Thursday, December 18, 2014

Availability of the “faithless servant doctrine” to deny benefits set out in a collective bargaining agreement

Availability of the “faithless servant doctrine” to deny benefits set out in a collective bargaining agreement
Union-Endicott Cent. Sch. Dist. v Peters, 2014 NY Slip Op 08533, Appellate Division, Third Department

Joanne Peters, a teacher by the Union-Endicott Central School District, attempted to retire from her position after allegations surfaced that she had stolen District property.

This appeals is the latest in a series* and as relevant here concerns the question of Peters' being entitled  to receive retiree health insurance benefits provided for in a collective bargaining agreement under the  circumstances of her departure from employment with the District.

The District terminated Peters effective July 1, 2007 and that, as a result, she was not entitled to retiree health benefits. The Union-Edicott Teachers Association [ETA] and Peters grieved the District's determination under the CBA and demanded binding arbitration of it.

The District and the ETA stipulated that the arbitrator would first assess whether the District's determination had violated the terms of the CBA. If the arbitrator found a violation, he would then be obliged to decide whether Peters' right to retiree health insurance benefits was impacted by the "faithless servant doctrine."**

The arbitrator issued an opinion and award finding that the District had violated the terms of the CBA and that the faithless servant doctrine was inapplicable. The arbitrator went on to state that he "believe[d] the District's claims [were] better suited for a lawsuit than a grievance arbitration proceeding."

The District then moved for leave to amend their complaint to assert causes of action invoking the faithless servant doctrine, seeking to both bar Peters' receipt of retiree health insurance benefits and recover damages for the value of the benefits that she had already received [Proceeding #1] .

The District also commenced a second proceeding, Proceeding #2, seeking to vacate the arbitration award or stay its enforcement until issues regarding the applicability of the faithless servant doctrine in action No. 1 had been resolved.

Supreme Court, among other things, declined to vacate the arbitration award or prevent it from going into effect, denied leave to amend the complaint in action No. 1 and granted the ETA leave to intervene in that action. The District appeals in proceeding Nos. 1 and 2, and the District and Board appeal in action No. 1.

The Appellate Division sustained the Supreme Court's declining to vacate the arbitration award, explaining that is not warranted as "It is well established that an arbitrator's award is largely unreviewable." and “Vacatur of an arbitration award is only appropriate where 'it violates a strong public policy, is irrational, or clearly exceeds a specifically enumerated limitation on the arbitrator's power.'"

The court concluded that the arbitrator “had reviewed the relevant case law, noted that the CBA was silent on the issue of whether the "faithless servant doctrine" restricted an employee's right to contractual benefits, and determined that to apply the doctrine would impermissibly "add to or alter the terms of" the CBA.” The Appellate Division said that arbitrator, “in no uncertain terms,” indicated  that he was "declin[ing] to apply" the doctrine, commented that the arbitrator's dictum that the District's arguments were 'better suited for a lawsuit than a grievance arbitration proceeding,' ... did not undermine his thoroughly explained holding that the faithless servant doctrine did not impact Peters' right to receive retiree health insurance benefits under the CBA.

The Appellate Division said it perceived no reason to vacate the arbitration award.”

As to the motion of District and the Board for leave to amend their complaint, the legal issue as to whether the faithless servant doctrine applied was placed squarely before the arbitrator and the parties to the arbitration had a full and fair opportunity to litigate it. Despite the fact that the arbitrator held the doctrine to be inapplicable, the proposed amended complaint in action No. 1 seeks to raise precisely the same issue. The court said that the faithless servant doctrine flowed from the contractual relationship between employer and employee. As the arbitrator found that CBA does not permit the doctrine to be used, there is no separate ground for its application and the District and the Board are barred by collateral estoppel from advancing an issue that was actually decided by the arbitrator.

As Supreme Court did not explicitly confirm the award, the Appellate Division modified that court's order accordingly

* Other decisions by the Appellate Division involving these parties: Matter of Peters v Union-Endicott Cent. School Dist., 77 AD3d 1236, and Matter of Union-Endicott Cent. School Dist. [Endicott Teachers' Assn.], 59 AD3d 799.

** The "faithless servant doctrine" states that an individual owing a duty of fidelity to a principal and who is faithless in the performance of his or her services is generally cannot recover his or her compensation or other consideration that would be otherwise available to that individual [See Murray v Beard, 102 NY 505].See, also, http://publicpersonnellaw.blogspot.com/2010/02/applying-faithless-servant-doctrine.html

The decision summarized above is posted on the Internet at: 
http://www.nycourts.gov/reporter/3dseries/2014/2014_08533.htm

Handbooks focusing on State and Municipal Public Personnel Law continue to be available for purchase via the links provided below:

The Discipline Book at http://thedisciplinebook.blogspot.com/

Challenging Adverse Personnel Decisions at http://nypplarchives.blogspot.com

The Disability Benefits E-book: at http://section207.blogspot.com/

Layoff, Preferred Lists at http://nylayoff.blogspot.com/

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