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The District of Columbia Court of Appeals has vacated an employment arbitration award on public policy grounds, holding that the contract amendments on which the awards were based were not executed by the District of Columbia’s Control Board in compliance with federal statute.
In Fairman v. District of Columbia, No. 02-CV-650, 2007 WL 3096588 (D.C. Oct. 25, 2007), Fairman was employed as Chief Executive Officer of the Public Benefit Corporation (PBC), a governmental unit of the District of Columbia. The parties entered an employment agreement in 1997, containing both an arbitration provision and a severance provision guaranteeing six months salary to Fairman upon early termination.
In 1999, the PBC and Fairman amended the employment agreement, providing for severance pay equal to the compensation due during the multi-year balance of the employment agreement. In 2000, PBC terminated Fairman, and Fairman sought severance pay under the agreement and its 1999 amendments. The dispute entered arbitration, with the arbitrator awarding Fairman full severance under the 1999 amendment.
At the trial court, the District challenged the award. The trial court held that the arbitrator’s award required the District to pay severance under an amendment that was not approved by the District’s Control Board, and was therefore contrary to public policy and unenforceable.
On appeal, the Court held that the arbitration and severance provisions within the 1997 agreement were valid and enforceable, but that the 1999 amendments were not executed in compliance with statute, rendering them contrary to public policy and unenforceable.
The District first argued that the 1997 agreement’s arbitration provision was void and unenforceable. The Court declined to reach the merits of this argument noting both that the District had affirmatively asserted the agreement’s validity during the trial court proceedings, and had failed to object to the jurisdiction of the arbitrator during arbitration while participating in the hearing. This, according to the Court, estopped the District from claiming the 1997 agreement was unenforceable on appeal.
But, the Court agreed with the District that the 1999 amendments to the agreement were invalid and unenforceable on public policy grounds, holding that the amendment was executed without the approval of the District’s Control Board as required under federal statute. The Control Board had asked Congress to give the PBC the authority to adopt multi-year employment contracts without Control Board approval, but Congress declined to do so, instead requiring Control Board approval for employment contracts that spanned several years and required funds appropriated beyond one fiscal year.
Since the Control Board had not approved the 1999 amendments, and since the payment of the severance clause would require funds from beyond one fiscal year, enforcing the 1999 amendment to Fairman’s contract would violate federal statute and would be contrary to public policy. Since an arbitration award could be vacated for violating public policy, the Court had and exercised the authority to vacate the award.
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