Thursday, April 30, 2009

AB 155: Unions Respond to Vallejo’s Bankruptcy Filing

California unions have responded to the City of Vallejo’s bankruptcy filing with the introduction of AB 155 (Mendoza). Under AB 155, a municipality would have to obtain approval from the California Debt and Investment Advisory Commission before filing for bankruptcy. The commission consists of the state treasurer, the Governor or the Director of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators. AB 155 is supported by a number of unions, including the California Professional Firefighters and CDF Firefighters Local 2881, both of whom are co-sponsoring the bill. The California Association of Counties and the League of Cities are leading the opposition.

Obviously, the unions are worried that more municipalities will follow Vallejo into bankruptcy in an effort to void labor contracts. AB 155 goes a long way towards preventing that. By requiring approval by the California Debt and Investment Advisory Commission, unions hope to prevent municipalities from filing for bankruptcy altogether or at least delay the process long enough to give them more leverage.

I think AB 155 is a bad idea. More important, I think organized labor has vastly overreacted to Vallejo’s bankruptcy filing. The fact is that few municipalities are likely to follow Vallejo into bankruptcy. Yes, everyone is talking about it and a few have even looked into it, but I doubt many will actually do it. Here’s why.

While newspapers have correctly reported that Vallejo’s public safety labor contracts (fire and police) tied the City to high wages, that’s really only half the story. If the contracts just provided for high salaries, Vallejo probably wouldn’t be in bankruptcy. This is because Vallejo could have just exercised its management right to lay-off firefighters and police officers if the total costs of the contract were more than the City could afford. In Vallejo’s case it couldn’t do that. (Vallejo also has binding interest arbitration—but that’s a post for another day . . .)

That’s what the newspapers have failed to properly report. Vallejo’s real problem was that its public safety contracts provided for high salaries and required minimum staffing levels. In the case of firefighters, the contract (as interpreted by an arbitrator) required that the City staff 28 firefighters at all times. To my knowledge there are only a handful of other agencies in the state with contracts that provide for minimum staffing levels. As an employer, having such a provision obviously ties your hands. After all, there are really only two components to an employer’s personnel costs: the cost per employee and the number of employees. As long as you control one of these variables, you can always reduce your personnel costs—either by reducing the cost per employee or reducing the workforce. In Vallejo, it couldn’t reduce its public safety costs because the contracts locked the City into high salaries and minimum staffing levels.

This unique situation is why I don’t think many other municipalities will file bankruptcy. Even if you’re a municipality with a labor contract that now seems unaffordable, you still have the ability to reduce your total costs by reducing your workforce. Granted, laying-off employees is not something any municipality wants to do, but at least it’s an option. It wasn’t an option for Vallejo.

Monday, April 27, 2009

SB 440 Interest Arbitration Statute is Unconstitutional

County of Sonoma v. Superior Court (Sonoma County Law Enforcement Association) (Case No. A122450) (Issued on 4/24/09) ("County of Sonoma")

This is the first appellate decision on the constitutionality of SB 440. SB 440 provides for compulsory binding arbitration of labor disputes between employee organizations representing firefighters and law enforcement officers and the local agencies employing them. In County of Riverside v. Superior Court (2003) 30 Cal.4th 278 ("Riverside"), the California Supreme Court held an earlier version of the statute (SB 402) unconstitutional because it impermissibly infringed upon home rule powers reserved to local governments by article XI of the California Constitution. In response, the Legislature enacted SB 440. The primary change was that under the previous version (SB 402), the arbitration panel’s decision was binding on the public entity. Under SB 440, the arbitration panel’s decision is binding unless the governing body unanimously rejects it. The court in County of Sonoma found that even with this change, the statute is still unconstitutional.


At issue in County of Sonoma were two provisions of the California Constitution: Section 1(b) of Article XI and Section 11(a) of Article XI. Those sections state:

Section 1(b). “. . . The governing body shall provide for the number, compensation, tenure, and appointment of employees.”

Section 11(a). "The Legislature may not delegate to a private person or body power to make, control, appropriate, supervise, or interfere with county or municipal corporation improvements, money, or property, or to levy taxes or assessments, or perform municipal

The first issue the court considered was whether SB 440 involved a matter of “statewide concern.” The court acknowledged that on matters of statewide concern the Legislature may infringe “to a limited extent” on the power the Constitution reserves to counties and charter cities. However, as the court did in Riverside, the court in County of Sonoma rejected the union’s argument that SB 440 involved a matter of statewide concern. Instead, the court affirmed the principle that compensating county employees is a municipal function.

[Side note: The union argued that SB 440 addressed the issue of police and firefighter strikes which was a matter of statewide concern. It was an odd argument since—as the court noted—police and firefighters do not legally have a right to strike. In rejecting the union's argument, the court stated, “We are unwilling to base a finding of statewide concern on the assumption that police officers and firefighters will disobey the law.”]

After finding that SB 440 did not involve a matter of statewide concern, the court then turned to whether the statute violated sections 1(b) and 11(a) of Article XI of the California Constitution. In discussing Section 1(b), the court noted that the purpose of the provision was to limit the power of the Legislature. The court affirmed that Section 1(b) is a “home rule” measure designed to deprive the Legislature of the power to set compensation for county employees and to entrust that authority to county governing bodies. In analyzing SB 440, the court focused on the term “governing body” and what that meant. After discussing a variety of cases and secondary sources (including a reference to Madison, Federalist No. 10), the court concluded that the term “governing body” must mean a majority of that body. Specifically, the court held that:

“Although the constitutional provision does not specifically say that only a majority of the governing body, as opposed to a minority thereof, may set compensation, for the reasons we discuss below, no other construction of section 1, subdivision (b) is reasonable, or indeed even permissible. Permitting a minority of a governing body to set the compensation of county employees by making the arbitration panel’s decision binding on the county would be inconsistent with both longstanding statutory rules of interpretation and established California case law, as well as deeply offensive to basic principles of representative democracy.”

Next, the court turned its attention to Section 11(a). The court had little trouble finding that SB 440 constituted an unconstitutional delegation of the County’s powers to a private body. The court rejected SCLEA’s argument that the County’s ability to reject an arbitration decision cured the unconstitutional delegation.


1. This case is a great victory for cities and counties. The court’s decision was detailed, thorough, and—in my humble opinion—absolutely correct.

2. Assuming this case stands, it will effectively end the efforts of unions to achieve binding interest arbitration through the Legislature. The court’s holding that “governing body” means a majority of the governing body will prevent the unions from amending SB 440 to require a supermajority instead of an unanimous vote. Also, even if SB 440 is amended to allow rejection of an arbitration decision by a simple majority vote, it would still be an unconstitutional delegation of the County’s powers under Section 11(a), as I read the decision.

3. I expect unions will now turn to localized efforts to achieve binding interest arbitration. Many unions took that approach after the initial Riverside decision. Indeed, the voters in many cities and counties (mainly in Northern California ) have already adopted binding interest ordinances. However, given the current economic environment, my gut feeling is that getting voters to approve binding interest arbitration ordinances will be next to impossible.

4. There is no doubt that the union in this matter, the Sonoma County Law Enforcement Association, will petition to the California Supreme Court for review. I wouldn’t be surprised if the Court granted review to settle this issue once and for all. My expectation is that if the Court granted review, it would affirm.

5. One final note, the court’s decision contains a good discussion of the difference between “interest” and “grievance” arbitration with citations to cases in other states and secondary sources. So if you’re looking for a case to cite on that issue, take a look at the decision.

Friday, April 24, 2009

Court Strikes Down SB 440 Interest Arbitration Statute

Just in . . . the court of appeal has struck down SB 440. Excerpts from the decision:

"In County of Riverside v. Superior Court (2003) 30 Cal.4th 278 (Riverside), the California Supreme Court held an earlier version of that statute unconstitutional, because the statute impermissibly infringed upon home rule powers reserved to local governments by article XI of the California Constitution. (Riverside, at p. 282.) The Legislature amended the statute in response to the Supreme Court’s decision. But the County contends the amended version continues to intrude upon its constitutional authority to establish compensation and terms of employment for county employees. We agree with the County and will therefore grant its petition for writ of mandate."

. . .

"The foregoing discussion makes clear that section 1299.7 interferes with the constitutional authority of governing bodies to set county employee compensation under section 1, subdivision (b), because the statute permits less than a majority of the governing body to set employee compensation by making the arbitrators’ decision final and binding upon the county. Section 1299.7, subdivision (b) provides that the arbitration panel’s decision will become final and binding unless the governing body acts in accordance with subdivision (c). (§ 1299.7, subd. (b).) Subdivision (c) of that section permits the governing body to veto the arbitration panel’s decision only by a unanimous vote of all of the body’s members. (§ 1299.7, subd. (c).) Therefore, the terms of the statute empower a minority of a board of supervisors to make the arbitrators’ decision binding on the county, even if the majority of that body disagrees."

More to come after I digest the decision . . .

Saturday, April 18, 2009

The Fight Over Parking Spots: Round 2

Trustees of the California State University (2009) PERB Decision No. 1876-Ha (Issued on 4/15/09)

Is where an employee can park his or her car—as opposed to how much the employee must pay to park—a subject within the scope of representation (ie negotiable) under HEERA? In Trustees of the California State University (2006) PERB Decision No. 1876-H (Trustees I), the Board answered in the negative. There, the Board analyzed whether the location of employee parking qualified as a “term and condition” of employment under a three-part test. Under that test, a subject is within the scope of representation if it: (1) involves the employment relationship; (2) the subject is of such concern to management and employees that conflict is likely to occur, and the mediatory influence of collective negotiations is the appropriate means of resolving the conflict; and (3) the employer's obligation to negotiate would not significantly abridge its freedom to exercise those managerial prerogatives essential to the achievement of its mission. In Trustees I, the Board found that the location of employee parking did not meet the first prong of the test—involve the employment relationship—and dismissed the charge.

The union appealed and in California Faculty Ass’n v. Public Employment Relations Board (2006) 160 Cal.App.4th 609, the court of appeal overturned Trustees I. The court found the Board’s holding that the location of parking did not involve the employment relationship to be “clearly erroneous” because it conflicted with both federal precedent and the Board’s own precedent. The court then remanded the case back to the Board to consider other factors which the Board had not reached in its decision.

In Trustees of the California State University (2009) PERB Decision No. 1876-Ha (Trustees II), the Board considered the two other prongs of the three-part test for determining whether a subject matter is a term and condition of employment. First, the Board considered the second-prong of the test which asks whether the subject is of such concern to employees and management that conflict is likely to occur. The Board noted that the location of parking had often changed over the years and there was little evidence that the subject spawned grievances in the past. In addition, the Board held that even if the subject was likely to cause conflict, negotiations were not the proper method of resolving the conflict because the needs of students would not be properly represented.

Next, the Board considered the third-prong of the test which is whether requiring negotiations would abridge a fundamental management prerogative. The Board found that it would. Specifically, the Board found that the primary reason that CSU built the new parking facilities was to provide parking to students. Requiring CSU to negotiate over whether employees could park in these facilities would, according to the Board, significantly abridge CSU’s freedom to manage its campus operations. Because the Board found that the union had failed to establish the second and third prongs of the test, it dismissed the charge.


1. I thought the Board’s holding on the second-prong of the test—whether the subject is of such concern to management and employees that conflict is likely to occur—was interesting. I don’t recall another case with a similar holding. (There may be one out there I just don’t ever recall one). Usually, the parties just concede the second prong on the assumption that since you’re currently fighting over it, it must be something likely to cause conflict. I’m not sure how viable this argument is going to be in the future on other subjects. My personal feeling is that this was a very limited holding on this specific issue and I don’t expect PERB to find many other subjects failing the second-prong.

2. The more important holding in this case involves PERB’s finding that students are third parties who can be taken into consideration in determining whether a subject infringes on fundamental management rights. How far this will be taken in the future remains to be seen. However, I can certainly see this having an impact under HEERA and EERA where student learning is involved. I can also see this argument being made under the Dills Act and MMBA in the context of providing services to the public. I expect in all these situations management will argue that requiring negotiations on certain subjects will infringe on the its fundamental mission to teach students, provide services, etc.

3. Because the court of appeal overturned the Board once already in this matter, I expect that CFA will again appeal. It’s interesting to note that the MOU between CSU and CFA that was in effect when this dispute began in 2002 has long expired. A new MOU has been negotiated and is in effect to 6/30/10. The new MOU does not mention parking locations, which means that how this decision ends will still have real meaning.

4. One final note, the California Supreme Court issued its Claremont decision in 2006; about a year and a half before the court of appeal issued its decision overturning Trustees I. Claremont dealt with the scope of representation under the MMBA, not HEERA, but the two statutes are very similar and both are (somewhat) modeled after the NLRA. The test imposed by the Court in Claremont is a little different than the Anaheim test historically used by PERB. In the future, it will be interesting to see if the courts or PERB attempt to reconcile these two tests.

(Correction: My initial post incorrectly said that the court of appeal decision was issued in 2006, a few months before Claremont was issued. That's incorrect. The court of appeal decision was issued in 2008. The version of the court of appeal decision on Westlaw actually has an incorrect date of 2006 in the body of the decision which is what threw me off.)

Wednesday, April 1, 2009

Alexander v. Gardner-Denver is Dead (No Fooling)

14 Penn Plaza LLC v. Pyett (U.S. Supreme Court Case No. 07-581) (Issued 4/1/09)

Can an individual employee be forced to arbitrate an employment discrimination claim (e.g. a Title VII complaint for race discrimination) where the employee is covered by an arbitration provision in a CBA or MOU that expressly covers such claims? If you had asked me this question yesterday I would have said absolutely not, citing to Alexander v. Gardner-Denver (1974) 415 U. S. 36 (Gardner-Denver). Today it’s different. That’s because of the Supreme Court’s decision in 14 Penn Plaza LLC v. Pyett issued on April 1st. At issue in 14 Penn Plaza was the following provision in a CBA between an employer and SEIU:

“§30 NO DISCRIMINATION. There shall be no discrimination against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, . . . or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.”

The Court of Appeal, relying on Gardner-Denver, had ruled that the above provision was unenforceable. The Supreme Court reversed in a 5-4 decision authored by Justice Thomas and joined by Roberts, Scalia, Kennedy, and Alito.

The majority opinion first held that Gardner-Denver was not controlling since that decision did not involve an arbitration provision that expressly covered discrimination claims. After distinguishing Gardner-Denver, the Court went on to attack the “broad dicta” contained in the Gardner-Denver decision and argued that the dicta “rested on a misconceived view of arbitration that this Court has since abandoned.”

The majority opinion drew a dissent authored by Souter and joined by Stevens, Ginsburg and Breyer. According to the dissent, “The issue here is whether employees subject to a collective-bargaining agreement (CBA) providing for conclusive arbitration of all grievances, including claimed breaches of the Age Discrimination in Employment Act . . . lose their statutory right to bring an ADEA claim in court, §626(c). Under the 35-year-old holding in Alexander v. Gardner-Denver Co., 415 U. S. 36 (1974), they do not, and I would adhere to stare decisis and so hold today."


1. This decision is huge. Gardner-Denver has been a foundational decision in labor law for over 35 years. It’s one of the first cases you read in any labor law class. For all those years, the dominant view has always been that under Gardner-Denver an individual employee's statutory right to bring an employment discrimination claim in court trumped any arbitration provision in a union contract.

2. Given the significance of this decision, I was surprised that the dissent was so tame. I would have expected more fireworks. Perhaps the dissent was comforted by the fact that the majority decision rested on statutory interpretation of the NLRA and ADEA. Given the political make-up of Congress and the Presidency, the dissent may be thinking that there is a good chance this decision will be overturned.

3. In the meantime, I expect a rush among private sector employers to try to get provisions like the one in 14 Penn Plaza into their CBA’s. This is because private sector employers have never lost their love affair with binding arbitration, despite the hostility the courts have shown towards binding arbitration in the employment context.

4. I think the initial reaction among public sector employers will be the same. However, I think once public sector employers consider the pros and cons of such provisions, whether to pursue one will depend on individualized factors for each entity. For example, from a purely monetary standpoint, an employer would probably save money if all employment claims had to be arbitrated, but not necessarily so. Certainly, I think judgments would be lower with an arbitrator versus a jury. Attorneys fees would be lower, but not necessarily by much depending on how much discovery is allowed. However, assuming arbitration is cheaper than civil litigation more cases may go to arbitration than would have been filed in court. An example of this can be seen with the MMBA. Prior to PERB taking jurisdiction over the MMBA, few unions brought unfair practice charges in court because it was time-consuming and expensive. Now, with PERB providing an administrative remedy, far more unfair practice charges are being filed every year than were filed with the courts prior to PERB's assumption of jurisdiction.

5. In addition, if the arbitration provision is structured such that a union has a duty of fair representation with respect to employment discrimination claims, I think far more claims would be arbitrated than would be litigated in court. This is because traditional plaintiff-side attorneys - who all work on contingency - only select the best cases. In contrast, if there was a duty of fair representation, I think a union would be forced to arbitrate some cases that a traditional plaintiff-side attorney would not take.

6. Finally, all this may be moot in California unless the California courts follow the lead of the Supreme Court. This is because most employment claims in California are brought under the Fair Employment and Housing Act since it is much broader than federal law. It is not at all clear whether California courts would follow the reasoning in 14 Penn Plaza with respect to FEHA claims. If the California courts didn't go along, I think the effect of 14 Penn Plaza in California will be very limited.