Maryland Court of Special Appeals Explains Public Policy Exception to Enforcing Arbitration Awards

In the second case addressing arbitration, the Maryland Court of Special Appeals examined a court’s ability to overturn or vacate an arbitrator’s decision based on public policy.  As most practitioners know, appeal rights after arbitration are extremely limited.  In fact, the unavailability of appeal in most cases is one of the most important reasons litigants sometimes choose not to arbitrate, especially in bet-the-company litigation.  They want to preserve every available avenue in case of a bad outcome.

In Amalgamated Transit Union, Local 1300 v. Maryland Transit Administration, found here, the Court reviewed both the statutory and common law bases by which a reviewing court can vacate or reverse an arbitrator’s decision. In Local 1300, an MTA employee got into a fight and subsequently stabbed another person on MTA property.  The employee was charged with second degree assault (he tendered an Alford plea and was given probation before judgment) and was fired based on violating MTA regulations providing for immediate dismissal for, among other things, fighting on MTA property or violating its workplace violence policy. The collective bargaining agreement between the MTA and the Local permitted termination only for “just cause” and provided for review by an arbitrator.

The employee subsequently filed for arbitration. The arbitrator, while acknowledging that the employee’s actions violated MTA’s regulations and workplace violence policy, nevertheless ruled that his dismissal was not for “just cause” because the MTA failed to consider his respectable work and disciplinary records and deviated from its own stated progressive discipline policy.

MTA appealed to the circuit court and argued that enforcement of the arbitrator’s decision would violate Maryland’s clear public policy against workplace violence. The circuit court agreed, and the Local appealed.

Noting that judicial review of arbitral awards is “very narrowly limited” and “among the narrowest known to law,” the Court of Special Appeals began by examining the three common law bases to vacate an arbitrator’s decision.  Because Maryland law (Cts. & Jud. Proc. §3-206(b)) explicitly excludes employer-employee disputes from the Maryland Uniform Arbitration Act unless their agreement so states (which it doesn’t in this case), the statutory bases for vacating arbitration awards set forth in Cts. & Jud. Proc. §3-224(b) do not apply.

The first common law defense is that the award is not the result of a “legitimate construction of the contract,” such as the arbitrator’s bias, bad faith, etc., or because the arbitrator exceeded the scope of the issues submitted to arbitration.

The second defense arises when the arbitrator “demonstrates a ‘manifest disregard of the law … beyond and different from a mere error in the law or failure … to understand or apply the law.’” The mistake must be so grave as to work a manifest injustice, and the fact that a court may have ruled differently or interpreted the contract differently is not enough.

The Court, in Local 1300, focused on the third common law basis, which is if the award violates clear public policy.  Because arbitration arises from and is based on contract law (i.e. the collective bargaining agreement or employment agreement), the award is, essentially, an agreed-to interpretation of the contract itself.  And, a court will not enforce any contract – arbitration or not – that violates clear and well-defined public policy.  The Court emphasized that the question was not whether the employee’s conduct violated clear public policy, but whether the arbitrator’s interpretation and ruling, if given effect, would violate public policy.

Here, the arbitrator excluded from the CBA’s definition of “just cause” acts of serious workplace violence because the MTA failed to consider mitigating circumstances and lesser penalties. But, in the face of established wrongdoing, enforcement of the award would violate clear statutory law providing that serious workplace violence is cause for automatic termination of state employees (State Pers. & Pens. §11-105).  Thus, the two policies (that of the arbitrator and that of the statute) conflict, and the state public policy set forth in the statute must prevail. Put another way, the MTA and Local 1300 could not enter into a contract that violates section 11-105 or states that section 11-105 does not apply.