PUBLIC EMPLOYERS HAVE ADDITIONAL LABOR RELATIONS POWERS IN AN EMERGENCY

GREGG ADAM
Partner
Messing Adam & Jasmine LLP

We live in extraordinary times. None more so than our first responders, who bravely battle on the front lines of this global pandemic. Dramatic changes are likely to pervade all of our lives even when, to whatever degree, state and local emergency orders are lifted.

One change likely to impact everything from bargaining rights to pensions will be public entities exercising emergency powers in their employment relationship with employees. Public entities’ emergency powers are reflected in collective bargaining laws, which permit them to act first and bargain later during an emergency. They are also recognized in constitutional law, which suggests there are limited circumstances that permit public entities to violate contractual obligations in an emergency. Fortunately, both sets of laws significantly restrict public agencies’ ability to act unilaterally to affect long-term change. But that will not stop some from aggressively pursuing unilateral action as this public emergency deepens and lengthens.
Collective Bargaining During Emergencies

Most California-based peace officers’ collective bargaining rights arise under the Meyers-Milias-Brown Act, which can be found in Government Code Section 3500 and subsequent provisions. Section 3504.5 provides that, generally, public agencies must provide advance notice to employee organizations of changes to matters within the scope of representation — typically changes to wages, hours or other working conditions. Subsection 3504.5(b), however, provides: “In cases of emergency when the governing body or the designated boards and commissions determine that an ordinance, rule, resolution, or regulation must be adopted immediately without prior notice or meeting with a recognized employee organization, the governing body or the boards and commissions shall provide notice and opportunity to meet at the earliest practicable time following the adoption of the ordinance, rule, resolution, or regulation.”  In other words, in an emergency, a local public employer may act first and bargain later.  This right is restricted. The agency must establish that the need for unilateral action is tied directly to the emergency at hand and cannot await normal bargaining processes. And even if it satisfies this standard, and acts unilaterally, the agency must then bargain “at the earliest practicable time” — not some far off time in the future, but as soon as it is capable of bargaining. Typically, that should be a matter of days, not weeks.
Five weeks into California’s statewide shelter-in-place order (at the time of writing), the reaction of public entities to this crisis and their use of Section 3504.5(b) rights has been interesting. Many are acting unilaterally to help and support employees. For example, agencies have awarded first responders and other employees performing disaster relief work additional paid leave, or have suspended vacation accrual caps to prevent employees from losing vacation accruals. Some are engaging with employee unions — remotely, of course, by telephone or video conference, our new way of bargaining — on safety issues, like quarantining or notice if positive COVID-19 cases occur, or benefits issues, like workers’ compensation presumptions or paid leave for employees sent home or ordered quarantined. Notably, however, employers’ actions carry an air of noblesse oblige about them since few have reduced these additional benefits to written agreements, even though they are negotiable items. 
One suspects that public entities worry that entering into written agreements on such matters now will undermine their right to act unilaterally in the future. Presumably, such reservations are motivated by genuine fear that public employers may, if the economic consequences of the emergency become as severe as many are projecting, have to consider layoffs, furloughs and takeaways. The latest unemployment figures show more than 22 million Americans unemployed. Public employers seem to prefer to leave their option to take unilateral action as open as possible.

Unilateral Impairment of Contract Rights
Aside from collective bargaining, perhaps the bigger threat is presented by those who will encourage public entities to overreach and try to impair existing contractual obligations. That could mean attempts to change benefits under an existing MOU; more likely, it will produce another round of pension attacks.

Attacks on public employee pensions come, predictably, with every economic downturn.  In 2018, your author argued Cal Fire Local 2881 v. California Public Employees’ Retirement System (known as the “air time” case), which involved Governor Jerry Brown’s Public Employees’ Pension Reform Act. Those “reforms” were premised on the “fiscal emergency” created by the 2008 Great Recession. Governor Brown argued that the Legislature could act unilaterally to reduce certain existing pension benefits (in addition to creating new lower tiers of benefits) because of how severely the economic downturn, and the concurrent increase in pension contributions, impacted public finances. But because a booming economy had returned by the time the case was argued, those arguments seemed dated. The Supreme Court ultimately avoided the question of the state’s exercise of its emergency powers by ruling that the right to purchase pension credits at issue in the case was not a pension benefit and therefore was not protected by vested pension protections. 

The economic impacts of the COVID-19 emergency appear more severe than even the 2008 Great Recession. Much will depend on how quickly the economy bounces back and whether the pandemic causes wholesale societal changes, as some predict. So expect anti-pension advocates to dust off what is called the “necessity” defense to justify impairing public employee pension rights. Fortunately, constitutional law sets a high bar on these efforts. All previous attempts to impair public employee pensions as a necessity in an emergency have failed.

The primary sources of the necessity defense are two United States Supreme Court cases some 40 years apart: the Depression-era decision in Home Building & Loan Assn. v. Blaisdell in 1934 and U.S. Trust Co. of  New York v. New Jersey in 1977. Those cases recognized that in an emergency the federal contract clause was not an absolute bar to subsequent modification of a public entity’s own financial obligations.

This body of law was applied in California in 1979 in Sonoma County Org. of Public Employees v. County of Sonoma. There, after Proposition 13 was passed and dramatically reduced property tax revenues for public entities, the Legislature passed a law that nullified any local agency agreement to pay employees cost-of-living adjustments greater than those received by state employees. Drawing from both Blaisdell and U.S. Trust Co., the California Supreme Court crafted a four-part test which provides that a legislative enactment that impairs a private contract right is permissible only if it: (1) protects basic interests of society, (2) is justified by an emergency, (3) is appropriate for the emergency and (4) is temporary and defers, but does not destroy, the vested contract rights. The California Supreme Court ruled that the legislation before it caused substantial impairment because a contractual salary increase would be “irretrievably lost.” Despite legislative analysis of a projected $7 billion loss in local property tax revenues at that time (about $25 billion in today’s money), the court rejected the government’s claims of a fiscal emergency and that the legislation was necessary to “maintain essential services.” Impairment of contract is permitted due to fiscal exigencies only when “legislation was temporary and limited to the exigency which provoked the legislative response.”

Thus, while a public entity may in a bona fide emergency have a right to impair contract rights, courts use strict scrutiny to guard against it — the highest constitutional bar to clear. As Justice Harry Blackmun warned in U.S. Trust Co., even during an emergency, “[a] State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives.” 

Thus, while governors and others have frequently attempted to use “emergency” justifications to impair pension rights in the past, none have succeeded. Stay tuned for the next round of battles.

About the Author
Gregg Adam is a partner with the law firm Messing Adam & Jasmine LLP. Adam has worked with peace officer associations for over 20 years. He is a founding partner of the firm, which predominately represents public-sector unions and their members in labor relations. Adam and his partners and the attorneys at Messing Adam & Jasmine LLP are PORAC LDF panel attorneys.