Members of the District's police union picketed outside the District Building yesterday to protest Mayor Marion Barry's refusal to accept an arbitrators' decision to grant the union the pay increase it requested.

Carrying signs saying "Mayor Barry is a labor outlaw" and "Barry obey the law," about 12 members of the Fraternal Order of Police persuaded some union members not to attend the mayor's reception for working men and women that was under way on the fifth floor.

Gary Hankins, chairman of the police union's labor committee, said the mayor's reception was "hypocritical" and that the mayor has demonstrated that he is not "labor's friend" by refusing to transmit the arbitration's panel's decision to the City Council for approval.

In May, a three-member arbitration panel ruled that the District must grant the police union a 15 percent wage increase over three years and that the compensation package would be retroactive to Oct. 1, 1984. Barry argued against the award, saying that it could cost the city $23 million more in pay and benefits.

After the D.C. Public Employee Relations Board refused to overturn the arbitration panel's decision, the District government in July filed suit in D.C. Superior Court to overturn the arbitration panel's decision. The court has not ruled.

Meanwhile, Barry said yesterday that it was "unjust and unconscionable" that a labor union would try to prevent District workers from attending a reception held in their honor. The mayor also said it would set "dangerous and expensive precedents" to allow the arbitration panel's decision to go unchallenged.