Supreme Court Grants Review on Whether Right to Privacy Prevents Release of Non-Member Employee Addresses to Union

County of Los Angeles v. Los Angeles County Employee Relations Commission (Supreme Court Case No. S191944) (Reviewed granted on 6/16/11)

I discussed this case in a couple of prior blog posts. (Click here and here for prior posts.) The Court of Appeal decision held that under California’s right to privacy, non-union members of a bargaining unit (i.e. agency fee payers) have a reasonable expectation of privacy that their personal information will remain confidential. The Court held that before the home addresses of non-union members can be released, the employer must provide these employees with notice and an opportunity to object to the disclosure of their personal information.

On June 16, 2011, the Supreme Court granted review of this case. The specific issues that the Court granted review on are:

(1) Under the state Constitution (Cal. Const., art. I, § 1), do the interests of non-union-member public employees in the privacy of their personal contact information outweigh the interests of the union representing their bargaining unit in obtaining that information in furtherance of its duties as a matter of labor law to provide fair and equal representation of union-member and non-union-member employees within the bargaining unit? (2) Did the Court of Appeal err in remanding to the trial court with directions to apply a specific notice procedure to protect such employees' privacy rights instead of permitting the parties to determine the proper procedure for doing so?

Court: City Has Inherent Authority to Furlough Employees

City of Los Angeles v. Superior Court (Engineers and Architects Association) (Court of Appeal Case No. B228732) (Issued on 3/25/11)

Facing a $500 million deficit, the City of Los Angeles (City) passed an ordinance furloughing civilian employees for up to 26 days per fiscal year. Many of the furloughed employees filed grievances under their union contracts arguing that the furloughs were impermissible. After the grievances were denied, the Engineers and Architects union requested arbitration. When the City refused to arbitrate, the union filed a petition to compel arbitration of over 400 such grievances.

The trial court granted the petition to compel arbitration finding that the grievances were arbitrable. The City appealed. The Court of Appeal found there to be legitimate questions as to whether the furloughs are arbitrable under the parties’ Memorandum of Understanding (MOU). However, the court nevertheless ruled in the City’s favor by finding that any agreement to arbitrate the furloughs constituted an improper delegation of discretionary policymaking power vested in the City Council.

With respect to the holding that arbitration would constitute an improper delegation of authority, the court began its analysis by discussing three different types of improper delegation.  First, there can be an improper delegation to a private individual under California Constitution, article XI, section 11.  However, this provision only applies to State delegations of municipal power to private individuals, and does not apply to a City’s delegation of its own power. Second, there can be an improper delegation by a legislative body to another actor, such as an arbitrator.  Here, however, the City passed an ordinance authorizing furloughs and did not delegate the authority to another individual. Third, there can be an improper delegation of a public agency’s discretionary power.  The court cited to prior cases holding that: “As a general rule, powers conferred upon public agencies and officers which involve the exercise of judgment or discretion are in the nature of public trusts and cannot be surrendered or delegated to subordinates in the absence of statutory authorization.” (California Sch. Employees Assn. v. Personnel Commission (1970) 3 Cal.3d 139, 144; San Francisco Fire Fighters v. City and County of San Francisco (1977) 68 Cal.App.3d 896, 901.)

In examining whether this case involves an improper delegation of discretionary authority, the court noted that the City’s Charter vests budgeting discretion in the City Council and the Mayor. The City Charter also provides that the City Council “shall set salaries for all officers and employees of the City.”  The court held that, “Clearly, a mandatory furlough is encompassed within salary setting [citation omitted] and a furlough imposed in a fiscal emergency is encompassed within budget making. Moreover, it cannot legitimately be disputed that setting salaries is a discretionary function.”

Applying these findings to the case at hand, the court held that by seeking to arbitrate the grievances, the union was attempting to “have an arbitrator determine issues of discretionary policymaking which have been assigned to the City Council."  The court further held that, "The Union wants a determination made that the City violated the salary and workweek provisions of the MOU by instituting furloughs, and that the furloughs were therefore improper. Grievance after grievance argued that the furloughs were improper and that the employees should be returned to full-time work and repaid for the days on which they were furloughed.” In such a situation, the court held that the union’s petition to compel arbitration was a clear, “… challenge to a City Council’s decision to impose furloughs as a response to the City’s dire financial condition. If the City Council had agreed to arbitral review of such a decision, it would have been an improper delegation of its salary setting and budget making powers.”

Comments:

1. According to the court, the issue that the union wanted to arbitrate was whether the City had the authority to furlough employees. The court held that this issue could not be deleted to an arbitrator as it was an inherent power of the City. The court, however, did not address whether the City had to bargain with the union before exercising its power to furlough employees. In a footnote, the court noted that the City offered to bargain over the effects of the furloughs but not the decision to furlough employees.  The court acknowledged that, “… the issue of whether furloughs could be imposed without prior consultation with the Union is different from the issue of whether furloughs could be imposed at all.” As for whether the City had to bargain, that issue is pending before the City’s Employee Relations Board on an unfair practice charge filed by the union. Thus, this decision does not directly address whether furloughs have to be bargained.
2. On the issue of whether furloughs have to be bargained, there was another interesting comment in a footnote: “… While the City argues that section 1.9 of the MOU permits it to unilaterally furlough employees, the City also argues that, even if the MOU does not permit the imposition of furloughs, the City nonetheless may implicitly suspend operation of the MOU by emergency ordinance properly enacted.” The court did not address this issue.  However, whether a public entity can suspend operation of a MOU during a fiscal emergency is an issue that has to be addressed sooner or later in this economic climate.  Answering that question in the negative might push more public agencies to consider Chapter 9 bankruptcy ... something that most public agencies are loath to even mention ... 

Court Affirms Duty of Fair Representation under MMBA

Paulsen v. Local No. 856 (Court of Appeal Case No. A126633) (Issued on 3/18/11)

Plaintiffs are Deputy Probation Officers employed by the County of Marin (County) who brought a wage and hour lawsuit against both the County and their union, Local 856. The lawsuit alleged that the County and the union entered into a “secret” deal to falsely designate plaintiffs as exempt employees under the Fair Labor Standards Act. The plaintiffs brought three (3) causes of action alleged against the union: 1) breach of the duty of fair representation, 2) common law breach of fiduciary duty, and 3) fraudulent concealment.

The trial court sustained the union’s demurrer to the first cause of action on the ground that PERB has exclusive jurisdiction over an alleged breach of the duty of fair representation. The trial court also sustained the union’s demurrer to the 2nd and 3rd causes of action on the ground that the “essence” of those claims also was for breach of the duty of fair representation.

On appeal, the plaintiffs made the novel argument that under the MMBA there is no duty of fair representation. Because there is no duty of fair representation, plaintiff s argued that there could be no unfair practice. The court acknowledged that in Andrews v. Board of Supervisors (1982) 134 Cal.App.3d 274, 283 (“Andrews”), another appellate court concluded that the MMBA does not contain an implied duty of fair representation. However, based on subsequent case-law, the court questioned the validity of the Andrews decision and noted that PERB has consistently held that a duty of fair representation exists under the MMBA. Accordingly, the court held that a claim for breach of the duty of fair representation is clearly an unfair practice under the MMBA.

Comments:

1. In addition to the above holding, the court also affirmed that MMBA section 3511 only exempts from PERB’s jurisdiction peace officers designated under Penal Code 830.1. Deputy Probation Officers are designated peace officers under Penal Code 830.5, and therefore are subject to PERB’s jurisdiction.
2. With respect to the duty of fair representation, the court emphasized that the duty arises from the union’s role as the “exclusive” representative of employees. The decision notes that, "there is ordinarily no such duty when the union does not occupy that position, or as to particular matters for which the union does not act as the employees’ exclusive agent." Typically, the duty of fair representation attaches to negotiations and contractually based remedies under the union’s exclusive control. What this means is that if the union voluntarily takes on a role—for example, representing an employee in a civil service hearing where the employee is free to represent himself or herself or obtain independent counsel—the duty of fair representation may not attach.  I've always seens this as an unnecessary loophole in the law.  In my opinion, if a union voluntarily undertakes representation of an employee the duty of fair representation should attach.  Granted, I'm a management attorney so I'm biased.  But it seems to me that an employee should expect the union to treat him or her fairly and not to make arbitrarty decisions regardless of whether the union is acting in an "exclusive" capacity or not.  

Court Grants Rehearing on Whether Right to Privacy Prevents Release of Non-Member Employee Addresses to Union

County of Los Angeles v. Los Angeles County Employee Relations Commission (Court of Appeal Case No. B217668) (Issued on 12/14/10; Rehearing granted on 1/11/11)

I discussed this case in a prior blog post. (Click here for prior post) In short, the Court of Appeal held that under California’s right to privacy, non-union members of a bargaining unit (i.e. agency fee payers) have a reasonable expectation of privacy that their personal information will remain confidential.  The Court held that before the home addresses of non-union members can be released, the employer must provide these employees with notice and an opportunity to object to the disclosure of their personal information.

After this ruling was issued, the Service Employees International Union (SEIU) filed a petition for rehearing. On January 11, 2011, the Court of Appeal granted the request for rehearing with the following order:

“In order to allow sufficient time for consideration of the issues raised in the petition for rehearing filed by real party in interest and respondent Service Employees International Union, Local 721, and in order to obtain an answer to the petition for rehearing from appellant the County of Los Angeles, Chief Executive Office, the court grants rehearing on its own motion as of this date. Appellant has 15 days from the date of this order file and serve an answer to the petition for rehearing. (Cal. Rules of Court, rule 8.268.) Klein, P.J., Croskey, J., Aldrich, J.)”

Under Rule 8.268, subdivision (d), of the California Rules of Court, “An order granting a rehearing vacates the decision and any opinion filed in the case and sets the cause at large in the Court of Appeal.”  Accordingly, the underlying published decision in this case has been vacated.

Comments:

It’s rare for a court to grant a petition for rehearing. It’s not clear from Court’s order whether the Court is focused on a specific part or section of the decision. Without knowing more it’s hard to speculate how the Court may rule on rehearing the case. As soon as I know more I’ll post another entry.

Court: Right to Privacy Prevents Release of Employee Addresses to Union

County of Los Angeles v. Los Angeles County Employee Relations Commission (Court of Appeal Case No. B217668) (Issued on 12/14/10)

Facts:

The Service Employees International Union, Local 721 (SEIU) represents several bargaining units in the County of Los Angeles (County). The Memorandum of Understanding (MOU) between the County and SEIU contains an agency-shop agreement. In order to collect its agency fees, SEIU sends an annual Hudson notice to all employees. Historically, the union prepares the Hudson notice, the County prepares the mailing labels, and the County’s Employee Relations Commission (Commission) mails the notices. Using this process the union does not have access to the addresses of agency fee payers.

During negotiations in 2006, SEIU proposed that the process for mailing Hudson notices be changed so that SEIU would be provided the names and home addresses of the agency fee payers in the bargaining unit. The County refused. The Union then filed an unfair practice charge with the Commission.

Following a hearing, the Commission held that agency fee payers’ personal information was presumptively relevant to SEIU’s representation and therefore the union had a right to the information. The Commission rejected the County’s argument that the disclosure of agency fee payers’ personal information would violate their privacy rights.  Although the Commission acknowledged that privacy interests were at stake, it relied on NLRB and PERB precedent—including Teamsters Local 517 v. Golden Empire Transit District (2004) PERB Decision No. 1704-M (Golden Empire Transit)—to hold that the interests of the union outweighed that of the agency fee payers.

The case eventually went before the court of appeal. The court acknowledged that federal and state labor law recognized that employee home addresses of constituted information that is necessary to the collective bargaining process. (See, e.g., United States Department of Defense v. Federal Labor Relations Authority (1994) 510 U.S. 487, 493; Golden Empire Transit.) However, the court held that these authorities did not control over California’s constitutional right to privacy.

The Court held that under California’s right to privacy, County agency fee payers have a reasonable expectation of privacy that their personal information will remain confidential. Citing to Pioneer Electronics (USA), Inc. v. Superior Court (2007) 40 Cal.4th 360, the Court held that agency fee payers are entitled to notice and an opportunity to object to the disclosure of their personal information. Responding to SEIU’s arguments, the Court held that:

“This opt-out notice procedure does not provide an unfair advantage to the County or a disadvantage to the Union in collective bargaining matters. (Citations omitted.) Rather, it recognizes the previously overlooked individual rights of the County employees. If, as the Union represented during oral argument, non-member County employees will not respond to the opt-out notice, the Union will obtain the personal information it wants and will do so in accordance with California’s privacy laws. In sum, we conclude before the County discloses the personal information of non-member County employees, it must give them notice and an opportunity to object.”

Comments:

1. This case highlights the unique structure of the MMBA. Los Angeles County is subject to the MMBA. However, the County is expressly exempted from PERB. An unfair practice charge involving the County goes to the County’s Employee Relations Commission, not to PERB.  
2. The Court’s holding in this decision is far-reaching.  The decision essentially overturns PERB’s Golden Empire Transit decision for all of California’s public employers. This is because the court based its decision on the right to privacy under the California constitution. The California constitution trumps the MMBA and all the other labor relations statutes governing public employers. Therefore if the California constitution requires an opt-out procedure before disclosing employee addresses to a union, that would trump any contrary decisional law by PERB.
3. What should public employers do? Under court precedent, an individual may bring a cause of action for damages for a violation of the constitutional right to privacy.  (Hill v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1, 39-40.)  That’s why employers must be extremely cautious when dealing with issues involving privacy.  Employers would be wise to err on the side of caution.  Under this decision, employers who have provided employee addresses to the union in the past must consider implementing an opt-out system before making such disclosures in the future.

Court of Appeal Denies CNA's Challenge to Strike Award

California Nurses Association v. Public Employment Relations Board of the State of California (Court of Appeal Case No. A127766)

On October 7, 2010, the First District Court of Appeal summarily denied a challenge by the California Nurses Association (CNA) to PERB’s decision in California Nurses Association (2010) PERB Decision No. 2094-H. In the underlying decision, PERB held that CNA improperly threatened to engage in a pre-impasse, one-day strike against the University of California (University). (Click here for my blog post on that decision.) As a result of CNA’s actions, PERB held that the University was entitled to monetary damages against CNA for the costs it occurred to prepare for the threatened strike.

Although CNA's challenge was summarily denied, the issue is significant enough that CNA will likely file a petition before the California Supreme Court.  So stay tuned ...

California Supreme Court: Past State Employee Furloughs Legal

Professional Engineers in California Govt. v. Schwarzenegger (Supreme Court Case No. S183411)

The Supreme Court issued its decision today on the legality of the state employee furloughs imposed by the Governor. If you haven’t been following this issue, here’s a brief summary of the facts. On December 1, 2008, the Governor declared a fiscal emergency and called the Legislature into special session to address a projected $40 billion deficit by the end of fiscal year 2009-2010. On December 19, 2008, the Governor issued an executive order imposing 2-day per month furloughs on state employees. Several employee unions sued the Governor challenging his authority to unilaterally impose furloughs. In mid-February 2009, the Legislature passed and the Governor signed the revised Budget Act of 2008, which included the savings attributable to the 2-day per month furlough program.

Supreme Court’s Decision

In an 81-page decision authored by Chief Justice Ron George, the Supreme Court concluded that the Governor did not have unilateral authority to impose furloughs on state employees, but that the furloughs were nevertheless legal because they were “ratified” by the Legislature via the revised Budget Act of 2008. In its analysis, the Court considered two broad questions: 1) On December 19, 2008, did the Governor possess authority to impose unilaterally a mandatory two-day-a-month unpaid furlough for state employees by issuing an executive order? 2) Did the Legislature’s enactment in February 2009 of the revised 2008 Budget Act and the initial 2009 Budget Act affect the validity of the Governor’s executive order or the remedy that the employee organizations may be entitled to obtain in the present proceeding?

Issue 1: Did Governor Possess Authority to Unilateral to Impose Furloughs?

Court’s Answer: No.

The Court quickly rejected the Governor’s contention that he possessed inherent authority to impose furloughs on state employees as a function of his constitutional powers. The Court affirmed that under the state constitution, “it is the Legislature, rather than the Governor, that generally possess the ultimate authority to establish or revise the terms and conditions of state employment through legislative enactments.” The Court also rejected the Governor’s argument that the Legislature had delegated to the Governor the power to impose furloughs through specific statutory provisions—specifically, Government Code sections 19851, 19849, and 3516.5.  The Court held that section 19851 was not relevant to furloughs as imposed and that 19849 did not confer any substantive authority to the Governor. Similarly, the Court held that section 3516.5 of the Dills Act did not give the Governor authority to impose furloughs; it merely provided a method to avoid the collective bargaining process.

 In conclusion, the Court held that:

“[W]ith regard to represented employees we are of the view that clearly, unless the Governor or the DPA had been granted the authority unilaterally to impose a mandatory unpaid furlough on affected represented employees by the terms of an applicable MOU, the Governor and the DPA lacked authority unilaterally to institute such a furlough through the December 19, 2008, executive order with respect to those employees.”

“Accordingly, unless the MOU’s specifically authorized the mandatory unpaid furlough imposed by the executive order, it would appear that at that time the executive order was not valid.”

Issue 2: Did the Legislature “Ratify” the Furloughs in the revised Budget Act of 2008

Court’s Answer: Yes.

After concluding that the Governor did not have the authority to unilaterally impose furloughs in December 2008, the Court examined the language of the revised Budget Act of 2008. Section 3.90 of the Budget Act of 2008 provided:

“Sec. 3.90. (a) Notwithstanding any other provision of this act, each item of appropriation in this act, with the exception of those items for the California State University, the University of California, Hastings College of the Law, the Legislature (including the Legislative Counsel Bureau), and the judicial branch, shall be reduced, as appropriate, to reflect a reduction in employee compensation achieved through the collective bargaining process for represented employees or through existing administration authority and a proportionate reduction for nonrepresented employees (utilizing existing authority of the administration to adjust compensation for nonrepresented employees) in the total amount of $385,762,000 from General Fund items and $285,196,000 from items relating to the other funds. It is the intent of the Legislature that General Fund savings of $1,024,326,000 and other fund savings of $688,375,000 in the 2009-10 fiscal year shall be achieved in the same manner described above. The Director of Finance shall allocate the necessary reduction to each item of appropriation to accomplish the employee compensation reductions required by this section.”

In examining the impact of this language, the Court found that the amount of reduction in employee compensation clearly included the savings from 2-day per month furloughs. The Court then cited several budget documents that referenced the continuing furloughs imposed on state employees. Based on these facts, the Court concluded that:

"[I]n view of the exigent circumstances facing the Legislature, it intended to permit the then-existing furlough program to be used as an alternative to other means that might be agreed upon through the collective bargaining process, without regard to whether the appellate courts ultimately determined that the Governor or the DPA possessed the authority to impose an unpaid furlough program unilaterally.”

“Accordingly, we conclude that the phrase “existing administration authority” — as used in section 36 of Senate Bill 3X 2 — was intended to encompass the then-existing furlough program. By enacting this provision, the Legislature, through the exercise of its own legislative prerogative, authorized the substantial reduction in the appropriations for employee compensation, mandated in the revised budget legislation, to be achieved through the two-day-a-month furlough plan.”

Thus, even though the Governor lacked the authority to impose furloughs initially, the Court concluded that the Legislature approved the furloughs when it enacted the revised Budget Act of 2008.

Comments

1. As expected, the decision was authored by Chief Justice Ron George. There was a concurrence by Justice Corrigan regarding a technical issue on the “single-subject” rule but she ultimately joined in the majority’s conclusion that the Legislature ratified the furloughs in the revised Budget Act of 2008. Notably, the decision was issued less than a month after oral arguments; an indication, I believe, of the importance of this decision.
2. The majority decision was 81 pages long and Justice Corrigan’s concurrence another 3 pages. I thought the court’s discussion of the Governor’s powers under the constitution and various statutes was extremely thorough. Indeed, the Court spent the first 67 pages of the decision explaining why the Governor does not have the unilaterally authority to furlough state employees. In contrast, the portion of the decision analyzing the language of the revised Budget Act of 2008 only took 13 pages. I believe that’s due largely to the lack of much evidence as to the Legislature’s intent in enacting section 3.90. Further, I don’t believe either of the parties imagined that the case would turn on the language of section 3.90.
3. What is the effect of this decision? Because the 2-day per month furloughs were ratified by the Legislature, they were legal. So state employees will not be getting any back-pay for those furlough days.
4. What about the 3rd furlough day? On July 1, 2009, the Governor issued another executive order imposing a 3rd furlough day on state employees. The Court’s decision did not rule on the validity of this 3rd furlough day. However, the decision noted that on July 24, 2009, the Legislature passed the revised Budget Act of 2009 which contained the same “existing administration authority” language as section 3.90 of the revised Budget Act of 2008. Therefore, even though this decision did not directly rule on the legality of the 3rd furlough day, it’s clear that the 3rd furlough day was also ratified by the Legislature and thus will be found legal.
5. What about the current furloughs? On July 28, 2010, the Governor issued yet another executive order. This order reinstituted 3-day per months furloughs for fiscal year 2009-2010. The Court’s decision expressly does not address the legality of the current furloughs. However, unlike the furloughs in fiscal year 2008-09 and 2009-10, the current furloughs have not been ratified by the Legislature. Thus, I have to assume that the current furloughs will be found to be illegal unless ratified by the Legislature. Whether the Legislature will do so in the Budget Act of 2010 remains to be seen.
6. What didn’t the court address? Although the Court addressed several key issues related to the Governor’s authority, it expressly declined to address others. These include:

• Whether Government Code section 19581 might allow the Governor to impose furloughs at selected agencies for selected employees based on specific needs. The Court concluded only that section 19581 did not authorize “across-the-board” furloughs.
• Whether section 3516.5 of the Dills Act—which provides an emergency exception to the collective bargaining requirement—applies to “fiscal” emergencies, as opposed to only natural disasters such as an earthquake or flood.
• Whether the Governor has the authority to impose furloughs or simlar measures on nonrepresented employees (although the Court strongly suggested that there would be similar limitations with respect to nonrepresented employees).

Supreme Court: State Furloughs Legal

Professional Engineers in California Govt. v. Schwarzenegger (Supreme Court Case No. S183411)

The Supreme Court ruled today that the furloughs ordered by the Governor are legal. The Court's conclusion was:

Although, for the reasons discussed above, we disagree with much of the trial court‟s reasoning, in light of the legislative measures enacted after the trial court‟s ruling we conclude that plaintiffs are not entitled to the relief sought in this litigation. Accordingly, the judgment rendered by the trial court, denying the relief sought in these mandate proceedings, is affirmed.

I'll have more once I've had a chance to thoroughly read the decision.

Supreme Court: PERB Has Initial Jurisdiction Over Strikes

City of San Jose v. Operating Engineers Local Union No. 3 (Case No. S162647) (Issued on July 1, 2010)

The California Supreme Court has just issued its decision in City of San Jose.  The key holding is as follows:

"California allows public employees to go on strike to enforce their collective bargaining demands unless the striking employees perform jobs that are essential to public welfare. But whether a particular employee’s job is so essential that the employee may not legally strike is a complex and fact-intensive matter, and one on which public employee organizations and public entities may disagree.


Here, we address this issue: If a public entity is of the view that a threatened strike by its employees will be unlawful because a strike by some or all of the employees creates a substantial and imminent threat to public health and safety, must the public entity first file an unfair labor practice complaint with PERB and await PERB’s adjudication of the complaint before asking a court for an injunction prohibiting the strike?

We agree with the Court of Appeal that PERB has initial jurisdiction over a claim by a public entity that a strike by some or all of its employees is illegal. In addition, we conclude that a public entity must exhaust its administrative remedies before PERB before seeking judicial relief unless one of the recognized exceptions to the exhaustion of administrative remedies requirement is established."

I'll try to have more on this decision tomorrow.

California Supreme Court to Decide “Vesting” Issue Regarding Retiree Health Benefits

Retired Employees v. County of Orange (9th Cir. 09-56026 6/29/10)

Since approximately 1966, Orange County has provided health care benefits to its retired employees. In 1985, the County began “pooling” the retired employees with the active employees in the rate-setting process. Because retirees generally require more health services than active employees, who are generally younger and healthier, pooling the two groups allowed retirees to pay lower premiums and receive greater coverage than they otherwise would. As the cost of health care continued to rise over the years, the County found its employee health plans underfunded and needing adjustment. On September 12, 2006, the
Board of Supervisors approved a resolution to “split the pool,” which created different premium pools for active and retired employees and became effective on January 1, 2008. Retirees then faced significantly higher health insurance premiums.  A group of them brought a lawsuit against the County.

In federal court, the retirees – in essence – argued that the County’s past practice of “pooling” retirees with active employees created a “vested” right that the County could not now eliminate. The court quickly rejected the retirees’ argument, holding that:

“The law is clear: California courts have refused to find public entities contractually obligated to provide specified retirement benefits like those Plaintiff seeks in the absence of explicit legislative or statutory authority. This law also suggests that the requirement to provide lifetime health benefits does not establish a right to a specific method of rate-setting. Here, Plaintiff has failed to provide evidence of any explicit legislative or statutory authority requiring the County to continue providing retirees the pooling benefit in setting rates.”

The retirees then appealed to the Ninth Circuit Court of Appeal. Today, the Ninth Circuit certified to the California Supreme Court the following question:

"Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.

Defendant-Appellee in this case contends that decisions of the Supreme Court of California and the California Courts of Appeal support a conclusion that an implied contract to which a county is one party cannot confer such vested rights. Plaintiff-Appellant contends the contrary.

We understand that the Supreme Court of California may reformulate our question, and we agree to accept and follow the court’s decision. To aid the Supreme Court in deciding whether to accept the certification, we provide the following background."

Having a question certified to the California Supreme Court is fairly rare. More important, how the Court answers this question may have a tremendous impact on the public sector. Everyone knows that there is a huge unfunded liability for future retiree health benefits in the public sector. Many public employers have begun to address this unfunded liability to cutting back on benefits going forward. If the Court rules that employees and/or retirees have a “vested” right to accrue health benefits at a certain level even absent explicit legislature action, that will greatly weaken the ability of public agencies to scale back benefits.

Supreme Court to Review State Furlough Case

California Attorneys, Administrative Law Judges and Hearing Officers in State Employment v. Schwarzenegger (2010) 182 Cal.App.4th 1424, review granted, 106 Cal.Rptr.3d 702.

The California Supreme Court has granted review in CASE v. Schwarzenegger. Pursuant to the order granting review, the issue before the Court is, “Does the Governor have the authority to furlough the state employees at issue in this case by executive order?” While this sounds like something that might have far-reaching effect throughout the state, the reality is that the decision will likely be much more limited. In CASE v. Schwarzenegger, the issue is whether the Governor’s furlough authority extends to employees of the State Compensation Insurance Fund (SCIF). Both the trial court and appellate court held that the Governor could not impose furloughs on SCIF employees because of Insurance Code section 11873, which provides:

“Notwithstanding any provision of the Government Code or any other provision of law, the positions funded by the State Compensation Insurance Fund are exempt from any hiring freezes and staff cutbacks otherwise required by law.”

If this case is decided solely based on Insurance Code section 11873—which is unique to SCIF—then it will have virtually no impact on other public employees.

However, what is interesting is the other part of the Court’s order granting review in which the Court states, “Review in this case may be undertaken in conjunction with possible consideration of similar issues in cases that are pending in the courts of appeal.”  So what does that mean?  It seems like the court is saying that it might extend the CASE v. Schwarzenegger case to include arguments raised in the state employee furlough cases pending in the lower courts.  Those cases directly raise the issue of whether the Governor has the authority to impose furloughs on state employees absent Legislative action.  Thus, CASE v. Schwarzenegger could have far-reaching implications if the Court considers those other cases.

The briefing schedule set by the Court is very quick.  The Governor's brief is due June 9, 2010 and the union's brief is due on June 29, 2010.  With this schedule, we could have oral argument by the Fall.

Oral Argument Held in San Jose Case

City of San Jose v. Operating Engineers Local Union No. 3 (Case No. S162647)

Oral argument was held in the San Jose case on May 5, 2010.  The issue in this case is: 

Does the Public Employment Relations Board have the exclusive initial jurisdiction to determine whether certain "essential" public employees covered by Meyers-Milias-Brown Act (Gov. Code, sections 3500 3511) have the right to strike, or does that jurisdiction rest with the superior court?

Practically, the dispute is over whether employers must initially go to PERB when seeking injunctive relief against an essential employee strike or whether the employer can go directly to court.  Employers have taken the position that they should be allowed to proceed directly to court, while the unions have argued that PERB has initial jurisdiction.

The case is incredibly important to those of us who practice public sector labor law.  However, the case is apparently a sleeper for the Supreme Court.  I heard from those in attendance that the justices only asked two substantive questions.  And not very probing ones at that.  One question was from Justice Moreno who asked whether the doctrine of exhaustion of administrative remedies has an emergency exception.  Justice Chin asked whether strikes are "arguably" potential unfair practices.  Those in attendance, both from the union and management, told me that the questions didn't really reveal how any of the justices were leaning.

So we'll have to wait.  A decision is expected in 90 days.

One final note - a congratulations to both Ari Krantz from Leonard Carder and Rob Fabela from the City of San Jose for jobs well done in arguing before the Court!

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.

Pre-Layoff Due Process Hearings: What’s Required?

Alameda County Management Employees Association v. Alameda County Superior Court (Alameda Superior Court Case No. RG09-464432) (Tentative ruling issued 12/9/09)

In 2008, the Ninth Circuit Court of Appeal issued a surprise ruling in Levine v. City of Alameda, 525 F.3d 903 (9th Cir. 2008) suggesting that a public employee who is laid-off from work is entitled to a pre-layoff due process hearing.  That decision shocked public employers because no other decision had suggested such a requirement.  Levine also seemed to conflict with Duncan v. Department of Personnel Administration, 77 Cal.App.4th 1166 (2000), a California appellate decision which held that pre-layoff due process hearings are not required.  After Levine became final, the consensus among most public practitioners was that pre-layoff hearings are only potentially required in situations where the employee argues that he or she has been targeted for layoff, in lieu of discipline.  In situations involving mass layoffs, it was believed that Duncan would still apply.  However, because of the uncertainty and risk, many public agencies decided to offer pre-layoff Skelly-type hearings just to be safe.

Recently, the court in Alameda County Management Employees Association v. Alameda County Superior Court issued a tentative ruling on whether pre-layoff hearings are required.  To my knowledge, this is one of the first times any court has addressed this issue.

Are Pre-Layoff Hearings Required?

In considering whether pre-layoff due process hearings are required, the court quoted extensively from Duncan. The court seemed to agree with Duncan that a layoff, unlike a disciplinary action, carries no “stigma” that attaches to the employee. This is especially true in the case of mass layoffs. The court also agreed with Duncan that, “It is one thing for the State to provide a predeprivation hearing for a single employee who has been demoted because of misconduct. [Citation omitted] It is quite another to require the State to conduct pre-layoff hearings for 95 employees in the midst of a financial crisis.  Indeed, the cost of such hearings would simply exacerbate the crisis, primarily because the State would have to keep the affected employees on the payroll pending the outcome of the hearings.”

However, despite this favorable language from Duncan, the court noted that Levine held that an employee selected for layoff is entitled to a pre-layoff hearing where there is evidence that the employee was targeted for layoff.  Here—not surprisingly—all the employees in the lawsuit were alleging that they were targeted for layoff as a pretext for discipline.

If so, What Exactly Is Required?

Instead of ruling on whether pre-layoff hearings are required, the court was able to avoid the issue by finding that even if a pre-layoff hearing was required, the employees here received that.

Specifically, that court noted that due process in these situations does not require a full trial-type evidentiary hearing. Instead, the court held that as a minimum, what was required was, “notice of the proposed action, the reasons therefore, a copy of the charges and materials upon which the action is based, and the right to respond, either orally or in writing, to the authority initially imposing discipline.” Here, all the employees received the following notice with the layoff paperwork:

“If you think that the [Employer] has incorrectly determined to lay off your position, you may within three (3) working days from receipt of this notice, submit an explanation in writing to the Assistant Executive Officer.”

The court held that such notice and the opportunity to respond in writing was sufficient to meet any pre-layoff due process rights. This was especially true, according to the court, since the employees all had the right to a post-layoff evidentiary hearing.

Comments:

1. This is a tentative ruling in a superior court case, so you can’t read too much into it.  However, it should be noted that the ruling was authored by Justice Mallano, the Presiding Justice of Division One of the Second District Court of Appeal. (He was appointed to avoid a conflict of interest by the Alameda superior court judges)
2. The tentative ruling largely confirms the consensus among practitioners that Levine kicks in only when there is an allegation that the layoff is pretextual.  Of course, the problem is that unions aren’t stupid and that given Levine, they are going to advise employees to argue pretext in every layoff situation.  This case is a prime example of that.  Here, the layoffs were done by seniority. Nevertheless, all 13 of the laid-off employees argued that they were “targeted.”
3. So what’s an employer to do? Well, if you want to play it absolutely safe, an employer should give employees some opportunity to respond to the layoff notice.  This ruling says that the response can be in writing, which certainly makes things easier.  But again, it’s just a tentative ruling in a non-precedential superior court case so you can’t read too much into it.  Hopefully, in the near future we’ll get some more clarification from the courts.

Hawaii Court Stops Furloughs

Hawaii State Teachers Ass'n et. al. v. Linda Lingle, Governor, State of Hawaii et. al. (Hawaii Circuit Court, First Circuit, Case No. 09-1-1372-06 KKS) (Issued on 7/29/09)

Many people have mentioned that in addition to a federal district court in Maryland, a trial court in Hawaii has also enjoined public employee furloughs. Unlike the case in Maryland, the Hawaii case involved a state court ruling. Hawaii is one of only five states in the nation where the right to engage in collective bargaining is enshrined in the state constitution (the other states are New York, Florida, Missouri, and New Jersey). The scope of representation in Hawaii includes, “wages, hours, and other conditions of employment.” In June 2009, Governor Lingle announced that the state was going to unilaterally impose 3 furlough days per month on all state employees. Not surprisingly, the state employee unions brought suit to stop the planned furloughs.

Instead of filing a charge with the Hawaii Labor Relations Board (“HLRB”), the unions went directly to court. Under Hawaii law, the HLRB has “exclusive original jurisdiction” over controversies involving the state’s collective bargaining laws. However, the law expressly provides that “nothing herein shall prevent the pursuit of relief in courts of competent jurisdiction.” Based on the latter language, the court held that the unions were entitled to seek relief directly with the courts instead of having to go through the HLRB.

On the merits, the state court had little trouble finding that a plan imposing 3 furlough days per month affected the “wages, hours, and other conditions of employment.”  Indeed, from the decision it wasn’t even clear if the state itself thought it had a valid defense. I think the state’s primary argument was that there was an “emergency” justifying the Governor’s unilateral actions. However, the court found that the Governor failed to properly raise an “emergency” defense; instead, the Governor justified the furloughs on the need to achieve labor cost savings.

Comments:

All in all, I don’t consider this case to be ground-breaking.  It was a trial court decision in Hawaii so it has no precedential value either.  I think the California courts and PERB would have reached the same result given these facts.  I do think that the public sector labor relations statutes in California allow some flexibility for employers to unilaterally change terms and conditions of employment in "emergencies."  (That right is expressly provided for in the Dills Act.)  Unfortunately, what constitutes an emergency has never been clearly delineated by PERB or the courts.  Governor Schwarzenegger, unlike Governor Lingle, expressly raised the "emergency" defense in response to challenges to the furloughs.  So the California cases will be much more interesting than the one in Hawaii.

Bankruptcy Court Rejects Vallejo MOU

In re Vallejo (U.S.E.D. Bankruptcy Case No. 08-26813-A-9) (Issued 8/31/09)

The federal judge hearing the City of Vallejo’s bankruptcy case has tossed out the MOU between the City and the International Brotherhood of Electrical Workers (IBEW). The City had initially asked the court to toss out all its MOUs.  However, the City was able to reach agreements with all its unions, with the sole exception of the IBEW.  Even the firefighters—the group most responsible for pushing the City into bankruptcy—agreed to dissolve their MOU in exchange for an expedited negotiations process for a new one.  The last holdout was the IBEW.

Most observers did not expect the judge to toss the IBEW MOU without trying to apply more pressure on the parties. So the timing of the court’s decision was a bit of a surprise.  In its decision, the court held that the City had met the standards set forth in NLRB v. Bildisco & Bildisco, 465 U.S. 513, 521-22 (1984) (Bildisco) for rejection of a collective bargaining agreement in bankruptcy.  Specifically, the court made the following findings:

1. The Court found that the IBEW MOU was “burdensome” within the meaning of Bildisco. The court based this finding on the fact that the IBEW MOU would require another salary increase in fiscal year 2009-10 and further imposed “significant burdens, such as costs related to active and retiree health benefits and compensated absences” on the City. The court also found that the City’s financial situation will likely continue to deteriorate in the next two years. Given these facts, the court concluded that the “City cannot afford the IBEW [MOU].”

2. The court held that the balance of equities supported rejection of the MOU. This conclusion was based on the findings that compensation under the IBEW MOU is above market. Also, the court noted that all the other employee unions voluntarily agreed to modify their respective MOUs—even the firefighters. Based on these facts, the court held that, “It is equitable to reject the IBEW [MOU]”

3. Finally, the court found that the City had made reasonable efforts to reach voluntary agreement with IBEW. This was based on the fact that the parties met numerous and exchanged several proposals. The court also found that the City had negotiated in good faith as evidenced by the agreements reached with all the other unions.

Based on these findings, the court concluded that the IBEW MOU should be rejected.

Are Furloughs Unconstitutional? Unions Claim Victory in Maryland

Fraternal Order of Police v. Prince Geroge's County (U.S. District Court, Maryland) (Issued on 8/18/09)

Unions representing public employees throughout the nation have been crowing about a recent federal court decision in Maryland finding that Prince George’s County violated the federal Constitution when it furloughed nearly 6,000 county employees for 80 hours during fiscal year 2009.

Facts

Facing a $57 million budget deficit, the county implemented a furlough plan for employees. The unions sued the county arguing that the furlough plan violated the Contracts Clause of the Constitution. The district court agreed. The court held that the furloughs substantially impaired the bargaining agreements which were voluntarily entered into by both the unions and the county. Central to the court’s holding was the fact that—according to the court—the county did not fully explore alternatives to furloughs. The court also noted that the county had over $230 million in reserves—half of which were unrestricted funds—and that the county had recently touted its fiscal health in order to bolster its financial rating when issuing over $100 million in bonds.

Comments

The unions have been widely circulating this case since it represents one of the few victories unions can claim on this issue. However, what effect might this decision have in California? In my opinion, none.

First, the decision is a district court decision. While the decision is intriguing, it has no precedential value. Second, this case involved a constitutional claim and did not address any issues under labor law. This is because Maryland labor law only covers employees of the state and its school system. In contrast, all of California’s public sector employers are subject to one of several collective bargaining statutes and most of California’s public employees have exclusive representatives. Thus, in California, most furlough programs have been negotiated with unions. When furloughs are negotiated there cannot be any violation of the federal Constitution’s contracts clause.

I suppose the constitutional issue could arise if a California public employer unilaterally imposed furloughs on employees while an MOU was in effect. However, such an action is far more likely to draw an unfair practice charge with PERB. (The exception is the State of California itself which pursuant to the Dills Act, Gov Code 3516.5, has the authority to implement changes within the scope of representation during in emergency situations). Presumably, a union could also bring a breach of contract action under state law in such a situation.

The only other situation where furloughs might be imposed would be upon impasse as part of an employer's last, best, and final offer. However, in an impasse situation the MOU has already expired. So again, there cannot be any violation of the federal Constitution’s contracts clause.

So while unions around the nation may consider this case a victory, I don’t see it having any effect in California.

[Many thanks to Genevieve Ng for helping me draft this post]

School District Can Prohibit Union’s Political Literature in Mailboxes

San Leandro Teachers Assn. v. Governing Bd. (California Supreme Court, Case No. S156961) (Issued on 6/18/09)

The issue in this case was whether a school district can prohibit a union from using the district’s mail system to distribute political literature. The district asserted that it could prohibit political literature under Education Code section 7054, subdivision (a). The California Supreme Court agreed. The Court also held that such a rule did not violate the union’s right to access under EERA and did not violate the union’s first amendment rights.

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.

Decision:

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
functions."

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.

Comments:

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.

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 . . .