City of Philadelphia Office of Housing and Community Development v. American Federation of State, County and Municipal Employees, Local Union No. 1

In City of Philadelphia Office of Housing and Community Development v. American Federation of State, County and Municipal Employees, Local Union No. 1971, 583 Pa. 121, 876 A.2d 375, our Supreme Court held that under the essence test, an arbitrator could not award punitive damages because government agencies have long been exempt from the imposition of punitive damages. In that case, the City of Philadelphia Office of Housing and Community Development (OHCD) only had two employees capable of performing that type of work required, home inspections, among its 33 employees. Instead of using union workers to perform the required inspections, the OHCD bid out the work to non-union firms. The union filed a grievance for violating the collective bargaining agreement, and an arbitrator found a violation of that agreement. The arbitrator awarded monetary damages equal to the wages the union workers would have been paid for performing the inspections to be paid to the union to repair its "vitality" of the union; the union calculated the sum at "roughly $ 900,000." Id., 583 Pa. at 126, 876 A.2d at 377. A petition to vacate was filed with the trial court, which was denied, and an appeal was taken to this Court. The Court reversed because the damages awarded were punitive, and the remedy did not draw its essence from the collective bargaining agreement. Our Supreme Court granted allocatur to determine whether the damages awarded by the arbitrator were punitive and unlawful. In holding that the award of damages was punitive, the Court first stated that it had defined punitive damages as "compensation awarded to punish a party for actions 'of such an outrageous nature as to demonstrate intentional, willful, wanton or reckless conduct,'" Id., 583 Pa. at 124, 876 A.2d at 376-377, and that it had not found punitive damages to be a proper award by an arbitrator for the breach of a collective bargaining agreement. The Court explained that under this set of facts, the award was not to make the members whole for lost wages, but to punish the behavior of the governmental employer. Because who was being punished was unknowing taxpayers, the Court stated, "It is against the public policy of our Commonwealth to award punitive damages against a Commonwealth agency. Noting that government agencies have long been exempt from the imposition of punitive damages, citation omitted, our Court echoed the concerns of the United States Supreme Court that punitive damages imposed on a municipality were, in effect, a windfall to a fully compensated plaintiff and are likely accompanied by an increase in taxes or a reduction of public services." Id., 583 Pa. at 126, 876 A.2d at 378.