Overturning a grievance arbitration award under Act 195 has always been a challenge in light of the "essence test," the highly circumscribed standard of review applied by the Pennsylvania courts. In recent years, public employers witnessed the development of the "core functions" exception to the essence test where courts overturned arbitrators' decisions. The core functions exception enabled employers to successfully appeal arbitration decisions that required the reinstatement of employees who engaged in egregious conduct that negatively impacted the core functions of the public employer. The development of the core functions exception provided a reason for public employers to be hopeful of obtaining more meaningful review of arbitration decisions that altered the discipline imposed for serious infractions.

On December 27, 2007, however, the Pennsylvania Supreme Court doused all such hope when it issued a decision that eliminated the core functions exception to the essence test and replaced it with a narrower "public policy" exception. Westmoreland Intermediate Unit #7 v. Westmoreland Intermediate Unit #7 Classroom Assistants Educational Support Personnel Association, PSEA-NEA, No. 51 WAP 2005 (Pa. Dec. 27, 2007). Under the narrower public policy exception to the essence test, an arbitration award will be vacated only if the award contravenes public policy. The public policy must be "well-defined, dominant and ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests."

1. The Facts of Westmoreland

The Westmoreland case involved an intermediate unit employee who worked as a classroom assistant for more than twenty-three years without any prior discipline. In March 2002, the school employee used a friend's Fentanyl patch (a controlled substance) while at work. The employee had an adverse reaction and was found in the ladies' room partially unclothed and barely conscious. Police and paramedics treated and removed the unresponsive employee, and the school was locked down until the situation was resolved. The employee was suspended without pay and subsequently terminated.

At grievance arbitration, the arbitrator found that while the employee's actions were foolish and irresponsible, they did not constitute a course of conduct that rose to the level of immorality, particularly in light of her twenty-three year unblemished service record. The arbitrator reinstated the employee without back pay and subject to a last chance agreement making her continued employment conditioned on completion of a treatment program and other requirements.

On appeal, the Court of Common Pleas overturned the arbitrator's decision on the basis that it was central to the core function of a public school that the employer have the power to terminate school employees who are under the influence of illegal drugs. The Commonwealth Court affirmed and the Association appealed to the Supreme Court.

2. The "Essence Test" Affirmed

The Court reaffirmed the two-prong "essence test" set forth in State System of Higher Education (Cheyney University) v. State College University Professional Association (PSEA-NEA), 743 A.2d 405, 413 (Pa. 1999) as the appropriate standard of review for grievance awards under Act 195. The Court emphasized that the essence test has two and only two prongs: (1) the court must first determine whether the issue as properly defined is within the terms of the collective bargaining agreement and (2) if the issue is within the terms of the agreement, the arbitrator’s award will be upheld if his or her interpretation can rationally be derived from the collective bargaining agreement.

The Westmoreland decision emphasized that the essence test is "highly deferential and it admonishes that courts should not become embroiled in the merits of an arbitration." Thus, the Court emphatically rejected the dissent's argument that the essence test turns on whether an arbitrator's decision is "manifestly unreasonable." Rather, the second prong of the essence test bars a court from disturbing a grievance arbitration award under Act 195 unless the award is indisputably and genuinely without foundation in, or fails to logically flow from, the agreement.

3. The Rise and Fall of the "Core Functions" Exception

While the parties did not dispute the elements of the essence test or its general applicability, they differed as to whether the lower courts properly applied the "core functions" exception to the essence test. The core functions exception, as set forth in City of Easton v. A.F.S.C.M.E., 756 A.2d 1107, 1111 (Pa. 2000), established that a public employer cannot, by entering into a collective bargaining agreement, give up those powers essential to its ability to properly discharge its functions. Thus, a court could vacate an arbitrator's reinstatement of an employee whose conduct so egregiously impacted an essential employer function that enforcement of the award would prevent the employer from discharging that function.

The Court, despite the precedent of City of Easton and other cases applying that decision, rejected the core functions exception as excessively broad. The Court reasoned that the "potentially limitless reach" of the core functions exception could "swallow the essence test by its sheer breadth." The Court determined that the core functions exception was not merely inapplicable in the instant case, but was entirely inadequate and must be replaced.

4. The Narrower "Public Policy" Exception

In place of the core functions exception, the Court adopted a new "public policy" exception allowing for an award to be vacated only if it contravenes public policy. The exception was further narrowly circumscribed to include only public policy that is "well-defined, dominant and ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests."

In response to criticism from the dissenting and concurring opinions that the creation of a new standard of review was inappropriate and lacked guidance, the Court noted that ample guidance as to what constitutes public policy is available in federal jurisprudence and in Pennsylvania court decisions in other areas of law that apply a similar exception. Significantly, while the dissent and concurrences questioned the creation of a new exception, all agreed with the decision to do away with the core functions exception.

Applying the newly revised analysis, the Court concluded that the arbitrator's reinstatement of the teaching assistant satisfied the basic requirements of the essence test because the issue of just cause to terminate was within the terms of the agreement and the arbitrator’s award was rationally derived from the agreement in light of the employee’s otherwise unblemished work history. The Court declined to apply the newly crafted public policy exception, instead remanding it to the trial court to be reconsidered under the new standard.

5. Conclusion

The new public policy exception created by the Westmoreland case appears to narrow the power of courts to vacate grievance arbitration decisions. It is important for public employers to remember, however, that even though the Westmoreland Court rejected the core functions test as being potentially limitless, the Court appeared to recognize the importance of the principles that the core functions test was developed to protect. Specifically, the Court recognized the "important services entrusted to public entities, which are responsible for the health, safety and welfare of our citizens."

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