United States: #MeAgain: New York Appellate Court Applies State Law To Vacate Arbitration Award As A Violation Of Public Policy (Prohibiting Workplace Harassment)

Last Updated: June 13 2018
Article by Donald C. Davis

Lest we forget, many are the arbitrations that are subject to state arbitration law rather than the Federal Arbitration Act ("FAA"). And one should never underestimate the differences between those regimes. For example, under the FAA, the grounds for vacatur of an award are few and narrowly construed. See FAA §10(a), (9 U.S.C. §10(a)). Accordingly, federal court doctrine permitting vacatur of an award on public policy grounds affords only a very narrow opening, including in cases of sexual harassment in the workplace. State law may be less limiting, however, concerning the significance of public policy in such cases.

Typically, the question is whether an arbitrator's award of reinstatement of a harassing employee violates public policy. Eastern Associated Coal Corp. v. UMW of America, Dist. 17, 531 U.S. 57, 62-63, 121 S.Ct. 462 (2000). But there is no federal law public policy that every such offender must be fired, Weber Aircraft Inc. v. General Warehousemen and Helpers Union, Local 767, 253 F.3d 821 (5th Cir. 2001), or treated identically, e.g., Chrysler Motors Corp. v. International Union, Allied Indus. Workers of America, AFL-CIO, 959 F.2d 685 (7th Cir. 1992); Newsday, Inc. v. L.I. Typographical Union, 915 F.2d 840 (2d Cir. 1990).

But here is an example of an arbitration that was subject to New York State law — CPLR Art. 75 — rather than the FAA. While the pertinent provision regarding vacatur — CPLR §7511(b) — does not identify a violation of public policy as grounds for vacating an award, case law in New York does allow it. In April 2018, the Appellate Division, First Department (New York's intermediate appellate court in Manhattan) reversed, on public policy grounds, a trial court's order confirming an arbitrator's award that reduced an employer-imposed penalty for sexual harassment by its employee from termination to a brief suspension. See Matter of N.Y.C. Transit Auth. v. Phillips, 2018 N.Y. App. Div. LEXIS 2412 (1st Dept. April 10, 2018).

The underlying arbitration was conducted, pursuant to a collective bargaining agreement ("CBA"), to consider a determination by the employer — the New York City Transit Authority (the "TA") — that one of its employees had committed sexual harassment and should be terminated. A TA bus dispatcher had alleged that her co-worker, a bus driver, sexually harassed her. She described numerous inappropriate statements and conduct toward her by the driver. The arbitrator set aside the termination remedy despite expressly agreeing with the factual findings upon which the TA's determination had been made, ruling that the conduct in question did not rise to the level of sexual harassment — a dischargeable offense as defined in the TA's "Policy Instruction on Sexual and other Discriminatory Harassment."

A trial court confirmed the arbitration award and denied a petition to vacate it. But the intermediate appellate court reversed on the doctrinal (not statutory) grounds that the award was both (a) irrational and (b) against New York's "strongly articulated public policy against sexual harassment in the workplace." In doing so, the appellate court exercised what it termed its narrow authority under New York law to vacate an arbitration award that [1] violates "a strong public policy, [2] is irrational, or [3] clearly exceeds a specific limitation on an arbitrator's power." Citing Matter of New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, AFL-CIO, 306 A.D.2d 486, 486, 761 N.Y.S.2d 678 (2d Dep't 2003). It further opined that New York courts may intervene on public policy grounds only in "cases in which the public policy considerations, embodied in statute or decisional law, prohibit, in an absolute sense, particular matters being decided or certain relief being granted by an arbitrator." Citing Matter of New York City Tr. Auth. v. Transport Workers Union of Am., Local 100, AFL-CIO, 99 NY 2d 1, 7, 750 N.Y.S.2d 805 (2002). And the appellate court drove through that keyhole aggressively.

In fact, the appellate court had first taken up the case in 2015 on the Transit Authority's appeal from an order of a NYS trial court that confirmed a July 2013 arbitration award to the extent that the award found that the Transit Authority had violated the CBA by seeking to impose discipline on the bus driver while he was on approved union-paid release time. In its 2015 ruling, the Appellate Division vacated that award too on public policy grounds, finding that "ordering reinstatement of the offender because the [CBA's] release time rules act as a shield runs counter to public policy against sexual harassment in the workplace." Matter of Phillips v. Manhattan & Bronx Surface Transit Operating Auth., 132 A.D.3d 149, 15 N.Y.S.3d 331 (1st Dept. 2015).

The case eventually returned to the appellate court in early 2017 in a similar procedural posture after the parties had arbitrated the dispute on its merits — (i) the arbitrator had awarded reinstatement of the bus driver; (ii) a trial court had confirmed the award; and (iii) the TA had appealed the lower court's confirmation of the award (and denial of the TA's motion to vacate it.) The arbitrator's second award juxtaposed his factual findings of harassment and unprofessional conduct with his award penalizing the harassing employee with a 10-day suspension and sensitivity training.

In its second go-round, the appellate court found that the arbitrator's conclusion that the driver's conduct did not rise to the level of "sexual harassment," and his award imposing a light penalty, were fundamentally inconsistent with the arbitrator's own findings of fact. For example, the arbitrator credited testimony that the driver had made inappropriate sexist remarks to and about the claimant in the presence of other employees on a number of occasions, found the claimant's testimony to be corroborated by other witnesses, and found that the driver's conduct had violated applicable directives concerning maintenance of a respectful workplace. Furthermore, the appellate court opined, the arbitrator maintained, contrary to established case law interpreting Title VII and its state law analogs, that the complaining employee was required to inform her harasser clearly that his comments were unwelcome and that she would take appropriate action if he did not cease and desist from making them, because that might have solved the problem.

The appellate court eventually (1) reversed the judgment of the lower court, which had confirmed the underlying arbitration award; (2) granted the TA's petition to vacate the award; and (3) remanded the matter to a different arbitrator (a) to enter a finding that the accused perpetrator had subjected the complainant to "inappropriate and unwelcome comments of a sexual nature in violation [the TA's] sexual and other discriminatory harassment policy," and (b) to pass upon the appropriateness of the penalty of termination.

The court's grounds were (1) that "public policy prohibits enforcement of the arbitration award in this case . . ," and (2) that "the arbitrator's decision is irrational as it purports to adopt the findings of the [TA] in all respects, and yet arrives at the unsustainable conclusion that [the perpetrator] did not violate the workplace sexual harassment policy." This the court found "unfathomable."

In the Phillips case, the court seemed particularly enthusiastic about using its authority to support the anti-harassment policies of Title VII and its New York State and City analogs, and to invoke those policies as grounds to overturn an arbitral award. While possibly justified in invoking public policy grounds to vacate the award, the appellate court arguably went overboard. In addition to reversing the lower court's finding that the arbitrator's remedy violated public policy, the appellate court (i) indicated that the language of the award was inappropriate in that it maligned the harassment victim, (ii) questioned the validity of the arbitrator's reasons for decision, and (iii) apparently relied in part on the policy implications of the arbitrator's decision.


Arbitration awards are not beyond challenge, but in the domain of the Federal Arbitration Act, the grounds for judicial review and vacatur of such awards are few and narrowly interpreted. On the other hand, arbitrations that are subject to state law, and not the FAA, may be subject to broader judicial scrutiny. And when state law permits a challenge based on a public policy doctrine, the scope of judicial review may be a bit unpredictable. A savvy practitioner will take nothing for granted in that regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Donald C. Davis
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