As public sector workers and their unions continue to litigate governmental attempts to reduce their contractually bargained-for rights, the Contracts Clause is proving to be a useful tool, ensuring that when a municipality enters a contract, it cannot simply walk away from it,
Defending Public Sector Contract Rights with the Contracts Clause
In the aftermath of the financial downturn that adversely impacted public employees (often times disproportionately), public sector workers and their unions continue to litigate governmental attempts to reduce unilaterally, or to eliminate altogether, contractually bargained-for rights. As reported in our Summer 2015 Stroock Reports,1 in recent years, such attempts have been met with legal challenges across the country, typically premised on both state and federal constitutional grounds and often utilizing the Contracts Clause of state and federal constitutions.
The Contracts Clause is a useful tool in these challenging times. By ensuring that when a municipality enters a contract, it cannot simply walk away from it, the Contracts Clause safeguards the sanctity of all contractual obligations and promotes confidence in the continuing stability of contracts for public workers. This previously seldom-used constitutional provision ("No State shall...pass any Law...impairing the Obligation of Contracts") was meant to prevent legislative and other governmental retroactive interference in both public and private sector contracts.
A governmental body cannot refuse to meet its obligations under a collective bargaining agreement merely because it would prefer to spend money elsewhere, nor should it look to its labor contracts as a first corrective measure to cure a budgetary deficit or shortfall. After all, the bedrock of labor relations in New York (and in other jurisdictions) is the collective bargaining process. There would be little incentive for a union to negotiate the terms of a contract or re-open a contract to discuss potential concessions if its employer could gain what it sought and then unilaterally renege on its obligations.
Case in Point: Headley et al. v. City of Miami
A case decided last month in the Florida Supreme Court, Headley, et al. v. City of Miami, 2 reinforces the value of the Contracts Clause as a shield against one-sided governmental action and represents the latest success among public employee constitutional challenges to efforts to impair public employee contracts. In Headley, the City of Miami entered into a certified bargaining agreement with its police union, Miami Lodge No. 20, Fraternal Order of Police, covering the period October 1, 2007 to September 30, 2010. Towards the end of the contract, the City declared a "financial urgency," notified the Union that it intended to implement reductions to the officers' wages, pension benefits and other economic terms of employment, and passed legislation implementing such changes.3
A seldom invoked Florida state law allows administrators to re-open contracts without bargaining in cases of fiscal emergency. The Union filed an improper labor practice charge with the Florida Public Employee Labor Relations Commission (PERC) and at the hearing on the matter the City presented evidence of budgetary deficits and asserted that it had already implemented hiring freezes, layoffs, ceased procurement and eliminated jobs. It leaned, in particular, on the fact that labor costs comprised 80% of the City's expenses.
The Union, for its part, provided a menu of revenue-raising and expense-reducing alternatives the City could have at least explored before attempting to unilaterally change the CBA, including implementing millage tax rates, installing red light cameras and other, less draconian employment-related measures. PERC found for the City, focusing on whether "a reasonable person could reach the conclusion that funding was not available to meet the employer's financial obligations to its employees."4 It also found that the City need not proceed through an impasse resolution process and could implement the changes unilaterally so long as it provided the Union notice and a reasonable opportunity to bargain.
The Union appealed to the Florida courts, arguing that the government's actions in breaching its CBA violated the members' constitutional rights. As such, a more searching and stringent constitutional analysis was required and the City could not simply sidestep the impasse process by providing notice to the Union of its intentions.
The Florida Supreme Court's Decision
After the First Appellate District affirmed the PERC decision, the Florida Supreme Court granted review, in light of another Florida appellate court, the Fourth Appellate District, had previously staked a conflicting position in Hollywood Fire Fighters Local 1375 v. City of Hollywood. In Hollywood, the Fourth Appellate District ruled that before impairing a CBA, an employer must, as a constitutional matter, demonstrate that there are "no other reasonable alternative means of preserving its contract with public employees" and show that funds are available from "no other possible source before unilaterally modifying a collective bargaining agreement."5
The Florida Supreme Court sided with the Fourth District – potentially costing the City of Miami millions in backpay – and ruled that its conclusions were "compelled by the Florida Constitution" and, specifically, its Contracts Clause.6 To unilaterally breach an agreement regarding wages, hours or terms of conditions of employment reached during the collective bargaining process, there must be a compelling state interest (with the governmental action narrowly tailored to further that interest).
The Florida Supreme Court found that although a government entity has some leeway to respond to fiscal emergencies, the right to contract severely limits that ability. The "mere fact that it is politically more expedient" to eliminate raises or certain other aspects of a CBA is not "a compelling reason" to justify abandoning its obligations.7 Therefore, the Florida Supreme Court ruled that a government cannot abrogate public employee contracts unless it can demonstrate that there are "no other reasonable alternative means of preserving its contracts" and funds "are not available from any other possible reasonable source."8 The court remanded the case for a determination consistent with the decision.
Looking Ahead
Though the case continues, the Florida Supreme Court decision underscores the increasing relevance of the Contracts Clause in protecting public employee contracts. As public employee contracts and pensions remain in the political cross-hairs nationwide, particularly in jurisdictions experiencing challenging budgetary environments, Headley is a reminder that to pass constitutional muster, government entities must first consider and exhaust all reasonable alternatives before vitiating the collectively bargained-for rights of public employees.9
1 2015 Stroock Reports: Public Employee Law, available at http://www.stroock.com/siteFiles/Publications/StroockPublicEmployeeLawReport.pdf.
2 Headley v. City of Miami, -- So. 3d --, 2017 WL 819740 (Sup. Ct. Fla. March 2, 2017).
3 Id. at *1. Among other things, the law capped pensions at $100,000 and cut salaries by as much as 12 percent.
4 Id. at *2.
5 133 So. 3d 1042, 1045 (Fla. DCA 2014).
6 Headley, 2017 WL 819740, at *5.
7 Id. at *4.
8 Id.
9 Stroock is co-counsel to the Nassau County police officer unions in a case that similarly utilizes the Contracts Clause to challenge the unilateral suspension of wages and other economic terms contained in their collective bargaining agreements.
Co-Editors: Alan M. Klinger, co-managing partner, and Dina Kolker, special counsel in Stroock's Litigation and Government Relations Practice Groups. The Co-Editors wish to thank Beth A. Norton, special counsel, and David J. Kahne and Arthur J. Herskowitz, associates, in Stroock's Litigation and Government Relations Practice Groups.
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