Date: 07-14-2015

Case Style: IMO Borough of Keyport v. Local 68

Case Number: A-43/44-13

Judge: Justice LaVecchia

Court: SUPREME COURT OF NEW JERSEY

Plaintiff's Attorney: Jonathan F. Cohen

Defendant's Attorney: Raymond G. Heineman

Description: In this appeal we review whether three municipalities were
required to negotiate with union representatives before taking
layoff actions that negatively impacted the hours and wages of
affected employees. Two of the municipalities imposed on
certain units of public employees mandatory, but temporary,
layoffs, in the form of a reduced number of work days over a
specified period of time, without negotiating those actions with
union representatives. The third municipality eliminated as
part of an overall layoff plan three full-time clerical
positions and replaced them with part-time positions; as a
result, the affected employees lost their eligibility for health
benefits. That layoff action also was not negotiated with union
representatives. However, all three layoff plans had been
submitted and approved by the Civil Service Commission
(Commission) as compliant with all civil service requirements
for a layoff action.
4
After unions for public employees in each municipality
brought scope-of-negotiations challenges to the municipal
actions, the Public Employment Relations Commission (PERC), in
separate decisions, held that the municipalities violated the
New Jersey Employer-Employee Relations Act (EERA), N.J.S.A.
34:13A-1 to -39, and required each municipality to negotiate the
changes in terms and conditions of employment.
The Appellate Division consolidated these appeals and
reversed PERC’s determinations, finding the municipal actions
non-negotiable in all but one respect not pertinent to this
appeal.
Employee rights in these three circumstances are determined
by application of the three-part test set forth in Local 195,
IFPTE v. State, 88 N.J. 393, 404-05 (1982), for resolving
questions about the scope of public sector employment
negotiations. Based on that test, we conclude that the
negotiability of these three layoff plans hinges on application
of the third prong of the Local 195 analysis that takes into
account whether negotiation would significantly interfere with a
management determination of governmental policy. Ibid.
Municipalities governed by the civil service system have
the right to lay off employees when facing exigent financial
circumstances. A regulation authorizing temporary layoffs,
which enabled municipalities to address fiscal distress in such
5
a manner, was in effect when these layoff plans were developed
and approved by the Commission, although the municipalities
claim that they did not act pursuant to its authority when
seeking Commission approval. Although the regulation since has
been repealed, its validity is not challenged in this matter.
The fact that it authorized temporary periods of layoffs during
times of exigent fiscal circumstances is significant in our
review. Whether the municipalities actively relied on that
existing regulation is not controlling of our analysis.
In reviewing each of these disputes under the third prong
of Local 195, PERC initially took the position that the civil
service employer had to show that it had no other option but to
engage in the layoff in order for managerial policy interests to
predominate over the interests of employees in maintaining the
terms and conditions of their employment. According to PERC,
only upon making such a showing could a public entity employer
demonstrate the necessary fiscal urgency to support a finding
that the layoff action was non-negotiable based on Local 195’s
third, or managerial-prerogative, prong. PERC has retreated
from that position in this appeal and in a subsequent agency
quasi-judicial determination that it has brought to our
attention. In our view, PERC’s former position mistakenly set
the bar too high when assessing managerial prerogative exercised
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by local governments confronting fiscal distress, as was the
case in these matters.
For the reasons expressed herein, we hold that at the time
that they occurred, the layoff actions at issue were non
negotiable under the third prong of the Local 195 test. We
therefore affirm the Appellate Division judgment, as modified by
this opinion.
I.
In 2009, the New Jersey municipalities of Belmar, Mount
Laurel, and Keyport (collectively the municipalities or
respondents), were experiencing financial strain. All three
municipalities were operating under collective negotiation
agreements (CNAs) with unions representing municipal employees.
Following various efforts to confront their individual budget
crises, each municipality obtained approval from the Commission
for a layoff plan, described in detail hereinafter. Generally
stated and as pertinent to this appeal, the layoff plans, in
varying ways, reduced workers’ hours and therefore impacted
wages. The following facts and procedural history are culled
from the record created before PERC.
A.
The Borough of Keyport (Keyport) and the International
Union of Operating Engineers, Local 68 (Local 68), representing
Keyport’s clerical employees, entered into a CNA effective
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January 1, 2008, through December 31, 2010. Among other terms,
Article 33 granted Keyport the management right to assign
employees’ schedules, and Article 5 provided that in the event
of a layoff, Keyport would respect employees’ seniority rights.
Article 8 specified that the “work week for all bargaining unit
employees shall be from Monday through Friday, and shall consist
of five (5) consecutive seven and one-half (7½) hour work days
for a thirty-seven and one-half (37½) hour work week.”
In 2009, Keyport was experiencing significant financial
difficulties in light of a pervading and lingering economic
downturn. Keyport faced increased healthcare, pension, and
labor costs without an increase in tax revenues; in 2008, it had
a budget surplus of less than $6,000. After efforts to control
expenses did not alleviate the strain, Keyport submitted a
traditional layoff plan to the Commission on May 20, 2009. In
order to reduce personnel expenses, the plan, in pertinent part,
converted three full-time clerical positions -- two in the
Construction Department and one in the Office of the Registrar
- into part-time positions.1 Those layoffs did not have an
1 The plan also demoted one police sergeant to a police officer and permanently laid off one police officer; however, those decisions are not at issue in this appeal. Also, by virtue of the change to part-time positions, the three clerical employees would lose health insurance coverage. That issue too is not on appeal, as a result of the Appellate Division’s unchallenged affirmance of PERC’s remand for arbitration on that benefits issue.
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identified end date; the proposed layoff therefore permanently
eliminated the full-time positions and converted them to part
time positions. The layoff plan represented that the reductions
“[we]re necessary for reasons of economy and efficiency.” In
particular, the plan stated that Keyport’s preliminary 2009
budget exceeded the levy cap by $135,000 and that “the Borough
must reduce its appropriations so that it may lawfully adopt a
budget for 2009.” The Commission approved the plan on May 22,
2009.
In August 2009, Local 68 filed an unfair-practice charge
with PERC, alleging that Keyport violated the parties’ CNA by
reducing the three employees’ hours without first negotiating
with union representatives. Prior to that, Keyport had filed a
scope-of-negotiations petition with PERC, seeking to restrain
binding arbitration of a grievance filed by the union. That
grievance had claimed a violation of the CNA as a result of the
reduction in the workweek of the employees in the Building
Department and Registrar’s Office. Thus, both the grievance and
the unfair-practice charge related to the claim of work hour
reduction. The parties filed cross-motions for summary judgment
on the unfair-practice charge. On September 23, 2010, PERC
granted Local 68’s motion, concluding that EERA required Keyport
to negotiate with Local 68 before reducing the employees’ hours
9
from full-time to part-time and ordering that Keyport commence
negotiations immediately.
In determining that the reduction in hours was mandatorily
negotiable, PERC applied the three-part negotiability test from
Local 195, supra, 88 N.J. at 404-05. After determining that the
hour and benefits decision “intimately and directly affects the
work and welfare” of the clerical workers (the first Local 195
factor), see id. at 404, PERC, in analyzing Local 195’s third
factor, determined that Keyport did not have the managerial
prerogative to unilaterally implement the position reductions to
part-time because negotiations in the present case would not
significantly interfere with governmental policy. In support,
PERC cited “the long line of judicial and Commission precedents”
determining that workweek reductions are mandatorily negotiable,
and reasoned that even significant budgetary concerns “must be
presented and protected through the negotiations process.”
PERC also concluded that Keyport’s compliance with the
Civil Service Act, N.J.S.A. 11A:1-1 to 12-6, and regulations did
not preempt negotiation over the employees’ hours (Local 195’s
second factor). PERC reasoned that the Civil Service Act and
regulations “do not mandate a reduction in work hours or
otherwise restrict the Borough’s discretion to decide whether or
not to reduce work hours,” and, moreover, that “the Civil
Service Act and [EERA] provide employees with separate and
10
distinct rights,” such that compliance with the Civil Service
Act does not negate employees’ right to negotiate under EERA.
In so holding, PERC distinguished the present case from State of
New Jersey (Department of Environmental Protection) v.
Communications Workers of America, AFL-CIO, 285 N.J. Super. 541,
544, 546, 553 (App. Div. 1995), certif. denied, 143 N.J. 519
(1996) [hereinafter DEP], in which the Appellate Division
affirmed a prior PERC determination that the New Jersey
Department of Environmental Protection’s decision to reduce
employee workweeks from forty to thirty-five hours was preempted
and non-negotiable. PERC’s reasoning emphasized that DEP
represented a “‘narrow exception to the normal preemption
analysis, because of the nature and amount of pertinent
regulations regarding State employees,’” (quoting id. at 550).
B.
The Borough of Belmar (Belmar) and the Communications
Workers of America, AFL-CIO (CWA), the union representing all
employees of the Department of Public Works (DPW), entered into
a CNA effective January 1, 2005, through December 31, 2009.
Article 7 of the CNA provided that “working hours shall be forty
(40) hours per week for all employees in the bargaining unit,”
and Article 11 provided that each of the covered employees would
receive a 3.9% wage increase in 2005 and a four percent increase
each year from 2006 through 2009. In addition, Article 18
11
provided that Belmar would “discuss any proposed layoff with the
union, in order to explore all avenues and methods.”
Like Keyport, Belmar was experiencing financial
difficulties in 2009 as a result of the economic downturn. To
combat its fiscal trouble, borough administrators agreed to wage
cuts; in addition, Belmar met with unions representing municipal
employees to ask them to accept a wage freeze. Some unions
acquiesced to a freeze, but Belmar and CWA could not reach an
agreement. In August 2009, Belmar submitted a “temporary layoff
plan” to the Commission for approval, which provided for ten
involuntary unpaid furlough days for all DPW employees during
the period of October 6, 2009, through December 15, 2009. In
its plan, Belmar described the furloughs as necessary to achieve
a budget that would comply with the State-mandated tax levy cap.
The Commission approved the plan.
CWA filed an unfair-practice charge with PERC in October
2009, alleging that Belmar’s imposition of the unpaid furlough
days violated the parties’ CNA and that Belmar was required to
negotiate that change in terms and conditions of employment.
The parties filed cross-motions for summary judgment and, on
October 28, 2010, PERC granted CWA’s motion. As in the Keyport
decision, PERC determined that the furloughs met the first prong
of the Local 195 test given that the furloughs reduced working
hours. PERC largely relied on its analysis in Keyport to
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determine that the Civil Service Act did not preempt EERA under
the second Local 195 factor.
Finally, in respect of the third Local 195 prong, PERC
determined that Belmar “did not have a managerial prerogative to
unilaterally reduce the employees’ compensation and workweek.”
PERC reasoned that case law has “consistently distinguished the
non-negotiability of permanent staffing reductions from the
negotiable issues of reductions in employees’ work years,
workweeks, and work hours. . . . That is so even when the
latter reductions could be labeled layoffs under education or
Civil Service Laws.” In addition, in applying the balancing of
interests called for under this third factor of Local 195, PERC
concluded that “the interest in a viable negotiations process is
preeminent because the budgetary considerations are dominant and
there is no particularly significant governmental policy purpose
at stake.” PERC noted that the hour cuts allowed Belmar to
avoid laying off just one employee and criticized Belmar for not
proving “that reducing the workweek rather than laying off a
single employee was needed to keep any programs running or to
achieve any governmental policy purpose.”
Accordingly, PERC concluded that negotiation was required
before Belmar could impose the furloughs.
C.
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The Township of Mount Laurel (Mount Laurel) and the
American Federation of State, County and Municipal Employees,
Council 71, South Jersey Public Employers (AFSCME), entered into
a CNA effective January 1, 2005, through December 31, 2008. The
CNA provided for yearly salary increases from 2005 through 2008.
Article 2, entitled “Management Rights,” stated that Mount
Laurel had the right to institute layoffs “in the event of lack
of work or funds or under conditions where continuation of work
would be inefficient and non-productive.” Additionally, Article
7 stated that “the regularly scheduled workweek shall consist of
five (5) consecutive days, Monday through Friday,” and that an
employee’s regular hours of work were not subject to change,
“except as required under emergency conditions or agreed upon by
both parties.”
Like Keyport and Belmar, Mount Laurel faced serious
financial problems in 2009. In June 2009, Mount Laurel
representatives met with union representatives to request
temporary salary and wage concessions to alleviate the financial
strain, but the parties could not reach an agreement. In August
2009, Mount Laurel submitted a temporary layoff plan to the
Commission, which called for the imposition of eight involuntary
furlough days between November 20, 2009, and June 18, 2010, on
all township employees except police and emergency medical
personnel. In its proposal, Mount Laurel stated that the
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purpose of the temporary layoffs was to help offset the
township’s budget crisis and to address restoration of the
township’s budgetary surplus, which had decreased by half in
2009. The Commission approved the plan in October 2009.
Shortly thereafter, AFSCME filed an unfair-practice charge
with PERC, alleging that Mount Laurel’s unilateral imposition of
the furlough days without negotiation violated the employees’
rights under the parties’ CNA and EERA. The parties filed
cross-motions for summary judgment. On October 28, 2010 --
coincident with PERC’s issuance of its negotiability
determination in the Belmar case -- PERC issued a decision on
the cross-motions for summary judgment, holding that Mount
Laurel’s decision to impose furloughs was a mandatory subject of
negotiation. PERC’s decision relied on its analysis in the
Belmar case in respect of the first two prongs of the Local 195
test, thus concluding that the furloughs directly affected
employee work and welfare and that the subject of negotiation
was not preempted by statute or regulation.
On the third Local 195 factor, PERC engaged in the fact
specific balancing of interests test to conclude that this
factor also weighed in favor of negotiability. See Local 195,
supra, 88 N.J. at 404-05. Weighing the interests of the
parties, PERC noted that decisions affecting compensation and
hours of work are traditionally negotiable. PERC concluded that
15
Mount Laurel’s objective was to increase the size of its
budgetary surplus, finding that Mount Laurel had failed to
“produce[] any evidence to establish that it [wa]s without
alternatives to achieve the same savings without furloughing its
employees.” Accordingly, PERC determined that Belmar did not
have the managerial prerogative to reduce employees’ workweek,
stating that, on balance, “the interest in a viable negotiations
process is preeminent because the budgetary considerations are
dominant and there is no particularly significant governmental
policy purpose at stake.” Having concluded that the furlough
decision required negotiations, PERC ordered the parties to
commence negotiations.
D.
The three municipalities appealed their PERC administrative
determinations to the Appellate Division, see R. 2:2-3(a)(2),
which consolidated the cases on appeal. The panel reversed
PERC’s decisions as to Belmar and Mount Laurel and as to
Keyport’s hour reduction, holding that the towns were not
obligated to negotiate the imposition of unpaid furloughs or the
reduction from full-time to part-time status. The Appellate
Division observed that the Commission had approved all three
municipalities’ layoff plans during the time when the
Commission’s emergency regulation permitting “temporary
layoffs,” N.J.A.C. 4A:8-1.1A, was in effect. The panel further
16
noted that the emergency temporary layoff regulation previously
had been challenged and upheld in the Appellate Division. It
thus framed the present issue as “whether the public employers’
actions, which were effectuated in compliance with the Civil
Service Act, were nevertheless subject to negotiation under the
EERA.”
Applying the three-part test from Local 195 for determining
the scope of public sector employment negotiations, the panel
determined that the unions met the first prong because all of
the actions at issue directly affected the work and welfare of
public employees. However, aside from Keyport’s action
eliminating health benefits, the panel concluded that “the
unions did not satisfy the second and third prongs of the [Local
195] test because the municipalities’ actions complied with the
Civil Service Act and its regulations, and the decisions to
furlough and demote employees were non-negotiable policy
determinations.” The panel affirmed the order in Keyport that
required arbitration of the health benefits issue but reversed
PERC in respect of the reduction in hours in Keyport and in all
respects in the Mount Laurel and Belmar cases.
Local 68 filed a petition for certification, and CWA and
AFSCME filed a joint petition for certification, collectively
raising the issue of whether the municipalities’ reduction in
hours -- via furloughs in Belmar and Mount Laurel, and via
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permanent reduction from full-time to part-time status in
Keyport –- were mandatorily negotiable decisions under EERA.
The Court granted both petitions. 216 N.J. 366 (2013).
II.
A.
Petitioners CWA, AFSCME, and Local 68 (collectively
petitioners) argue that the Appellate Division erred in holding
that the respondents’ decisions to implement layoff plans by
imposing unpaid furlough days and by demoting full-time
employees to part-time positions were non-negotiable. Each
petitioner contends that the Appellate Division failed to
properly apply the three-prong negotiability balancing test set
forth in Local 195, supra, 88 N.J. at 404-05.
First, petitioners argue that, under the second prong of
the Local 195 test, the Appellate Division should have held that
temporary layoff plans are negotiable because EERA imposes a
negotiation requirement on public employers and that obligation
is not preempted by the Civil Service Act and accompanying
regulations (Civil Service law). Petitioners point out that,
although the Civil Service law grants civil service employers
the discretion to reduce labor costs by unilaterally imposing
layoffs, the Civil Service law does not compel them to do so.
Therefore, petitioners argue, civil service employers are not
precluded from complying with the provisions of EERA as well as
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Civil Service law. CWA and AFSCME cite the Appellate Division’s
holding in Piscataway Township Board of Education v. Piscataway
Township Principals Ass’n, 164 N.J. Super. 98 (App. Div. 1978),
as support for that proposition.
Second, petitioners argue that, under the third prong of
the Local 195 test, mandatory negotiations in these cases would
not significantly interfere with any managerial prerogatives or
governmental policies of the civil service employers.
Addressing the arguments of Mount Laurel and Belmar in
particular, CWA and AFSCME argue that the employees’ interest in
negotiating work hours and compensation outweighs Mount Laurel’s
interest in increasing its budget surplus, as well as Belmar’s
interest in avoiding the need to lay off a single employee. CWA
and AFSCME add that neither Mount Laurel nor Belmar produced
evidence to prove that the inability to increase a budget
surplus or the loss of one employee would adversely affect any
public operations or programs. All petitioners argue that
although workforce reductions are non-negotiable managerial
prerogatives, work-hour and compensation reductions of the type
at issue here are not. Petitioners contend that if these
temporary layoff plans are deemed managerial prerogatives, civil
service employers would be permitted to disguise unilateral cuts
in hours and compensation as “layoffs” in order to avoid their
obligation to negotiate those changes under EERA. Petitioners
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also argue that the temporary layoff plans are not managerial
prerogatives because the purely fiscal or budgetary
considerations that petitioners assert were at issue in all
three cases do not involve governmental policy.
Finally, all petitioners express concern that if civil
service employers are permitted to reduce hours and compensation
without negotiating and without demonstrating exigency, the
provisions of CNAs may be violated with impunity, undermining
the salutary public policy of promoting labor-relations
stability through the collective negotiations process.
B.
Respondents Keyport, Belmar, and Mount Laurel maintain that
the Appellate Division properly applied the Local 195
negotiability test in determining that the layoff plans were
non-negotiable.
First, respondents argue that their layoff actions are non
negotiable under prong two of the Local 195 test because the
Civil Service law preempts the negotiation requirement imposed
by EERA. All respondents argue that the Legislature must have
intended the Civil Service law governing layoffs to fully occupy
that field because it provides specific, comprehensive
procedures by which civil service employers may implement layoff
plans, which require consultation rather than negotiation.
Belmar asserts that both Civil Service law and EERA contain
20
references indicating that the Civil Service law should prevail
in case of a conflict. N.J.S.A. 11A:11-2(j); N.J.S.A. 34:13A
8.1. Keyport and Mount Laurel cite to DEP, supra, 285 N.J.
Super. at 551-52, where the Appellate Division referred to Civil
Service law as providing a comprehensive layoff scheme that
preempts the EERA negotiation requirement.
Relatedly, respondents contend that requiring civil service
employers to negotiate before implementing temporary layoff
plans in compliance with Civil Service law would negate
Commission regulations designed to help civil service employers
pass legally compliant budgets in times of fiscal exigency
without permanently cutting employee positions. Respondents
maintain that mandated negotiations would likely derail and
certainly delay implementation of temporary layoff plans,
undermining the feasibility of using temporary layoff plans to
address the immediate effects of present fiscal distress.
Further, respondents argue that even if the Civil Service
law does not preempt EERA’s negotiation requirement, the
decision to implement a temporary layoff plan must be non
negotiable under the third prong of the Local 195 analysis
because it involves managerial prerogatives pertaining to the
determination of governmental policy. All respondents argue
that case law generally has established that a civil service
employer’s decision to reduce employees’ work weeks or work year
21
for economic reasons is a non-negotiable matter of governmental
policy. Belmar argues that its temporary layoff plan was non
negotiable, relying on Council of New Jersey State College
Locals v. State Board of Higher Education, 91 N.J. 18, 32
(1982), which supports that the determination of whether layoffs
are necessary involves a matter of managerial prerogative.
Keyport and Mount Laurel again point to DEP, supra, 285 N.J.
Super. at 551-52, in arguing that the Appellate Division has
recognized that work week reductions stemming from good-faith
economic, efficiency, or budgetary concerns are matters of non
negotiable managerial prerogative.
All respondents argue that temporary layoff plans involve
non-negotiable governmental policy determinations because civil
service employers must make delicate decisions concerning the
allocation of funds in order to provide services to taxpayers
and residents in times of financial exigency. Specifically,
Mount Laurel emphasizes that mandatory negotiation would
interfere with civil service employers’ ability to use temporary
layoff actions to adjust in a timely manner to exigent changes
in economic conditions.
C.
Amici New Jersey State AFL-CIO (NJ AFL-CIO) and New Jersey
Education Association (NJEA) reinforce petitioners’ arguments
that temporary layoffs in the form of unpaid furlough days and
22
demotions must be negotiated pursuant to EERA. NJ AFL-CIO adds
that the PERC decisions below were entitled to a high degree of
deference and asserts that the Appellate Division decision
conflicts with decades of legal precedent and the public
interest in maintaining stable labor relations. NJEA similarly
advances many of petitioners’ arguments, emphasizing that Civil
Service law does not contain preemptive language and that,
regardless of whether labeled a “layoff,” a public employer’s
decision to reduce work hours or compensation is mandatorily
negotiable.
New Jersey School Boards Association (NJSBA) and New Jersey
State League of Municipalities (NJSLM) support the arguments
advanced by the municipal respondents. They argue that layoff
plans implemented in compliance with the Civil Service Act and
regulations are non-negotiable. NJSBA analogizes the
municipalities’ authority to implement layoff plans pursuant to
the Civil Service law to its authority to reduce teaching staff
pursuant to N.J.S.A. 18A:28-9.2 NJSLM adds that an appellate
court does not owe deference to PERC interpretations of Civil
Service regulations or of the doctrine of preemption.
D.
2 NJSBA maintains that Piscataway Township Board of Education, supra, 164 N.J. Super. 98 -- relied upon by petitioners -- has been impliedly rejected by courts because it incorrectly interprets and applies N.J.S.A. 18A:28-9.
23
PERC filed a statement in lieu of brief, asserting that
PERC’s “expert judgment should be accepted” in these cases.
However, at oral argument, PERC’s general counsel indicated that
PERC had changed its position and informed the Court that PERC
now asserts that sufficient information in the record
established that the municipalities’ decisions in these three
cases were non-negotiable managerial prerogatives under prong
three of the Local 195 test. Underscoring that point, PERC’s
counsel brought to the Court’s attention a November 2013 PERC
decision in which PERC determined that the Robbinsville Township
Board of Education’s decision to implement furlough days was a
proper exercise of managerial prerogative.
III.
The analytic framework for this matter is derived from this
Court’s seminal case Local 195, supra, 88 N.J. 393, in which the
scope of collective negotiations for public employers and
employees was addressed.
In that case, the State and several unions representing
public employees disagreed as to the negotiability of
contractual provisions concerning limitations on contracting and
subcontracting, establishment of a workweek, and transfer and
reassignment determinations. Id. at 398-400. The Court’s
decision focused on establishing a test for determining whether
those types of decisions came within the proper scope of
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collective negotiations for the public sector. See id. at 403
05. The Court stated that although “public employees have a
legitimate interest in . . . collective negotiations” in respect
of issues affecting the terms and conditions of their
employment, “the scope of [collective] negotiation[] in the
public sector is more limited than in the private sector.” Id.
at 401. Unlike a private employer, a public employer, as
government, has “the unique responsibility to make and implement
public policy.” Id. at 401-02 (citing Paterson Police PBA Local
No. 1 v. City of Paterson, 87 N.J. 78, 86 (1981); State v. State
Supervisory Emps. Ass’n, 78 N.J. 54, 67 (1978)). Public policy,
the Court explained, properly is determined through the
political process, by which citizens hold government
accountable, and not through collective negotiation. Id. at 402
(citing Ridgefield Park Educ. Ass’n v. Ridgefield Park Bd. of
Educ., 78 N.J. 144, 163 (1978)). Thus, public employment
negotiation has been divided into two categories: “‘mandatorily
negotiable terms and conditions of employment and non-negotiable
matters of governmental policy.’” Ibid. (quoting Ridgefield
Park Educ. Ass’n, supra, 78 N.J. at 162).
In light of the competing interests of a public employer
and public employees, the Court stated in Local 195 that “[t]he
role of the courts in a scope of negotiations case is to
determine . . . whether an issue is appropriately decided by the
25
political process or by collective negotiations.” Ibid. Thus,
in Local 195, the Court articulated a three-part test for
weighing those interests, establishing that a subject is
negotiable when: “(1) the item intimately and directly affects
the work and welfare of public employees; (2) the subject has
not been fully or partially preempted by statute or regulation;
and (3) a negotiated agreement would not significantly interfere
with the determination of governmental policy.” Id. at 404.
In respect of the first factor, “rates of pay and working
hours” are noted models for the type of subjects that
“‘intimately and directly affect[] the work and welfare of
public employees.’” Id. at 403 (quoting Paterson Police PBA,
supra, 87 N.J. at 86). A subject is preempted, and therefore
non-negotiable under the second factor, when a statute or
regulation “‘speak[s] in the imperative and leave[s] nothing to
the discretion of the public employer.’” Id. at 403-04 (quoting
State Supervisory Emps. Ass’n, supra, 78 N.J. at 80). However,
under this prong of the analysis, the Court explained that a
subject remains negotiable when a statute or regulation related
to that subject preserves employer discretion; similarly, when
statutes or regulations set minimum or maximum standards in
respect of a subject, the subject is negotiable within the
limits of those standards. Id. at 403.
26
The third factor requires that interference with the
determination of government policy be significant in order to
defeat negotiability. Id. at 404. The Court explained that
consideration of the third factor arises out of recognition
“that most decisions of the public employer affect the work and
welfare of public employees to some extent and that negotiation
will always impinge to some extent on the determination of
governmental policy.” Ibid. (citing Paterson Police PBA, supra,
87 N.J. at 91-92). Thus, in order to determine whether
negotiation on a particular subject would significantly
interfere with the formulation of government policy,
it is necessary to balance the interests of the public employees and the public employer. When the dominant concern is the government’s managerial prerogative to determine policy, a subject may not be included in collective negotiations even though it may intimately affect employees’ working conditions. [Id. at 405.]
Neatly summed up, a matter’s negotiability turns not “on the
talismanic application of labels such as ‘terms and conditions
of employment’ or ‘managerial prerogatives[]’ [but r]ather, the
inquiry focuses on the extent to which collective negotiations
will interfere with the establishment and effectuation of
governmental policy.” Id. at 420 (Handler, J., concurring and
dissenting).
27
Applying those factors to the facts at hand, the Local 195
Court concluded that the contractual provisions under review
relating to the subjects of contracting and subcontracting were
non-negotiable because negotiation would interfere significantly
with the determination of government policy. Id. at 408
(majority opinion). The Court analogized the dominant policy
concerns in respect of decisions about contracting and
subcontracting to the policy determinations present in decisions
to reduce the work force for economy and efficiency, which this
Court has recognized as non-negotiable.3 Ibid. (citing State
Supervisory Emps. Ass’n, supra, 78 N.J. at 88). The Court
further held that the provisions regarding workweek hours by
individual employees were negotiable –- the balance of interests
on the third prong favored negotiation because negotiation would
not impede the State’s ability “to determine the number or
classification of employees on duty at any time.” Id. at 411.
Finally, the Court held that provisions relating to the
substantive decision to transfer or reassign an employee were
non-negotiable policy determinations, but that provisions
3 The Court noted that a CNA “could contain a provision requiring [a public employer] to discuss . . . economic aspects of subcontracting” when it is being considered “for purely fiscal reasons,” but discussion was not equated to negotiation; that said, the procedural aspects to subcontracting were held to be a proper subject of collective negotiations. Id. at 420.
28
relating to procedures for transfer and reassignment were
negotiable. Id. at 417.
With the Local 195 test as the indisputable test guiding
our analysis in scope of negotiations matters, we apply it to
the public employer actions in issue here.
IV.
A.
Prong one of the Local 195 test is not in issue in this
matter. In all three disputes, the layoff actions resulted in
reduced hours of work, with resultant reductions in pay, for the
affected employees. Those actions by each municipality impacted
terms and conditions of work for their employees. See, e.g.,
Bd. of Educ. of the Woodstown-Pilesgrove Reg’l Sch. Dist. v.
Woodstown-Pilesgrove Reg’l Educ. Ass’n, 81 N.J. 582, 589 (1980)
(noting “[r]ates of pay and working hours . . . appear to be
items most clearly falling within th[e]” terms-and-conditions
“category” (citation omitted)). PERC and the Appellate Division
properly so found, and all respondents recognize as much. There
is no need to dwell further on Local 195’s first prong.
Prongs two and three of the Local 195 test are the factors
in issue in these matters. The Appellate Division concluded
that the preemption prong precluded negotiation of the layoff
actions in all three matters and reversed PERC on that basis.
The panel also found that PERC erred in concluding that
29
negotiation was not barred under prong three, basing that
determination upon assessment of the predominant managerial
prerogative interest in pursuing the layoffs in these three
civil service communities facing financial distress. We
therefore turn to prongs two and three.
B.
1.
The preemption standard for prong two of the Local 195 test
is clear in its limits and rigid within its parameters. When
legislation or a regulation “establishes a specific term or
condition of employment that leaves no room for discretionary
action, then negotiation on that term is fully preempted.”
Local 195, supra, 88 N.J. at 403; see State Supervisory Emps.
Ass’n, supra, 78 N.J. at 80-82 (establishing that preemption
doctrine applies to validly promulgated regulations, such as
civil service regulations).
That principle was reinforced in Bethlehem Township Board
of Education v. Bethlehem Township Education Ass’n, 91 N.J. 38,
44 (1982): “Negotiation is preempted only if the regulation
fixes a term and condition of employment expressly, specifically
and comprehensively.” (Citation and internal quotation marks
omitted); see also Council of N.J. State Coll. Locals, supra, 91
N.J. at 26 (reiterating that preemption applies unqualifiedly to
regulations affecting terms or conditions of employment when
30
adopted by regulatory agency having no direct employer interest
over employees affected). For preemption to apply, there must
be no room for debate on the matter of discretion: “The
legislative provision must ‘speak in the imperative and leave
nothing to the discretion of the public employer.’” Bethlehem
Twp., supra, 91 N.J. at 44 (quoting Local 195, supra, 88 N.J. at
403-04). Thus, it is beyond dispute that specific terms and
conditions for public employment set by civil service statutes
or regulations may not permissibly be negotiated. See State
Supervisory Emps. Ass’n, supra, 78 N.J. at 80-82.
2.
Here the Appellate Division determined preemption to apply
based on the promulgation of a civil service regulation that had
permitted temporary layoffs of employees in State or local
service, and that thereby benefitted civil service
municipalities such as the three here claiming fiscal distress.
See N.J.A.C. 4A:8-1.1A (temporarily adopted as emergency
regulation on March 25, 2009; repealed effective December 21,
2009). Specifically and in pertinent part, the regulation had
provided:
An appointing authority in State or local service may institute a temporary layoff for economy, efficiency or other related reasons. A temporary layoff shall be defined as the closure of an entire layoff unit for one or more work days over a defined period or a staggered layoff of each employee in a layoff unit for one or more work days over a defined
31
period. A temporary layoff shall be considered a single layoff action even though the layoff of individual employees takes place on different days during the defined period. The defined period shall be set forth by the appointing authority in its temporary layoff plan; however, in a staggered layoff, the maximum period to stagger one day off shall not exceed 45 days.
[41 N.J.R. 1537 (Apr. 6, 2009); N.J.A.C. 4A:8-1.1A(a).]
There is important background to that emergency regulation.
The Commission adopted the emergency regulation at a time when
New Jersey law had long recognized a public sector employer’s
right to take a layoff action impacting employees working in
civil service jurisdictions of this State. The authorization
for such layoff actions is set forth in the Civil Service Act,
which provides that any “permanent employee may be laid off for
economy, efficiency or other related reason.” N.J.S.A. 11A:8
1(a). Civil service regulations fleshing out that authority
were in place at all times relevant to these matters.
First, the regulations identify the reasons that would
support a layoff action, and a “layoff action” is defined to
include a demotion as well as loss of position:
(a) An appointing authority may institute layoff actions for economy, efficiency, or other related reasons.
1. Demotions for economy, efficiency, or other related reasons shall be considered layoff actions and shall be subject to the requirements of this chapter.
32
[N.J.A.C. 4A:8-1.1.]
Second, the mechanics of a layoff action are detailed in
the civil service regulations. Public entity employers governed
by Civil Service law are required first to consider alternatives
to layoffs and to take a number of pre-layoff actions. See
N.J.A.C. 4A:8-1.2, 1.3. The regulations suggest alternatives to
layoffs, such as “[g]ranting voluntary furloughs,” “[a]llowing
voluntary reduction of work hours by employees,” “[p]roviding
employees with optional temporary demotional title changes,” and
other actions. N.J.A.C. 4A:8-1.2. The regulations require that
the public entity employer take certain actions pre-layoff,
“which may include, but are not limited to: 1. Initiating a
temporary hiring and/or promotion freeze; 2. Separating non
permanent employees; 3. Returning provisional employees to their
permanent titles; 4. Reassigning employees; and 5. Assisting
potentially affected employees in securing transfer or other
employment.” N.J.A.C. 4A:8-1.3(a). Importantly, the public
employer is required to “consult with” the union representatives
of affected employees before “initiating measures under th[at]
section.” N.J.A.C. 4A:8-1.3(c).
Third, the regulations require Commission approval of a
proposed layoff; therefore, when a public employer determines to
proceed with a layoff action, civil service regulations detail
what information must be submitted. See N.J.A.C. 4A:8-1.4(a).
33
That list of required information includes “[a] detailed
explanation of all alternative and pre-layoff actions . . .
taken, or . . . considered and determined [to be] inapplicable,”
and “[a] summary of consultations with” union representatives.
N.J.A.C. 4A:8-1.4(a)(6), (7). If approved, final notice of
layoff is provided to affected employees, N.J.A.C. 4A:8-1.6, and
employees have appeal rights under the civil service system,
N.J.A.C. 4A:8-2.6, including the right to challenge the good
faith of the layoff, see N.J.A.C. 4A:8-2.6(a)(1) (permitting
challenge based on assertion that employer acted “for reasons
other than economy, efficiency or other related reasons”).
The upshot to that detailed scheme is that the decision to
proceed with a layoff is a heavily imbued management decision,
but a discretionary one, subject to approval by the Commission
for implementation.
3.
A layoff is an action that may be taken by a public sector
employer, provided the employer follows and satisfies civil
service regulatory requirements. The statute and implementing
regulations that authorize a layoff of public sector employees
do not require that such action affecting terms and conditions
of employment be taken. They lack an imperative nature. Thus,
the layoff statute and implementing regulations do not satisfy
the essential requirement for preemption to pertain and preclude
34
negotiation based on the second prong of Local 195, supra, 88
N.J. at 403-04.
Indeed, we are unaware of any case, and have been directed
to none, that has declared the determination to embark on a
traditional layoff action to be non-negotiable based on the
preemption prong of the test for determining the scope of
negotiations. But see State Supervisory Emps. Ass’n, supra, 78
N.J. at 86-87 (explaining how civil service regulations
comprehensively regulate and control mandatory scheme for
determining seniority and reemployment rights in layoff,
preempting mandatory negotiation of collateral layoff rights
involving seniority, reemployment, and reinstatement).
When the new regulation governing temporary layoff actions
was adopted as an emergency rule, its premise operated on the
same discretionary basis. N.J.A.C. 4A:8-1.1A did not mandate an
action by public sector employers affecting terms and conditions
of employment for public employees. Adopted as an emergency
measure, the regulation quickly offered public entity employers
in civil service jurisdictions new discretionary forms of
temporary layoff actions for use in addressing situations of
fiscal distress.4 Like the statute and regulations governing
traditional layoff actions, see N.J.S.A. 11A:8-1(a); N.J.A.C.
4 For history of the regulation’s repeal, see 41 N.J.R. 3139(a) (Sept. 8, 2009) (proposal of regulation’s repeal) and 41 N.J.R. 4701(a) (adoption of regulation’s repeal) (Dec. 21, 2009).
35
4A:8-1.1(a), we do not view N.J.A.C. 4A:8-1.1A as meeting the
clear standard of an imperative required for preemption to
apply. Providing authority for a public sector employer to take
temporary layoff action that has an impact on public employees’
hours and wages -- paradigmatic examples of terms and conditions
of employment -- does not impose a mandate as called for under
Local 195’s second prong for preemption.
The Appellate Division misperceived the import of that
regulation and mistakenly found preemption to be applicable. We
conclude neither N.J.A.C. 4A:8-1.1A nor civil service statutes
and regulations governing traditional layoff actions preempt
negotiation on the basis of prong two of the Local 195 test of a
decision to proceed with a layoff because that law does not set,
as an imperative, a term and condition of employment for public
employees governed by Civil Service law. We turn therefore to
the final and critical factor in the Local 195 test.
V.
1.
Prong three of the Local 195 test holds that a subject may
affect “the work and welfare of public employees” and
nevertheless not be subject to negotiation. Supra, 88 N.J. at
404. Based on a well-established analysis performed under that
prong, layoffs consistently have been held to be outside of the
36
scope of negotiations. The reasoning is based on the balancing
of interests required by prong three.
In explaining prong three, the Local 195 Court reaffirmed
that most decisions by a public employer affect to some extent
the work and welfare of public employees and that requiring
negotiation in all such instances would impinge on the
determination of public policy. Ibid. (citing Paterson Police
PBA, supra, 87 N.J. at 91-92). When assessing the scope of
required negotiations under prong three, those interests must be
balanced: “[N]egotiation will be allowed on a subject that
intimately and directly affects the work and welfare of public
employees unless such negotiated agreement would significantly
interfere with the determination of governmental policy.”
Ibid.; see also Woodstown-Pilesgrove, supra, 81 N.J. at 591
(“When the dominant issue is [a governmental] goal, there is no
obligation to negotiate and subject the matter, including its
impact, to binding arbitration.”).
Application of that balancing of interests under prong
three has deep roots when it comes to the decision to lay off
and thereby adjust a public workforce involved in the delivery
of public services. In State Supervisory Employees Ass’n,
supra, our Court declared that the decision to “cut” a work
force is “unquestionably . . . a predominantly managerial
function.” 78 N.J. at 88. There is no room for mandatory
37
negotiation in the determination to reduce a workforce. See
ibid.; cf. Council of N.J. State Coll. Locals, supra, 91 N.J. at
32 (stating same and citing examples of forms of workforce
reduction); DEP, supra, 285 N.J. Super. at 551-52; DiMattia v.
N.J. Merit Sys. Bd., 325 N.J. Super. 368, 374-75 (App. Div.
1999). That is so because such decisions go to the heart of
governmental policy determinations about what services are to be
provided and how they will be provided to the public. Public
managers must be the ones accountable to the people for such
substantive policy decisions. See Local 195, supra, 88 N.J. at
408; DEP, supra, 285 N.J. Super. at 553.
Scope-of-negotiations law addressing subcontracting follows
that same reasoning. In Local 195, supra, our Court rejected
the argument that a public employer’s civil service right to lay
off employees preempted subcontracting as a negotiable subject.
88 N.J. at 406. However, in concluding that the topic did not
belong among those subject to negotiation, the Court found that
the substantive decision to contract or subcontract
significantly interfered with a determination of public policy.
Id. at 407-08. The Local 195 Court was unanimous in stating its
test for assessing the scope of required negotiations and the
reason for keeping matters involving predominantly managerial
prerogative out of the negotiations process. That explanation
bears repeating in full.
38
The choice of how policies are implemented, and by whom, can be as important a feature of governmental choice as the selection of ultimate goals. It is a matter of general public concern whether governmental services are provided by government employees or by contractual arrangements with private organizations. This type of policy determination does not necessarily concern solely fiscal considerations. It requires basic judgments about how the work or services should be provided to best satisfy the concerns and responsibilities of government. Deciding whether or not to contract out a given government service may implicate important tradeoffs.
Allowing such decisions to be subject to mandatory negotiation would significantly impair the ability of public employers to resort to subcontracting. We have previously held that decisions to reduce the work force for economy or efficiency are non-negotiable subjects. The decision to contact out work or to subcontract is similarly an area where managerial interests are dominant. This is highlighted by the fact that allowing subcontracting to be negotiable may open the road to grievance arbitration. Imposing a legal duty on the state to negotiate all proposed instances of subcontracting would transfer the locus of the decision from the political process to the negotiating table, to arbitrators, and ultimately to the courts. The result of such a course would significantly interfere with the determination of governmental policy and would be inimical to the democratic process.
[Ibid. (citations omitted).]
2.
The Local 195 rationale informs our consideration of the
expression of public policy contained in the Commission’s
temporary layoff rule. The Commission promulgated an emergency
39
regulation authorizing temporary layoffs while the extant
financially distressing conditions, pervading the State and
local communities, supported expansion of the layoff techniques
available to State and local governmental appointing authorities
governed by civil service requirements. The Commission’s
regulation authorized a layoff mechanism that offered local
governmental appointing authorities a tool through which swift
action may be taken to address pressing fiscal distress, as the
municipalities in this appeal emphasize. In recognition of that
clear expression of legitimate public policy authorizing such
actions to be taken, it appears to us that a decision to reduce
the workforce of employees within an identified layoff unit,
even on a temporary basis in accordance with a duly authorized
temporary layoff plan, is as much a managerial prerogative as
the decision to layoff permanently, or to subcontract a function
permanently or on a temporary basis.
Generically, all of the above-referenced actions go
directly to a substantive policy determination about whether and
how to deliver public services when delivery is affected by
serious and pressing economic considerations. Economic reasons
are indisputably a legitimate basis for a layoff of any type.
See N.J.S.A. 11A:8-1(a) (authorizing layoff action based on
reason of economy); N.J.A.C. 4A:8-1.1(a) (same); see also
N.J.A.C. 4A:8-1.1(a)(1) (authorizing demotions for economy);
40
DiMattia, supra, 325 N.J. Super. at 374 (noting that civil
service statutory and regulatory amendments had authorized
public employer to take demotional layoff actions for budgetary
reasons). Thus, a layoff -- including an authorized temporary
layoff pursuant to a valid Commission regulation authorizing
such action, or demotion in position from full to part-time
status also pursuant to an approved layoff plan -- remains a
management policy determination of considerable heft so long as
economic or other recognized rationales support its use.
The temporary layoff actions at issue here were undertaken
by municipalities at a time when the Commission’s emergency
regulation made available an additional management tool to
address a pervading financial downturn that was affecting
municipal budgets generally and, in particular, those of the
municipalities involved here. Municipal budgets, structured on
a cash basis, must be balanced annually, see N.J.S.A. 40A:4-2,
3, and regulations address proper municipal budgeting practices
to promote healthy and responsible municipal governance, see
N.J.A.C. 5:30-3.2 to -7.7. In each of these municipalities,
the municipal government endeavored to maintain services in a
responsible way in light of an economic downturn with no relief
in sight. In each, the municipal appointing authorities took
action while the emergency Commission regulation authorizing
temporary, as well as permanent, layoff plans was in effect.
41
They acted based on extant Commission public policy that made
those options available for use if other Commission layoff
requirements were satisfied, including the consultative
obligation with union representatives and the duty to pursue
prior pre-layoff alternatives.
For those reasons, in the context of the cases consolidated
before us, we cannot conclude that these matters required
compelled negotiation. These civil service municipalities, when
faced with fiscal exigency, had the right to lay off employees
under prior case law and as buttressed by the emergency
regulation then in effect authorizing temporary layoff actions.
See N.J.A.C. 4A:8-1.1A. Although the emergency regulation since
has been repealed, the regulation’s validity is not challenged
in this matter and it authorized temporary periods of layoffs
during times of exigent fiscal circumstances when these
municipal actions were taken. Whether the municipalities
actively relied on that existing regulation is not controlling
in our review of this appeal.
Even PERC, in its initial decisions in these matters,
recognized that a management policy determination was involved
in the decision to impose a temporary layoff and did not
question the ability of management to take such policy action.
Instead, it evaluated only the negotiability of the management
decision and performed a balancing-of-interests analysis under
42
prong three of the Local 195 test. PERC found the decision to
be negotiable. It based its determination on its own assessment
of the fiscal need faced by each municipality and its own
perception that other management policy choices could possibly
address the financial distress the municipalities faced within
the particular fiscal year in progress. Under PERC’s initial
analysis, each municipality was required to demonstrate that no
other option was available in order for these layoffs to
constitute a managerial prerogative that a municipal governing
body could exercise in the face of the present circumstances of
fiscal distress.
As noted, PERC now takes the position that, under the
circumstances, these layoff actions were legitimate management
prerogatives that ought not to have been ruled subject to
negotiation. That second thought demonstrated the better
judgment.
PERC erred in initially requiring each municipality to
demonstrate that no other option was available before it could
take the layoff measures of restricting workdays through a
temporary layoff or eliminating full-time positions while
covering tasks through part-time positions so services to the
public continued. Those were management policy determinations
that constituted prerogatives. They should not have been
subjected to PERC’s non-deferential “last option” standard. In
43
subjecting them to that standard, PERC’s judgment failed to
adhere to the teachings of Local 195 and related case law
addressing workforce reductions; as a result, PERC mistakenly
declared these layoff actions subject to negotiations. Adding
negotiations as PERC would have required would have injected a
whole new dimension, rendering policy determinations subject to
the decisions of arbitrators and ultimately the courts. And,
that review for negotiability -- over actions that needed to be
accomplished swiftly in order to effectuate their intended
prompt economic relief from the financial distress -- would come
months, if not years, later. More fundamentally, the wrong
decision makers would be setting policy for the municipalities.
Local 195, supra, 88 N.J. at 407-08.
Certainly, under prong three of Local 195, an artificial
“fiscal crisis” cannot outweigh important employee work and
welfare interests. Some evaluation is necessary, and does occur
during the Commission’s approval process, which requires
consideration of the asserted reason for the layoff’s necessity.
We note too that a good faith challenge is available under civil
service regulations, see N.J.A.C. 4A:8-2.6(a)(1), and provides a
more appropriate solution than invoking mandatory negotiation to
zero in on any improper basis for a reduction in workforce
action. See Local 195, supra, 88 N.J. at 425 (Handler, J.,
concurring and dissenting) (noting that mandatory negotiation
44
can be inapt solution to invoke, when other solutions for review
of management action exist, because negotiation “route is
cumbersome, inappropriate and potentially disruptive of
governmental management”).
Finally, we reject the argument that past decisions
addressing and requiring negotiation of unilaterally imposed
reductions to hours of work are at odds with the outcome reached
here. The decisions cited have not arisen in the context of a
bona fide layoff plan. See, e.g., Galloway Twp. Bd. of Educ. v.
Galloway Twp. Ass’n of Educ. Sec’ys, 78 N.J. 1, 5-6 (1978)
(addressing individual actions taken unilaterally against
certain secretaries during collective negotiations with
representative). When a layoff plan has been prepared to
accommodate policy determinations about the efficient delivery
of services when economy is a factor, the public management’s
right to reduce its workforce -- by a layoff or restructuring of
the number and type of positions, full or part-time -- must be
treated as a management prerogative. Several past appellate
decisions properly have recognized the management prerogative
present when a decision to proceed with a layoff is involved.
See, e.g., DEP, supra, 285 N.J. Super. at 551-53; DiMattia,
supra, 325 N.J. Super. at 374-75; see also Klinger v. Bd. of
Educ. of Cranbury, 190 N.J. Super. 354, 357-58 (App. Div. 1982)
(recognizing that reduction in force eliminating full-time
45
physical education teacher and creating instead two 7/10ths
part-time teachers is within management’s authority),5 certif.
denied, 93 N.J. 277 (1983).
All of the layoff actions challenged herein were reviewed
by the Commission and approved for implementation as legitimate
layoffs. There was an opportunity to appeal the “good faith” of
each layoff under civil service regulations but that avenue was
not pursued. Nor is there any challenge in any of these matters
to the validity of the temporary layoff regulation that was in
place at the time these actions were taken. At this late date,
based on our review of the records presented, we are satisfied
that all three municipalities acted for reasons of economy based
on municipal fiscal distress existing at the time, rendering the
management choice to use a temporary or permanent layoff
solution one that constituted a managerial prerogative not
subject to negotiation. We therefore hold that the layoff
actions at issue in this consolidated appeal constituted non
negotiable subjects under prong three of the Local 195 test for
negotiability.

Outcome: The judgment of the Appellate Division is AFFIRMED as MODIFIED

Plaintiff's Experts:

Defendant's Experts:

Comments: