PERB: LBFO Cannot Interfere With A "vested" Right

County of Tulare (2015) PERB Decision No. 2414-M (Issued on 02/26/15)

The County of Tulare (County) and the Service Employees International Union (SEIU) were parties to a memorandum of understanding (MOU) that expired on August 1, 2011. The MOU contained a provision “freezing” merit increases during the term of the MOU. However, the MOU provided that “commencing the first full pay period following expiration of the agreement” any frozen merit increases would be restored. In 2011, the parties began bargaining for a successor agreement. Due to the economic environment, the County proposed a continuation of the merit increase “freeze.” SEIU refused. The parties eventually reached impasse and the County imposed its proposal to continue freezing merit increases. SEIU then filed an unfair practice charge with PERB.

The administrative law judge (ALJ) ruled in favor of the County. The ALJ concluded that because the parties reached a bona fide impasse, the County was free to impose its last, best, and final offer (LBFO). The ALJ expressly rejected SEIU’s argument that the MOU provision created a “vested” right to the restoration of the frozen merit increases. The ALJ expressed concern that finding the MOU provision to be a “vested” right would interfere with the County’s statutory right to impose its LBFO.

The Board reversed the ALJ’s decision. The Board found that the MOU’s merit increase provision—which stated that employees “will be placed” in the appropriate pay range in the first full pay period after expiration of the MOU—survived expiration of the contract. According to the Board:

Contrary to the proposed decision, we hold that parties may expressly agree to limit an employer’s right to impose terms at impasse, or they may impliedly achieve the same result by agreeing to terms that do not mature until after the agreement has expired. Accordingly, where, as here, a contractual right survives expiration of the agreement, the employer is not free to impose terms that abrogate or impair that right. Not only would it be “grossly unfair” to change the terms of the bargain after employees had already perform services [citation omitted], it would also discourage good-faith collective bargaining, since parties could have no reasonable expectation that, once negotiated, their agreements would be enforced.

In reaching its decision, the Board did acknowledge that as a general rule, public employees have no vested right to their collectively-bargained wages or benefits beyond the life of a contract. However, the Board held that under the California Supreme Court’s decision in Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, some contract rights may bind a party beyond the life of the contract. Here, the Board found such a right to exist although the Board did note that the right was only to the one-time adjustment called for in the MOU.

Comments:

[Disclosure: My firm represented the County in this case so I am definitely a non-objective commenter] I think the problem with this decision is best illustrated with two hypotheticals:
First Hypo: The parties have a contract that expires on December 31, 2014. The contract provides that on January 1, 2015, all employees will receive a 5% pay increase. In December 2014, as part of successor negotiations, the employer proposes to eliminate the 5% increase scheduled for January 1, 2015. The union refuses. After impasse, the employer imposes its proposal.
Second Hypo: The same facts except that instead of proposing to eliminate the 5% increase scheduled for January 1, 2015, the employer proposes that on January 2, 2015, all employees will receive a 5% salary reduction. In other words, the 5% increase will still take effect on January 1, but the next day salaries will be reduced back 5%. (For you math whizzes out there, yes, I do realize that increasing a number 5% and then reducing it 5% doesn’t take you back to exactly where you started from, but humor me and assume it does for this hypo). The union refuses. After impasse, the County imposes its proposal.
The first hypo is essentially this decision and the employer will be found to have committed an unfair practice. However, in the second hypo I believe the Board would find no unfair practice. This is because in the second hypo, the employees will receive their 5% increase. But because there was never a promise to maintain the 5% increase, the employer is free to impose a 5% reduction, presumably immediately. Does the difference in outcomes make sense? I don’t think so and that’s why I disagree with this decision. It is form over substance. Because an employer has the right to impose terms and conditions upon impasse, it should be able to do so, unless there is a contractual provision that expressly states a certain term or condition will be maintained for a period of time. Here, because there was no promise to maintain any merit increases, I believe the County should have been able to impose its LBFO.