Supreme Court Rejects Public Policy Challenge To Arbitration Award

Affirmation of the arbitration award in Eastern Associated Coal Corporation v. United Mine Workers marks the completion of a second trilogy of Supreme Court decisions concerning grievance arbitration under collective bargaining agreements. Eastern is a reminder of the virtually unreviewable authority given to arbitrators in the absence of fraud, arbitrator misconduct, or an award that can be attacked as having no rational basis in the language of the agreement being interpreted.

In the first trio of cases, the Steelworkers Trilogy, the Supreme Court dealt with attempts to avoid collectively bargained arbitration agreements and established a presumption favoring arbitration of grievances unless it could be said with positive assurance there had been no agreement to arbitrate the dispute. The courts’ role is limited to determining if an agreement to arbitrate exists without examining the merits of the dispute. In addition, the Steelworkers Trilogy limited the courts’ role in reviewing arbitration awards to determining whether the award could be said to have drawn its essence from the language of the collective bargaining agreement. If so, it must be enforced, even if the court would have reached a different result, and even if the decision supporting the award is based upon mistakes of law or fact.

The second trilogy of cases, culminating with Eastern Associated Coal Corporation, addresses challenges to arbitration awards on public policy grounds. The decision in Eastern is the natural progression of this second trilogy and, therefore, not surprising. It reinforces the Supreme Court’s view that an arbitration award will not be set aside on public policy grounds unless it can be established that the asserted public policy is explicit, well defined, and dominant. Such a policy must be rooted in law and cannot be based upon general considerations of assumed public interest, as demonstrated by Eastern.

Eastern had a collective bargaining agreement with the UMW that had a typical “just cause” standard for discipline and discharge, and a grievance procedure culminating in binding arbitration. Eastern discharged Smith, a member of a road crew who operated heavy equipment and who was subject to Department of Transportation random drug testing requirements, after he tested positive for marijuana for the second time in a 16-month period. Smith had been employed by Eastern with a clean record for more than 15 years when he successfully bid for the equipment operator position that subjected him to random drug testing.

Eastern discharged Smith on the occasion of his first positive test, but an arbitrator found that there was not “just cause” for the termination, and he reinstated Smith after imposing a 30-day unpaid suspension, requiring Smith’s participation in a substance abuse program, and subjecting him to random testing by Eastern at its discretion over the next five years. On the second occasion, Smith was again reinstated, this time following a suspension of more than 90 days and on the conditions that he reimburse both Eastern and the UMW for the cost of both arbitration proceedings, continue in the substance abuse program, continue to be subjected to random drug testing, and agree to resign if he again tested positive within the next five years. Eastern sued to vacate the arbitration award on the ground that it violated a public policy against operation of dangerous machinery by individuals under the influence of drugs.

In refusing to set aside the award, the Supreme Court reminded Eastern that it had bargained for and agreed to the arbitrator’s interpretation of “just cause,” and it emphasized that the focus of its determination was not on whether Smith’s drug use was a violation of public policy, but rather whether reinstatement of Smith was a violation of public policy. The Court then found no explicit public policy preventing the reinstatement of a driver of safety-sensitive equipment who had failed random drug tests on two occasions. After carefully reviewing DOT regulations, the Court observed that, not only was there no prohibition against the reinstatement of Smith, but that the regulations also promoted rehabilitation. The Court further observed that the arbitrator’s award imposed substantial punishment on Smith and complied with DOT regulatory requirements for reinstatement.

The result in Eastern is consistent with the Supreme Court’s decision in an earlier case, Paperworkers v. Misco, Inc., where reinstatement of an individual who operated a hazardous machine was challenged on the asserted public policy ground against operation of dangerous machinery while under the influence of drugs. Despite serious issues concerning the arbitrator’s factual findings, which one of the lower courts had specifically rejected, the Supreme Court noted that the parties had delegated to the arbitrator the authority to find the facts and interpret “just cause.” The Court also found no evidence of a specific provision of law prohibiting the operation of dangerous machinery while under the influence of drugs, although the Court acknowledged that such a prohibition was certainly rooted in common sense.

In the earliest of this public policy trilogy, W.R. Grace & Co. v. Rubber Workers Local 759, the employer entered into an EEOC conciliation agreement that required it to take action contrary to the seniority provisions of its collective bargaining agreement. Those adversely affected by the layoffs in violation of contractual seniority requirements grieved and were awarded back pay. In refusing to vacate the arbitration award, the Supreme Court noted that the employer had voluntarily committed itself to two conflicting contractual obligations, and there was no violation of an explicit public policy in holding it to all of its commitments.

The lessons of these cases are, first, that you are stuck with the decision of an arbitrator even if it is based upon faulty legal premises and mistaken facts. Second, it will not be possible to overturn an arbitrator’s award on public policy grounds unless you can point to a specific law or judicial precedent that the arbitration award will force you to contravene. Lastly, the antidote to the possibility of having to comply with an arbitration award that imposes an obligation contrary to your business philosophy is to circumscribe the arbitrator’s authority in the arbitration agreement. For example, if there had been a specific limitation on the arbitrator’s authority in Eastern, either by defining “just cause” to include a positive drug test or by restricting the arbitrator’s remedial authority in cases where drug use is found, then reinstatement would have contravened the arbitrator’s authority under the agreement and could have provided the basis for denying enforcement to the award.