OPINION BY
Judge LEADBETTER.The Philadelphia Housing Authority (Authority) appeals from the order of the Court of Common Pleas of Philadelphia County (common pleas), which denied the Authority’s petition to vacate the arbitration award reinstating Thomas Mitchell after the Authority had terminated him for sexual harassment of a co-employee. We are once again faced with the issue of whether the arbitration award draws its essence from the applicable Collective Bargaining Agreement (CBA). After review, we reverse.
On October 23, 2002, Mitchell, a member of the American Federation of State, County, and Municipal Employees, District Council 33, Local 934 (the Union), was fired from his job at the Authority’s central warehouse facility following an investigation into a complaint of sexual harassment by Stephanie Broadnax, a co-worker. In response, the Union filed a grievance on Mitchell’s behalf, alleging that the Authority violated Article VIII of the parties’ CBA, which provided, in pertinent part, “[n]o disciplinary action or discharge shall be imposed upon any employee without just cause.... ” Reproduced Record (R.R.) at 61a. Notably, the CBA did not define the term “just cause.” The Authority had a policy prohibiting discrimination and harassment on the basis of sex. See EEO and Sexual Harassment Policy, R.R. at 95a. Moreover, the Authority had posted a notice in the workplace, which stated that sexual harassment was illegal, that such harassment included, among other things, unwelcome sexual advances, suggestive or lewd remarks, and unwanted touching, and that a finding that such harassment had occurred could result in a variety of disciplinary measures, including termination. See R.R. at 97a.
After the CBA’s grievance procedure failed to resolve the dispute, the parties tendered the matter for arbitration.1 The parties submitted the following question to the arbitrator: “[Wjhether the Authority had just cause to terminate [Mitchell’s] employment, and, if not, what [is] the appropriate remedy[?]” Arbitrator’s op. at 27; R.R. at 40a. In resolving this issue, the arbitrator found that Mitchell committed the alleged misconduct. Specifically, based upon the evidence presented, the arbitrator found that Mitchell repeatedly sexually harassed a female co-worker by hugging her, rubbing his penis against her buttocks while she was attempting to file paperwork, and explicitly articulating his desire to engage in sexual acts with her. Despite these findings, the arbitrator determined that two circumstances mitigated against termination: (1) management at the central warehouse facility was aware of and condoned horseplay of a sexual nature; and (2) Mitchell stopped his sexually harassing misconduct after he received a verbal warning from one of the Authority’s lower-level supervisors.2 Weighing these *1046mitigating circumstances against Mitchell’s misconduct, the arbitrator concluded that the Authority lacked “just cause” to terminate Mitchell. Accordingly, the arbitrator awarded a “make whole” remedy, which included an order providing for Mitchell’s reinstatement. Shortly thereafter, the Authority filed a petition to vacate the arbitrator’s award with the trial court, which was denied. The present appeal followed.
Prior to addressing the Authority’s arguments on appeal, it is necessary to set forth the narrow confínes of an appellate court’s review of an arbitration award. As this court recently noted in Southeastern Pennsylvania Transportation Authority v. Transport Workers Union of America, 880 A.2d 731 (Pa.Cmwlth.2005):
[0]ur Supreme Court has emphasized that arbitration of labor disputes is final and binding and is mandated by the Legislature, thereby requiring a court reviewing an arbitrator’s award to accede “great deference” to it. The arbitrator’s award is, therefore, final and binding unless the award does not draw it essence from the collective bargaining agreement. This exception is called the “essence test”....
Id. at 734 (citations omitted). The essence test requires a two-part inquiry. First, the court shall determine whether the issue, as defined, comes within the terms of the CBA and, second, if it does, whether the award is rationally derived from the CBA. Id. See also State Sys. of Higher Educ. (Cheyney Univ.) v. State Coll. Univ. Prof'l Ass’n (PSEA-NEA), 560 Pa. 135, 743 A.2d 405 (1999). In addition, it is now well established that the “usual degree of deference to be accorded an arbitrator’s award is moderated in a situation in which the arbitrator’s interpretation of the agreement led to the governmental employer relinquishing essential control over the public enterprise, i.e., those powers essential to its ability to discharge its functions.” Greene County v. Dist. 2, United Mine Workers of Am., 578 Pa. 347, 361, 852 A.2d 299, 308 (2004). Both the Pennsylvania Supreme Court and this court have held that a government employer cannot bargain away its power to fire for misconduct bearing directly upon the performance of its essential functions; this incapacity (referred to as contractual incapacity) imposes a legal restriction on an arbitrator’s interpretation as to what the parties meant by “just cause.” See, e.g., Office of Attorney Gen. v. Counsel 13, Am. Fed’n of State, County & Mun. Employees, AFL-CIO (OAG), 577 Pa. 257, 844 A.2d 1217 (2004); City of Pittsburgh v. Pittsburgh Joint Collective Bargaining Comm., 852 A.2d 452 (Pa.Cmwlth.2004).
Turning to the appeal presently before us, there is no dispute that the issue of whether Mitchell’s misconduct constitutes just cause for discharge falls within the terms of the CBA. The disagreement arises over whether the arbitrator’s interpretation of the CBA is rationally derived therefrom. On appeal, the Authority essentially contends that the arbitration award is not rationally derived from the CBA because it deprives the Authority of the ability to terminate an employee whose misconduct interferes with the Authority’s ability to discharge one of its essential functions, that of meeting its legal obligation to protect its employees from sexual harassment and hostility on the job. In making this argument, the Authority notes that under both federal and state law, it has an affirmative duty to prevent sexually harassing *1047conduct in the workplace. Stressing its legal obligation to maintain a safe work environment free of sexual harassment, the Authority contends that it lacks the contractual authority to avoid its legal obligation to investigate and prevent sexual harassment and maintain a safe workplace. Accordingly, the Authority maintains that the award causes it to lose essential control over its public enterprise and, therefore, the award is not rationally derived from the CBA.3 The Union agrees that the Authority has a duty to protect its employees from sexual harassment, but denies that the cases cited above apply to this situation, or that the arbitrator’s award unduly hampers the performance of the Authority’s public function.
While the doctrine upon which the Authority relies, commonly called the “core function test,” is well-established, the circumstances which will trigger its applicability have been described in only the most general terms, i.e., misconduct bearing directly upon the agency’s performance of its essential functions. In deciding each case on its particular facts, we have explained the factors which led us to conclude that an essential function was or was not implicated, but we have yet to articulate the elements of a standard to guide this determination. Nevertheless, from review of the relevant cases, the outlines of such a test emerge.
Although decided under the now discredited “manifestly unreasonable” standard, three cases are generally considered to be the conceptual antecedents of the core function test, Philadelphia Housing Authority v. Union of Security Officers # 1 (Philadelphia Housing), 500 Pa. 213, 455 A.2d 625 (1983); County of Centre v. Musser (Musser), 519 Pa. 380, 548 A.2d 1194 (1988); and Pennsylvania Liquor Control Board v. Independent State Stores Union (ISSU), 520 Pa. 266, 553 A.2d 948 (1989) (ISSU). In Philadelphia Housing, our Supreme Court vacated the arbitration award reinstating a public housing security officer who had defrauded an elderly tenant. In doing so, the court observed that nothing in the CBA suggested that the Housing Authority had bargained away its power to discharge a dishonest employee, and further observed that, “such dishonest conduct constitutes an affront to the integrity of the entire Housing Authority security force.” 500 Pa. at 215, 455 A.2d at 626. The court found that, “it is manifestly unreasonable to conclude that the Housing Authority could have intended to bargain away its absolute responsibility to ensure the integrity of its housing security *1048force by discharging an officer who has defrauded one of the very people whom he is paid to protect.” Id. at 216, 455 A.2d at 627.
In Musser, the Supreme Court affirmed the decision of common pleas, reversing an arbitration award and reinstating the discharge of two county prison guards who had repeatedly assaulted an inmate. Mus-ser bears significant similarities to the present case. First, the assaults were outrageous and humiliating, but were not injurious. In addition, as the court noted, “the arbitrator accepted two of the Union’s assertions: (1) that the conduct in question was merely ‘horseplay’ between friends; and (2) that ‘horseplay between guards and inmates had been long tolerated at the prison without ever before causing the discharge of a guard.” 519 Pa. at 387, 548 A.2d at 1197. After concluding that the arbitrator properly found the offensive behavior to be more than minor, the court stated that, “[i]f the [Prison] Board is to carry out its duty relating to the safekeeping of prisoners, the Board must have the unfettered power to discharge an employee who is found to have subjected an inmate to physical abuse.” Id. at 396, 548 A.2d at 1201.
In ISSU, the Supreme Court reinstated the discharge of a liquor store manager who had falsified store records and misappropriated funds. In doing so, the court noted the absence of anything in the CBA “to suggest that the LCB had ‘bargained away’ its power to discharge a proven thief; and it would be ‘manifestly unreasonable’ to conclude that the agency intended to do so.” 520 Pa. at 277, 553 A.2d at 953-54. The court further opined:
If an agency of the Commonwealth entered into an agreement, which expressly excluded conduct by an employee, of the nature herein, from the definition of “just cause” for discharging that employee, its validity would at best be questionable.
[I]t should be recognized that a governmental agency does not have the freedom of a private enterprise to relinquish powers inherently essential to the proper discharge of its function.
Id. at 276, 277-78, 553 A.2d at 953, 954. As we observed in City of Pittsburgh v. Pittsburgh Joint Collective Bargaining Committee, while Philadelphia Housing, Musser and ISSU were all decided prior to the court’s rejection in Cheyney University of the “manifestly unreasonable” standard of essence test review, the court continued to cite these cases for the proposition that a “public employer retains absolute authority to fire an employee for conduct that undermines the employer’s discharge of its public function and duties.” City of Pittsburgh, 852 A.2d at 456-57.
In City of Easton v. American Federation of State, County, and Municipal Employees, 562 Pa. 438, 756 A.2d 1107 (2000), our Supreme Court vacated an arbitration award that reinstated an employee who had been terminated by the City for holding a second job with another employer and submitting time sheets to both employers to collect double pay for hours actually worked for only one of the employers. The parties’ CBA in that case provided that an employee could be immediately dismissed for willful misconduct or neglect of duty which resulted in significant adverse consequences to the City. Our Supreme Court noted that, in interpreting the term “willful misconduct” in the CBA, the arbitrator failed to take into account that the City, in entering into the CBA, “did not and could not relinquish those powers which were essential to its ability to properly discharge its various functions, including the power to terminate *1049those employees who steal from the City itself, or steal from others while working for the City.” Id. at 447, 756 A.2d at 1111. The court further noted that the fact that it was unclear which employer had been the victim of the theft did not command a different result, noting that it failed “to see how any government agency could ensure the proper discharge of its official functions if it lacked the power to discharge employees” who committed a theft against the government employer or a third party while they were working for the government agency. Id. at 449 n. 6, 756 A.2d at 1113 n. 6. Thus, since the arbitrator failed to take the foregoing into account when reinstating the dismissed employee, the court held that the award was not rationally derived from the CBA.
Four years later, in OAG, the Supreme Court reached a contrary conclusion. There, an individual employed by the Office of Attorney General as a Narcotics Agent II, was discharged after he was caught driving his state vehicle while off-duty and intoxicated. When the agent’s Union grieved the termination, the arbitrator found that although the agent had committed the charged misconduct, because of mitigating circumstances, just cause was lacking for termination. Therefore, the arbitrator reinstated the agent without back-pay, conditioned upon his ability to refrain from further misconduct for three months following his return to work. After this court vacated the award, our Supreme Court reversed. It distinguished City of Easton, noting in pertinent part:
[W]e do not find that the award, reinstating an officer without back-pay for off-duty misconduct has required the governmental employer to bargain away control over core powers that are essential to the proper discharge of the functions for which the governmental entity is responsible.
577 Pa. at 273, 844 A.2d at 1227.
Shortly thereafter, in Greene County, our Supreme Court further elaborated on the importance of limiting an arbitrator’s authority to interpret a “just cause” provision with respect to a public employer. In Greene County, there was no crime committed, but a Children and Youth Services caseworker violated written policy and state regulations by repeated failure to maintain records. The court concluded the caseworker’s serious and chronic failure to document went to the core function of the public agency and jeopardized children the agency was charged to protect. In vacating the arbitrator’s award in favor of the caseworker, the court explained:
The rationale expressed in our decision in City of Easton is rooted, in part, in the unique nature of the public employer in our Commonwealth. Unlike private sector employers, public employers are ultimately responsible for the health, safety, and welfare of our communities. Due to their unique nature and role, public employers must be able to perform the functions they are charged to carry out by our citizenry. Consistent with this status, our Court has recognized that public employers cannot be compelled in arbitration to relinquish powers that are essential to the proper discharge of their functions. Thus, while as a'general proposition, an arbitrator has broad authority to interpret an undefined provision regarding termination for just cause in a collective bargaining agreement, to permit an arbitrator to interpret the agreement as to require reinstatement of an employee who was determined to have engaged in egregious misconduct that strikes at the very core function of the public enterprise would be to deprive the employer *1050of its ability to discharge that essential function. An arbitrator’s award granting reinstatement in such a situation would not be rational and would therefore fail the essence test.
578 Pa. at 862, 852 A.2d at 308 (citations omitted).
At about the same time Greene County was decided, this court decided City of Pittsburgh v. Pittsburgh Joint Collective Bargaining Committee, a case addressing the same issue. There, during working hours but while away from his workplace on an errand, a city employee stole DVDs from a local store. He was convicted of theft. The City terminated his employment, and the employee filed a grievance. The arbitrator determined the employee committed the theft, but he found two mitigating circumstances rendered termination unjust, and he awarded reinstatement. This court affirmed the reinstatement award, stating:
[The employee’s] misconduct in the present case falls outside of the type of conduct ... as that bearing upon the governmental employer’s discharge of its public functions. [The employee] did not commit a crime directly against his employer ... or a third party while working.... Equally important, his theft did not impact a third party whom his employer, the City Department of Public Works, was charged with protecting, nor did it otherwise impair the city’s ability to perform any part of its essential function. Therefore, the City was not precluded from bargaining with respect to whether that misconduct constituted just cause to terminate employment, and the arbitrator was at liberty to construe the ‘just cause’ provision of the [collective bargaining agreement] in light of the many factors generally recognized as relevant indicia of contract intent.
852 A.2d at 458 (footnote omitted).
On the same day as City of Pittsburgh, this court decided another case raising the core public function limitation, Port Authority of Allegheny County v. Amalgamated Transit Union Local 85 (Port Authority), 853 A.2d 1090 (Pa.Cmwlth.2004), appeal denied, 584 Pa. 688, 881 A.2d 821 (2005). There, during work, an operator of public transportation groped one of his passengers. The operator pled guilty to harassment. Based on this and prior misconduct, the public employer fired the operator. A board of arbitrators found the operator committed serious misconduct, but based on mitigating factors, the board reinstated him. We determined the operator’s misconduct fell squarely within the kind of conduct bearing upon the public employer’s ability to perform its core function of providing safe public transportation. Thus, we vacated the award reinstating the operator because it was not rationally derived from the collective bargaining agreement.
Most recently, in Allegheny County Airport Authority v. Construction General Laborers & Material Handlers Union 1058 (Allegheny County), 874 A.2d 1250 (Pa.Cmwlth.2005), reargument denied June 20, 2005, this court addressed the test for applying the “core functions” limitation. There, an arbitrator determined an employee committed misconduct by refusing to tender his security badge, falsifying his time records, and getting “lost” for long periods of time during the workday. Nevertheless, the arbitrator examined mitigating factors and concluded the Airport Authority lacked just cause to discharge the employee. The arbitrator also reasoned, because the employee’s job duties were not essential to the Airport Authority’s core functions, the “core functions” *1051limitation was inapplicable. We disagreed, reasoning:
The arbitrator misunderstood the extent of his authority to interpret the agreement. The core functions test requires not an analysis of the employee’s job duties, but of the type of misconduct. It is core to the Authority’s mission that the Airport be maintained as a secure facility. [The employee’s] improper use of a security badge directly affected the Authority’s ability to secure the airport for other employees as well as the general public. The Authority must be able to discharge employees who abuse their security badges, falsify time records, conceal their whereabouts at the facility and, in other ways, “breach the trust.” If not, the Authority cannot carry out its core functions.
Id. at 1257.
As City of Easton and Allegheny County clearly demonstrate, the employer’s unfettered right to discharge an employee for certain types of misconduct does not necessarily hinge on whether the employee’s job responsibilities are critical to the performance of an important governmental responsibility, or whether the actual misconduct was criminal or caused harm to a party that the government entity sought to protect. Rather, the focus of the inquiry is whether the misconduct at issue interferes with the public employer’s “control over its enterprise” or impedes the public employer’s powers, which are essential to its ability to accomplish its functions. In other words, if the employee’s misconduct interferes with the public employer’s ability to ensure proper operation of its organization, then it cannot bargain away the ability to terminate an employee for such misconduct.
The application of these principles in the above described cases direct us to a multi-part test. First, where serious misconduct is of a sort which has a direct negative impact on the public function of the employing agency, such as preying upon or otherwise putting at risk those persons the agency is charged to serve,4 there is no question that the core function test has been satisfied. On the other hand, where the conduct is of a type which will have only an indirect or potential impact on the agency’s public duties, such as embezzlement or a breach of trust, two conditions must be met. The misconduct must be work-related5 and must involve dishonesty6 or other misconduct so egregious that if the agency is unable to curtail such behavior it risks relinquishing control of the orderly functioning of its operations. As in cases like ISSU, City of Easton or Allegheny County, it is not necessary that the particular act(s) of the discharged employee, standing alone, impairs or threatens the agency’s operation, but rather that it is the type of conduct which, if left unchecked, may lead to such a result.
We believe that sexual harassment of the sort involved here, at least where it involves physical assaults, falls into this category. It is difficult to imagine how an agency can maintain orderly operations if its employees cannot be assured of a safe workplace in which their duties are not impeded by the fear, or actuality, of unre*1052strained sexual assaults. Moreover, as the Authority points out, to allow such behavior would place the agency itself in violation of both state and federal law. It is simply not rational to conclude that the Authority bargained for such a result; indeed, it lacks the power to bargain away its duty to protect its workforce from the type of conduct found by the arbitrator to have occurred here.
Accordingly, we reverse.
Judge SMITH-RIBNER dissents.
ORDER
AND NOW, this 20th day of June, 2006, the order of the Court of Common Pleas of Philadelphia County in the above captioned matter is hereby REVERSED.
. Notably, when a dispute is submitted to arbitration, the CBA directs that, "[t]he decision of the arbitrator shall be final and binding upon the parties, hereto, but the arbitrator shall not have the power or authority to alter or modify the terms and conditions of this Agreement.” Article VI of the CBA; R.R. at 60a.
. Mitchell was warned about his inappropriate conduct on June 29, 2002. Shortly thereafter, the Authority undertook a formal investigation into the sexual harassment charges lodged against Mitchell. During the investigation, the Authority allowed Mitchell to continue to work in the central warehouse facility. Following the completion of the in*1046vestigation on October 23, 2002, the Authority fired Mitchell. The arbitrator determined that between the time Mitchell was warned and the date of his termination, Mitchell worked without any reported incidents of sexual misconduct.
. Specifically, the Authority argues that:
Since the [Authority] can be held liable for the sexually harassing conduct of an employee directed at a co-employee or for otherwise allowing a sexually hostile environment to exist, it has a duty to protect its employees from such misconduct and to maintain a working environment free of sexually harassing behavior. Thus, under the duty of care and protection aspect of the contractual incapacity principle, [the Authority] owed a duty of care and protection to Mitchell’s co-workers and was required (in order to maintain “essential control”) to address Mitchell’s conduct and prevent it by terminating him....
By reinstating Mitchell with back-pay, the arbitrator has effectively obstructed [the Authority's] ability to meet its legal responsibilities and perform the essential function of maintaining a workplace free of sexual harassment, and the conflicts, tensions, harm, hostility and poisonous environment which Mitchell’s conduct created. Plainly, Mitchell's outrageous and unacceptable conduct (as found by the arbitrator) created a working environment [vis-á-vis] Ms. Broadnax that interfered with the efficient operation of the workplace-a condition that obviously adversely affects the essential function of any employer.
Authority's appellate brief at 19-20.
. As ioPhiladelphia Housing, Musser, Greene County and Port Authority.
. Compare OAG, City of Pittsburgh.
. Our Supreme Court characterized the falsification of time records in City of Easton as, “egregious misconduct that strikes at the very core function of the public enterprise.” Greene County v. Dist. 2, United Mine Workers of Am., 578 Pa. 347, 362, 852 A.2d 299, 308 (2004). As such, work-related dishonesty may be said to amount to a per se example of conduct implicating a core function.