87 N.Y.2d 660 (1996)
Public policy considerations can override the arbitrability of disputes between governmental employers and employees, particularly when a statute mandates specific actions by the employer.
Summary
This case concerns whether a state employee, terminated for violating the Hatch Act, can arbitrate his termination under a collective bargaining agreement (CBA). Elmer Blackburne, an employee of the Office of Alcoholism and Substance Abuse Services (OASAS), was terminated after running for political office, violating the Hatch Act. He filed a grievance, claiming his termination violated the CBA’s procedural rights. The court held that public policy, specifically the Hatch Act’s mandate, barred arbitration because allowing it would infringe upon the state’s sovereign right to allocate and disburse federal funds and would undermine the Hatch Act’s purpose.
Facts
Elmer Blackburne, an Alcoholism Program Specialist at OASAS, sought a leave of absence to run for New York City Council. OASAS warned him that his candidacy violated the Hatch Act. Blackburne proceeded with his candidacy. The Office of Special Counsel (OSC) of the United States Merit Systems Protection Board (the Board) charged Blackburne with violating the Hatch Act. Following an administrative hearing, the Board ordered OASAS to terminate Blackburne’s employment or risk losing federal funds. OASAS terminated Blackburne, who then filed a grievance claiming a violation of his procedural rights under the CBA.
Procedural History
Blackburne filed a grievance under the CBA, which OASAS rejected. Blackburne and the Public Employees Federation (PEF) then sought to compel arbitration. The Supreme Court granted the petition. The Appellate Division reversed, holding that the CBA’s exclusionary clause and public policy barred arbitration. The New York Court of Appeals then reviewed the Appellate Division’s decision.
Issue(s)
Whether public policy bars arbitration of an employee’s grievance regarding termination for violating the Hatch Act, where the termination was mandated by a federal agency order to avoid the loss of federal funds.
Holding
No, because the Hatch Act’s mandate and the State’s sovereign right to allocate federal funds preclude arbitration in this case. To allow arbitration would undermine the Hatch Act and improperly delegate the State’s authority over federal funds.
Court’s Reasoning
The court applied a two-level inquiry for determining arbitrability: first, whether the claim’s subject is authorized by the Taylor Law, and second, whether the claim falls within the arbitration clause’s scope. The court stopped at the first level, finding that public policy barred arbitration. The court reasoned that the Hatch Act requires states receiving federal funds to remain politically neutral. The Board’s order mandated Blackburne’s termination; failure to comply would result in the loss of federal funds for OASAS. “Whether to comply with the Board’s directive to discharge Blackburne, or not, and suffer the fiscal consequences, is a sovereign decision which as a matter of public policy ‘restrict[s] the freedom to arbitrate.’” Allowing an arbitrator to decide this issue would infringe upon the OASAS Commissioner’s statutory duty to administer funds and would disrupt the chain of control and accountability. Furthermore, it would violate the State Constitution’s appropriation provision. The court concluded that public policy, as embodied in the Hatch Act and the State’s fiscal responsibilities, overrides the right to arbitrate in this specific context.