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:

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.
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 …