PERB General Counsel: Governor's Emergency Furloughs Permissible

IUOE, Unit 12 v. State of California (Department of Personnel Administration) (2009) PERB Unfair Practice Case No. LA-CE-664-S (The dismissal letter can be found on the Sacramento Bee’s website here.)

PERB’s Office of the General Counsel (OGC) has issued its first decision on the legality of the Governor’s decision to unilaterally implement furloughs of state employees.  Back in January 2009, IUOE filed an unfair practice charge alleging that the State unlawfully implemented two day per month furloughs, which the Governor later increased to three days per month.  IUOE argued that furloughs were a mandatory subject of bargaining and therefore the State could not act unilaterally.

In its decision, the OGC agreed that furloughs are generally subject to bargaining since they are in essence a reduction in hours.  However, the OGC recognized that Government Code section 3516.5 provides that in an “emergency” the State can act before it bargains with the union.  To determine what constitutes an “emergency” the OGC looked to the MMBA which contains almost identical statutory language.  (Gov. Code, §3504.5.)  Relying on Sonoma County Organization Employees v. County of Sonoma (1991) 1 Cal.App.4th 267, a court case interpreting the MMBA language, the OGC held that the burden fell upon the union to disprove the existence of an “emergency.”  More important, the OGC held that “an emergency declaration is presumed valid and a party challenging the declaration has ‘the burden of proving its invalidity.’” Here, the OGC found that the Governor’s Executive Orders contained enough facts to establish that an emergency existed and that IUOE had provided no facts showing otherwise.  Accordingly, the OGC dismissed the unfair practice charge.

Comments:

1. This case could be ground-breaking.  As it stands, both the Dills Act and the MMBA have language allowing an employer to act unilaterally in an “emergency.”  That’s really nothing new as the NLRA has long recognized that an employer can act unilaterally in an emergency.  The same doctrine has been recognized under the other acts administered by PERB, such as EERA.  The problem for employers is how “emergency” has traditionally been defined.  The unions have always argued that a true emergency does not exist unless the employer can show that it had no other choice but to take the action it did.  Here, however, the OGC did not discuss at all whether the Governor had options other than furloughs (e.g. layoffs).  Is that not a requirement of an “emergency”?  If so, that's a very favorable clarification for public employers.
2. The decision is also significant because it holds that the declaration of an emergency is “presumptively” valid.  That means the burden of proof rests on the union.  Prior cases discussing emergencies could be read to place the burden of proof on the employer to establish an emergency.  
3. This decision also does not bode well for state employees in the coming fiscal year. The unions have been publicly complaining that furloughs are bad public policy because they reduce state services to the public.  The unions have been making this argument hoping that the Governor would reduce or eliminate the furloughs.  However, state employees should recognize that the Governor could just as well impose a straight salary cut.  Under this decision, where there is a bona fide emergency, the Governor could just as well impose salary cuts as impose furloughs.  Salary cuts have the benefit of not reducing state services.  I’m not saying that salary cuts makes sense—especially in classifications where state employees are already paid less than employees in comparable jurisdictions—but it’s certainly an option the Governor must examine given the dire fiscal situation.
4. Finally, it should be noted that this case is not precedential. However, if IUOE files an appeal to the full Board of PERB, any decision rendered will be precedential. My bet is that an appeal will be filed and if the Board affirms—which it does more than 90% of the time—it will be a very favorable decision for pubic employers.

[ADDENDUM:  Got an email regarding the notion of the Governor imposing salary cuts.  My comments above are aimed at what the Governor can or can't do under the Dills Act, since that's what the case was about.  Obviously, you still have the Department of Personnel Administration v. Superior Court (1992) 5 Cal.App.4th 155, 174-175 case (which I talked about before here) which says that only the Legislature can directly change salaries.  However, there are ways to reduce compensation without violating that case and those options appear to be open to the Governor if the rationale in this decision is adopted by the Board at PERB.  (Further, in my mind it's at least conceptually possible that the Governor could circumvent the Department of Personnel Administration case and lower salaries in a true emergency, but's that for another post)  In any event, my point was that things could get a lot worse than the current furloughs - which is still true.] 

Union Didn't Misrepresent Contract to Members

Santa Ana Educators Association (2009) PERB Decision No. 2087-E (Issued on 12/30/09)

This case was brought by a couple of union members dissatisfied with a contract negotiated by their union, the Santa Ana Educators Association (SAEA).  In the contract, SAEA agreed to concessions to which the dissenting union members strongly objected.  They felt the contract was a bad deal and alleged that the SAEA violated its duty of fair representation by agreeing to it.

The fact that some union members objected to a contract is nothing new.  There are always some people who feel the union bargaining team didn’t get enough.  Here, the objecting union members went further and alleged that the union lied to its members in describing the provisions of the proposed contract.  In considering this claim, PERB set forth a test for determining when a union breaches its duty of fair representation by misrepresenting facts to secure a contract ratification.  To establish such a claim, the charging party must show that: "(1) the exclusive representative made an untrue assertion of fact (or conduct equivalent to an untrue assertion of fact); (2) the exclusive representative's assertion was made with knowledge of its falsity; (3) the exclusive representative's assertion was made to secure ratification of a contract; and (4) the fact misrepresented must have a substantial impact on the relationships of the unit members to their employer."

Here, PERB found that those elements were not established and affirmed the dismissal.

Governor Releases Budget: Salary Cuts Planned for Employees

The Governor released his proposed budget for 2010-11 today.  Of interest to a lot of people are the Governor’s proposals for employee compensation.  Under the proposed budget, the 3-day per month furloughs of state employees will end.  However, the Governor still plans to save $1.6 billion in employee compensation costs.  Here's how he plans to do it (from page 68-69 of the Governor’s budget):

Governor’s Proposed Reductions:

1. Workforce Cap — A reduction of $449.6 million achieved through a five-percent increase in salary savings. An Executive Order will require that Agency Secretaries and Department Directors immediately act to achieve the five-percent reduction by July 1, 2010. It is expected that attrition will be the primary factor in achieving the increased salary savings. The constitutional offices are not included in the workforce cap because the fiscal year 2009-2010 budget for each of those officers included a permanent reduction that achieves savings to the level of the workforce cap or a higher amount.
2. Five-Percent Salary Reduction — A reduction of $529.6 million achieved through an across-the-board reduction in salaries by five percent. 
3. Increased Employee Retirement Contribution — A reduction of $405.8 million achieved by increasing employees’ retirement contribution by 5 percent and reducing the employer contribution accordingly.
4. Lower Cost Health Care — A reduction of $152.8 million in health care costs beginning in January 2011 achieved by contracting for lower-cost health care coverage either directly from an insurer or through CalPERS.  Savings beginning in 2011-12 will pre-fund other post-employment benefit costs.
5. Pre-funding for Health and Dental Benefits for Annuitants — A decrease of $98.1 million for pre-funding other post-employment benefits.

Comments:

1. Workforce Cap:  The Governor wants a generalized 5% reduction in employee compensation from all agencies and departments.  The budget says this will be accomplished primarily through attrition.  Since it's at the agency/department level, I can't see how else it could be accomplished since agencies/departments don't have the delegated authority to negotiate salary cuts.  Therefore the only way to achieve a reduction in total compensation is to have fewer workers.  Fortunately, the state has enough turnover that a 5% reduction achieved through attrition shoudn't be a problem.
2. Five-Percent Salary Reduction:  This is going to be tough for the Governor.  Here's why.  It's true that this can be accomplished without bargaining with the unions, but only if the Legislature cooperates.  (All the Legislature has to do is put the magic words in a bill, "Notwithstanding the requirements of Goverment Code section 3512 et. seq." - which is the Dills Act.)  However, I can't see the Legislature agreeing to impose a 5% salary cut on state employees without requiring the Governor to bargain that with the unions.  But if the Governor goes to the bargaining table, here's what likely will happen.  The unions know that under the Dills Act, the Governor can't impose salary cuts on them even at impasse.  (Department of Personnel Administration v. Superior Court (1992) 5 Cal.App.4th 155, 174-175.)  So what the unions will do (and have done) is counter the Governor's salary cut proposal with a slew of "savings" proposals, none of which involve cutting state employee compensation.  Some of these proposals will have merit, but many will not, and in either event they won't equate to a 5% salary reduction.  Then when it gets close to July 1st, the Governor will ask the Legislature to impose the salary cuts but the unions will argue that the Governor has been bargaining in bad faith because he has ignored the unions' "savings" proposals.  In the end, the Governor might be forced to impose layoffs which can be done without bargaining, and which is what I think will happen (and quite frankly, layoffs may make more sense from a policy standpoint - but that's for another blog).
3. Increased Employee Retirement Contribution:  Currently, most non-safety state employees pay 5% of their salary for the Tier 1 defined benefit pension plan.  The state picks up the remainder of the cost.  The "normal" actuarial cost for non-safety pensions is approximatley 10%.  [Note: It's currently above 15% because of CalPERS recent loses]  So this basically means that most state employees will be paying the full cost of their pensions.  However, the problem here is the same as with salary cuts.  The Governor needs the cooperation of the unions or Legislature and neither is a sure thing.
4. Lower Cost Health Care:  Interesting.  You would think that if there was a lower cost health plan out there the state would already be using it.  Maybe there is.  However, my gut feeling is that the only way you're going to decrease health care costs is to provide less coverage and benefits.  Again, not easy to do without the unions or the Legislature and/or CalPERS agreeing to it.
5. Pre-funding for Health and Dental Benefits for Annuitants:  Not sure why this is here but pre-funding certainly makes sense.  It's something that local entities are trying to do, but obviously is very difficult in these economic times.
   
   

Mid-Year Review of PERB

Half of fiscal year 2009-10 is over.  As I mentioned in prior posts, this year I’ve been keeping statistics of all the Board’s decisions.  So let’s take a look at some of the key statistics through December 31, 2009.

Total Number of Board Decisions (from 7/1/09-12/31/09):
43

Decisions by Statute:
MMBA: 21
EERA: 11
Dills Act: 8
HEERA: 3

Decisions by Type:

Appeals from Dismissals:  31 (11 of which were DFR’s)

Exceptions to ALJ Decisions:  7
Approval of Settlement:  1
Administrative Appeal:  2
Reconsideration:  2

Decisions by Outcome:

Decisions affirmed:  39
Decisions overturned:  2

-  1 ALJ decision overturned (2077-M)
-  1 dismissal overturned (2079-M)
Decisions partially overturned:  2
-  Decisions 2069-H and 2070-H

Decisions by Board Member:
Dowdin:  20
Neuwald:  9
McKeag:  7
Wesley:  7
 
Other Interesting Facts:

• 42 of the 43 decisions were unanimous. Only 1 decision drew a dissent: 2058-M by Member Neuwald

Comments:

1. The main thing that stands out to me is the affirmance rate, which was above 90%.  That means a party's chances of getting a decision overturned was less than 10%.  At that's only if you count the 2 partial dismissals. 
2. Also, with only 1 case drawing a dissent, this Board has been remarkably unanimous in its decisions.
3. Finally, it's worth noting that oral argument remains the rarest of all Board actions.  The last time the Board granted oral argument was in 2004 in a case involving the right of teachers to wear union buttons at work.  (PERB Dec. No. 1727-E).  The next most recent time (as far as I know) was in 1994 when the Board granted oral argument twice, one in a case involving CSU (PERB Dec. No. 1093-H) and one involving the University of California (PERB Dec. No. 1039-H).  So only 3 times in the last 15 years and not once during the Schwarzenegger administration.  I would enjoy watching another oral argument before the Board (I saw the one in 2004) so I'm hoping the Board grants a request in the next year.

AG: Joint Labor-Management Benefits Committee Not Subject to Open Meeting Act

Attorney General’s Opinion (AG Opn. 08-806 12/31/09)

The Attorney General has issued an opinion finding that a Joint Labor-Management Benefits Committee (JLMBC) created as part of a Memorandum of Understanding between an employer and exclusive representative is not subject to the Brown Act (open meeting law).

State Court Furlough Ruling: Judge Says "Labor Parity" is Not Rational

SEIU Local 1000 v. Arnold Schwarzenegger (Alameda County Superior Court Case No. RG09456750) (The decision can be found on the Sacramento Bee’s website here.)

By now everyone has heard that an Alameda superior court judge has held that the Governor’s imposition of furloughs on state employees was improper.  For me, the most interesting part of the decision was the judge’s holding that the state’s “labor parity” argument was not rational.  Basically, there are some employees in the state whose salaries are funded from special pots of money such that furloughs do not create savings that the state can spend elsewhere. These employees were still subjected to furloughs on the ground that all employees should help bear the burden of the financial pain. The court said that requiring all employees to “suffer equally” without regard to actual savings to the General Fund was “not rationally related to any governmental purpose.”

Comments

I believe the judge got it wrong. Many public agencies throughout the state have imposed furloughs, including furloughs of employees paid from special funds.  Although furloughing these employees does not create spendable savings, there are solid reasons to do so anyway from a human resources and organizational behavior standpoint. 

Specifically, not having specially funded employees share the pain creates a financial incentive for employees in general fund areas to move special funds areas. I don’t know of any public agency that has a different pay scale depending on the funding source for salaries. An Office Assistant in a general fund area makes the same as an Office Assistant in a special fund area in every agency that I am aware of.  Allowing special fund employees to avoid furloughs means they get paid more, and therefore everyone will want to move into a specially funded position. That creates a human resources issue for the employer. Does the employer allow that movement?  How does the employer address the recruitment problem in general fund areas? Should general fund employees then be paid more to account for the possibility of furloughs? But that opens the door to differing pay scales based on how an employee’s salary is funded.  Does that make sense from a human resources perspective? From an organizational behavior standpoint?  In my mind no, especially if the furloughs are intended to be short-term.

I’m not saying that furloughing specially funded employees always makes sense. It may not in certain situations.  All I’m saying is that there are solid, rational reasons why an employer might want to subject specially funded employees to furloughs even if it doesn’t create “savings” that can be spent elsewhere. Simply put, there are competing public policy arguments for both sides.  In my humble opinion, the balancing of those competing arguments should be done by the public agency’s governing body, not by the courts.  So I respectfully disagree with Judge Roesch’s holding that there is no “rational” reason to furlough employees paid with special funds.

Governor Didn't Have to Meet and Confer on Overtime Changes

State of California (Department of Personnel Administration) (2009) PERB Decision No. 2085-S (Issued on 12/22/09)

Facts:

Local 39 and the State of California were parties to a Memorandum of Understanding (MOU) covering employees in Unit 13 (Stationary Engineers) that expired on June 30, 2008. The MOU provided that in calculating overtime, “all compensable time (i.e., sick leave, vacation, annual leave, holiday credit, CTO and personal leave) shall be considered as time worked.”

On February 19, 2009, the Legislature passed SBX3 8 as part of a comprehensive plan to close the State budget deficit.  Among other changes, SBX3 8 added section 19844.1 to the Government Code.  That section states:

"Notwithstanding any other provision of law, personal leave, sick leave, annual leave, vacation, bereavement leave, holiday leave, and any other paid or unpaid leave, shall not be considered as time worked by the employee for the purpose of computing cash compensation for overtime or compensating time off for overtime."

After section 19844.1 was enacted, the State changed the method it used to calculate overtime for Unit 13 employees.  Local 39 argued that the State was obligated to meet and confer before implementing any changes.  Local 39 asserted that the State committed an unfair practice by acting unilaterally.

Decision:

The Board agent dismissed the charge.  On appeal, the Board affirmed.  First, the Board considered whether the State had an obligation to meet and confer over implementation of section 19844.1 after its enactment.  Relying on State of California (Department of Personnel Administration) (2008) PERB Decision No. 1978-S (“DPA”), the Board said no. Quoting from the DPA decision, the Board held that:

“The California Constitution provides that the Legislature 'may exercise any and all legislative powers which are not expressly, or by necessary implication denied to it by the Constitution.'  [Citations omitted] The Dills Act is a limited delegation of authority by the Legislature to the Governor, allowing DPA, as the State employer's representative, the authority to bargain with the State's unions to determine terms and conditions of employment. [Citations omitted] The Dills Act, however, does not preclude the Legislature itself from unilaterally adopting, enacting or implementing terms and conditions of employment which, if implemented by DPA without legislative direction, would have been an unfair practice if not negotiated.”

Next, the Board considered whether the Governor was obligated to meet and confer with Local 39 prior to signing the new law. Relying on State of California, Department of Personnel Administration (1988) PERB Decision No. 706-S, the Board held that, “[W]hen the Governor is acting as a participant in the legislative process and is fulfilling his/her constitutional responsibilities thereby, those acts are to be viewed separate and apart from his/her responsibilities as a chief executive and employer of State employees.”  Thus, the Board held that the Governor was not obligated to meet and confer with Local 39 prior to signing SBX3 8.

After dismissing the remaining bad faith bargaining allegation, the Board affirmed the dismissal of the entire unfair practice charge.

Comments:

1. The Board’s holding that the Governor didn’t have to meet and confer with the union over the implementation of section 19844.1 seems straight-forward. One of the exceptions to the meet and confer requirement has always been where the employer has no choice because of a change in law.  Here, that was the case.
2. More interesting was the Board’s holding that the Governor wasn’t required to meet and confer with the union prior to signing the new law. Under the Board’s reasoning, its holding would be the same even if the Governor had proposed the legislative change (which was probably the case here, but the decision didn’t say).  This holding is significant because the same would likely not be true for cities and counties under the MMBA, and likely for school districts under EERA.  This is because under the California Supreme Court’s decision in Seal Beach Police Officers Association v. City of Seal Beach (1984) 36 Cal.3d 591 ("Seal Beach"), a city or county must generally give notice to the union and engage in the meet and confer process before taking legislative actions involving subjects within the scope of bargaining.  Thus, unlike the Governor, a city or county cannot generally separate its “legislative” function from its function as an “employer.
3. Interestingly, the Board’s decision in State of California, Department of Personnel Administration (1988) PERB Decision No. 706-S did not discuss Seal Beach.  However, there is another precedential Board decision that does, State of California, Governor Pete Wilson (1992) PERB Decision No. 927-S. That decision involved an initiative proposed by the Governor that would have allowed the Governor to impose furloughs on state employees upon a declaration of a fiscal emergency.  The union argued that under Seal Beach, the Governor had to meet and confer over the initiative.  PERB avoided answering that question directly.  Instead, PERB held that the subject matter of the initiative was not within the scope of bargaining.  Specifically, PERB held that, “the mediatory influence of negotiations is not suited to the resolution of conflict over whether the Governor should have the power, when a fiscal emergency is declared, to reduce the salaries of state employees, or furlough state employees.  In addition imposing such an obligation would unduly abridge the State employer's freedom to exercise those managerial prerogatives essential to the achievement of the State's mission.” Accordingly, PERB held that:  "... the subject of the Governor obtaining the power, through the initiative process, to reduce the salaries of state employees or to furlough state employees when a fiscal emergency is declared is not a subject within the scope of representation."
4. The State of California, Governor Pete Wilson (1992) PERB Decision No. 927-S decision is significant because it is the clearest precedential decision that I know of that states that a furlough of employees during a fiscal emergency is not within the scope of bargaining.  Obviously, this is a huge area of contention right now in the public sector.  The unions have vigorously asserted that any change in hours is negotiable; and there are certainly precedential decisions supporting that contention.  However, none of those decisions have addressed changes in hours (i.e. furloughs) in the context of a fiscal emergency.  While PERB has acknowledged the concept of a "fiscal emergency" there are few cases actually finding one.  Will this latest fiscal crisis—considered by many to be the worse since the Great Depression—qualify as a "fiscal emergency"?  If it doesn't, I don't know what would.  If it does constitute a fiscal emergency, the State of California, Governor Pete Wilson decision suggests that PERB might find furloughs and other actions to be outside the scope of bargaining.