith was again
required to participate in a substance abuse program and further random
testing. Arbitrator Barrett also ordered Smith to reimburse Eastern
and the union for the costs of the second arbitration proceeding and
required Smith to give Eastern an undated resignation letter which would
take effect if Smith tested positive a third time within the next five
years. Arbitrator Barrett
declined to answer the stipulated issue (“was the discharge for just
cause?”). He reinstated
Smith because he had been a good employee for 17 years and made a
“credible” appeal that his drug relapse was “an isolated
occurrence caused by a family problem.”
Eastern
sought to vacate the second arbitrator’s award. It argued the award contravened a public policy against the
operation of dangerous machinery by workers who tested positive for
drugs. Smith’s union
contended Arbitrator Barrett’s award required Eastern to put Smith
back in his safety-sensitive driving job once he completed his substance
abuse program. Both Eastern
and the courts, including the Supreme Court, read the award the same
way. Reinstating Smith to a
non-safety-sensitive position would have avoided the public policy issue
raised by the eventual mandatory reinstatement of a two-time drug abuser
to his safety-sensitive job.
The
Supreme Court first turned to Eastern’s drug testing policy and its
labor contract. Neither the
policy nor the contract required termination for a second drug
offense. The same was true
for the Department of Transportation regulations.
They similarly did not mandate termination if an employee, even
one in a safety-sensitive position, tested positive once or twice.
The regulations left that decision up to the employer and
mandated only the immediate removal of employees who tested positive
from their safety-sensitive positions. Those regulations also encourage employers to include
“rehabilitation” as part of their drug testing programs.
Eastern’s
drug testing policy did not have the right provisions.
Employers can establish policies that require discharge following
one or two positive tests. They
can obviously negotiate labor contract provisions saying the same thing.
Indeed, Justice Ginsberg commented during oral argument that
Eastern should go back to the bargaining table and negotiate a contract
clause stating “if you test positive for drugs twice, you’re out.” Non-union employers can take the reinstatement remedy away
from an arbitrator by a similar policy.
Any arbitrator who ignores such a clearly-stated employer policy
or contract provision will have his/her award vacated for exceeding the
scope of his/her contractually-delegated authority.
For example, in Warrior & Gulf Navigation Co. v. United
Steelworkers, 996 F.2d 279 (11th Cir. 1993), cert.
denied, 511 U.S. 1083 (1994), the labor contract specifically
mandated immediate discharge for any employee who tested positive twice
and an arbitration award reducing a discharge on that ground to a
suspension was vacated.
Arbitrators
are creatures of contract. They
only have the authority the parties give them.
If they exceed that authority, their awards will be vacated not
on public policy grounds but because they exceeded their authority.
Eastern and the union submitted the issue of “just cause” to
Arbitrator Barrett. If he
found just cause for Smith’s discharge but, nonetheless, reduced that
discharge to a suspension for the same two reasons he cited (17 years’
good employment and a credible explanation for the drug relapse),
Eastern would have easily vacated the resulting award.
Arbitrators must construe the agreement and cannot simply impose
their own notions of what’s fair.
In Delta Queen Steamship Co. v. District 2, MEBA, 889 F.2d
599 (5th Cir. 1989), cert. denied, 498 U.S. 853
(1990), the contract specified “gross carelessness” was just cause
and the arbitrator improperly reinstated the employee despite finding
gross carelessness. See,
also, Georgia-Pacific Corp. v. Local 27, United Paperworkers, 864
F.2d 940 (1st Cir. 1988) (arbitrator improperly ordered
reinstatement despite making a factual finding that the employee had
engaged in dishonesty, a stipulated ground for termination).
Employers
are masters of their domain. Non-union
employers can promulgate specific drug and alcohol abuse policies.
Unionized employers can negotiate specific sanctions for
employees who test positive for drugs and alcohol.
If they fail or neglect to do so, the fact that employers can be
held liable for injuries caused by a drug abuser who is reinstated is
not a relevant factor. When
this potential employer civil liability was mentioned during oral
argument, Justice Scalia remarked that “it would be the employer’s
own fault” for signing a labor contract allowing a positive-testing
employee to remain employed.
Eastern
certainly emphasized its potential liability for Smith’s actions.
It’s certiorari petition stated: “it makes a mockery of the
public policy . . . to require the employer – and the public – to
shoulder the risk that Smith’s third strike might be discovered by
sifting through the rubble of an accident involving Smith’s 55,000
pound truck.” Even
Arbitrator Barrett found it “understandable” why Eastern did not
want to put Smith back behind the wheel of his truck.
(“The liability the company faces when an employee assigned to
operate company equipment on public roads is found with drugs in his
urine is very real”). The
judicial response even by such a conservative as Justice Scalia is that
such liability concerns only exist where employers allow or suffer them
to exist.
James
Smith, unlike Isiah Cooper in Misco, was a “recidivist.”
He had tested positive twice and had been fired and saved by an
arbitrator twice. Although
the Supreme Court asserted the question to be answered in Eastern
“is not whether Smith’s drug use itself violates public policy,”
his “recidivism” was apparently a relevant factor although “not
sufficient to tip the balance in Eastern’s favor.”
Future cases will highlight the Court’s observation that
Smith’s second arbitration award “punishes [him] more severely for
his second lapse.” The
second arbitrator did not “condone Smith’s conduct” or “ignore
the risk to public safety” that his reinstatement posed.
Smith was given a 90-day suspension without pay (approximately
$9,000) as opposed to a 30-day suspension following his first positive
test sixteen months earlier.
Smith
was also required to sign an undated resignation letter which would
become operative once he tested positive a third time. This is the equivalent of a last-chance agreement.
Should a third arbitrator attempt to reinstate Smith a third time
despite this last-chance provision, the resulting award would be vacated
for exceeding that arbitrator’s authority.
This actually happened in Newsday, Inc. v. Long Island
Typographical Union No. 15, 915 F.2d 840 (2d Cir. 1990), when the
Second Circuit vacated an arbitration award reinstating a
“recidivist” sexual harasser despite a provision in the first
arbitration award that any further harassment would result in immediate
discharge. Obviously,
last-chance agreements specifying immediate discharge for the next
occurrence will be upheld with the only issue being whether the
triggering event (e.g. a positive drug test) has in fact taken place.
Indeed, the Supreme Court warned the victorious James Smith:
“one more failed test means discharge.”
To
this point, Eastern merely follows Misco.
There was no explicit, well defined and dominant public policy
prohibiting the reinstatement, following rehabilitation, of a two-time
drug abuser to a safety-sensitive position.
The employers lost in both cases.
The general societal policy against drug use and drug abusers was
once again not enough to carry the day, especially considering the
non-specific Eastern substance abuse policy and labor contract
provisions and the equally non-specific DOT drug testing regulations.
Many
unanimous Supreme Court decisions have sentences that seem to contradict
other parts of the decision. This
is the price of unanimity. Convincing
all nine Justices to endorse a single opinion usually requires added
language in the single opinion placating the Justices’ individual
views. Readers will recall
that in Misco in 1987 the Court left for a later day the question
whether a court could refuse to enforce an arbitration award on public
policy grounds only when the award violated “positive law.”
Answering this open question “yes” would practically destroy
the public policy “exception” to arbitral finality.
Several
circuit courts adopted this narrow view of the scope of the public
policy exception, St. Mary Home v. SEIU District 1199, 116 F.3d
41 (2d Cir. 1997) (upholding award reducing discharge of nursing home
employee discharged for possession of marijuana to a seven-month
suspension); UFCW Local 588 v. Foster Poultry Farms, 74 F.3d 169
(9th Cir. 1995) (upholding award reinstating two truck
drivers who failed drug test); Stead Motors v. Machinists Local 1173,
808 F.2d 76 (D.C. Cir. 1987). In
Eastern, the Supreme Court answered this reserved Misco
question differently than these circuit courts.
The Court said “We agree, in principle, that courts’
authority to invoke the public policy exception is not limited solely to
instances where the arbitration award itself violates positive law.”
This
single sentence produced a sharply-worded concurring opinion from
Justices Scalia and Thomas. They
criticized this “dictum” as “opening the door to flaccid public
policy arguments.” This
single sentence will certainly encourage future parties to challenge
arbitration awards on public policy grounds.
Justices Scalia and Thomas would not have opened this door.
It may be that the Court’s “dictum” does not open the
public policy exception door very wide but that door is still open.
The Second, Ninth and District of Columbia Circuits must now
modify their approach to such cases.
The
Eastern Court’s principal holding reduces the scope of the
public policy exception. A
general public policy against drug use isn’t a sufficient reason to
vacate an arbitration award. The
focus must be on the remedy ordered (reinstatement of a two-time drug
abuser) as opposed to the employee’s conduct (drug use).
Many circuit courts adopted an expansive view of the public
policy exception especially in drug use cases.
The Supreme Court has now rejected that expansive approach which
had been adopted by the First (Exxon Corp. v. Esso Workers Union,
118 F.3d 841, 1st Cir. 1997) and Eighth (Union Pacific
R.R. Co. v. United Transportation Union, 3 F.3d 255, 8th
Cir. 1993, cert. denied, 510 U.S. 1072, 1994) Circuits.
Those circuit courts used the “dominant” public policy
against the employment of impaired individuals to vacate arbitration
awards reinstating drug users.
Companies
can no longer rely on general judicial opposition to drug or alcohol use
as a sufficient reason to deny reinstatement to a substance abuser.
They must rewrite their corporate policies and re-negotiate their
labor agreements to give themselves that express authority.
Judges (and employers) on their part must repress their
individual concerns over the potential consequences that might follow
reinstatement of an impaired worker.
A perfect example is the Eleventh Circuit’s refusal to enforce
an arbitration award reinstating a pilot even though the evidence showed
he had flown an airplane while drunk, Delta Air Lines v. ALPA,
861 F.2d 665 (11th Cir. 1988). No airline passenger, especially judges, can feel comfortable
with that decision. Yet, to
quote Justice Scalia again, any horrific airline crash involving this
same pilot “would be the employer’s own fault.”
Eastern
substantially narrows the public policy exception to arbitral finality.
Arbitration awards will be more difficult to vacate, thereby
encouraging arbitration use. Immediately
following the single sentence “dictum” that Justices Scalia and
Thomas believed opened future courtroom doors too wide, the Court
unanimously held that “the public policy exception is narrow and must
satisfy the principles set forth” in the Court’s earlier decisions,
including Misco. For drug testing cases, the rule is clear.
If you want to fire drug abusers permanently and preclude an
arbitrator from reinstating them, you must specify immediate discharge
following one, two or more positive tests or otherwise in your corporate
substance abuse policies or in your labor contract.
Eastern is not simply a drug testing case. The same rules will apply to other public policy exception cases, particularly arbitration awards reinstating sexual harassers. Companies cannot rely on any general public policy against sexual harassment because even the EEOC does not require immediate discharge for the first or subsequent harassment offense under all circumstances. The answer again is to make your anti-harassment policy or labor contract provision specific if you want to avoid an arbitrator’s reinstatement award. The real impact of Eastern will occur when the narrowed public policy exception is applied in workplace harassment and similar policy cases.
© 2000 Nixon Peabody LLP
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Editor: Ross Runkel, Professor of Law Emeritus. email Ross@LawMemo.Com, Phone 503-399-8028. Copyright LawMemo, Inc.
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