I.R. NO. 97-22

STATE OF NEW JERSEY

BEFORE THE PUBLIC EMPLOYMENT RELATIONS COMMISSION

In the Matter of

MORRIS SCHOOL DISTRICT

BOARD OF EDUCATION,

Respondent,

-and-	Docket No. SN-97-80

THE EDUCATION ASSOCIATION

OF MORRIS,

Petitioner.

Appearances:

For the Respondent, Carroll & Weiss, attorneys

(David W. Carroll, of counsel)

For the Petitioner, Balk, Oxfeld, Mandell & Cohen, attorneys; (Sanford R. Oxfeld & Gail Oxfeld Kanef, of counsel and on the briefs)

INTERIM RELIEF DECISION AND ORDER

On February 13, 1997, The Education Association of Morris petitioned for a scope of negotiations determination. It subsequently filed this application for interim relief. The Association seeks a declaration that a portion of a factfinder's recommendation is non-negotiable. That recommendation would cap payments for unused sick leave received by employees of the Morris School District Board of Education upon their retirement, death, or separation from employment because of subcontracting.

The petition was filed following a February 10, 1997 opinion of the Hon. Kenneth C. McKenzie, P.J.Ch., Superior Court, Chancery Division, Morris and Sussex Counties, dismissing an

Association lawsuit which had sought an order declaring the cap to be illegal. Judge McKenzie concluded that the lawsuit raised a scope of negotiations issue within the Commission's jurisdiction.

The parties have filed certifications, exhibits and briefs. On April 29, 1997, they argued orally before me, acting as the Commission's designee to hear the interim relief application.

The Association represents the Board's non-supervisory employees. The parties' most recent agreement expired on June 30, 1995. After negotiations and mediation failed to produce a new agreement, the Commission appointed a factfinder to continue mediation and make recommendations for settlement. See N.J.A.C. 19:12-4.3. Before the factfinder issued his report, Association members voted to abide by its contents. On September 20, 1996, the factfinder issued a report recommending ways to resolve nine issues. Four days later, the Board voted to accept the report.

Article 9 of the previous agreement provides for payment for unused sick leave upon retirement or death. It states:

A.	Compensatory Pay

1.	Compensatory pay at time of retirement for persons retiring under T.P.A.F. and P.E.R.S. shall be calculated on the basis of 1/200 contract salary at the time of retirement. Entitlement shall be limited to 33 1/3% of a maximum of 10 days per year sick leave less any sick days taken during the period covered.

2.	a. Commencing with the 1989-90 school year, the entitlement for ten-month employees shall be thirteen (13) sick days per year, less sick days used. All eleven and twelve-month

employees shall receive fifteen (15) days (thirteen sick days and two unused personal days) per year, less sick days used, which may be applied toward their retirement bank.

b. All employees who accrued sick days prior to 1989-90 in the district shall receive for each prior year of service one (1) day if a ten-month employee, or one and one-half (1-1/2) days per year if an eleven or twelve-month employee, for calculation for retirement. These days will be added to the number of days to which the employee is entitled after the computation of unused accumulated sick days.1/

B.	Death Benefit

Employees who would otherwise be eligible for compensatory pay at retirement, but who do not retire from the employ of the District because of death, shall have payment for any eligibility for compensation under this Article made to their estate.

Article 5 allows employees to convert two unused personal days per year to sick leave and add those amounts to their accumulated sick leave totals, provided that no more than the statutory maximum of 15 days accumulates in a given year. See N.J.S.A. 18A:30-7.

Addressing each party's proposed modifications to Article 9 and proposing a compromise, the factfinder recommended imposition of a dollar cap on payment upon retirement or death and extension of the benefit to employees who lose their jobs through subcontracting. He wrote:

1/	The record does not contain any collective negotiations agreements, individual employment contracts, or school board policies preceding the most recent collective negotiations agreement so I do not know the previous terms concerning sick leave accrual.

The Board's proposal is to cap the payment at $5,000.00 or the amount the employee was eligible for on June 30, 1996. Further, the Board proposes that employees hired after the ratification of a successor agreement shall not be eligible for this benefit.

The Association proposes to maintain the current benefit with no change. The Association also proposes that eligibility for this benefit be extended to employees whose jobs are eliminated by subcontracting, a reduction in force, and employees leaving the District after ten years of service. The Association also proposes that subcontracted employees be compensated for 100% of all unused sick days.

The present agreement does not set any limit on the maximum amount of compensatory pay at retirement. This is an unusual agreement and I am persuaded that a cap is appropriate. I do not believe that cap should be effective until July 1, 1997. This will permit employees who are eligible for compensatory pay in excess of the July 1, 1997 cap to retire during the 1996-1997 school year and receive the higher compensatory pay. Accordingly, I recommend the implementation of the following caps:

July 1, 1997	$25,000.00

July 1, 1998	$20,000.00

I also recommend that if employees should lose their jobs because of subcontracting of services, they shall be eligible for compensatory pay pursuant to the agreement. These employees would not have to satisfy the retirement requirement. This would in effect be severance pay.

Education employees normally may retire at age 60. N.J.S.A. 18A:66-43. If an employee has 25 or more years of service, retirement may occur at age 55. N.J.S.A. 18A:66-37, N.J.S.A. 18A:66-44. Persons with 25 years of service who are between ages 50 and 55 may retire early, but will have their pension benefit reduced by 1/4 of 1 per cent for each month the employee is under age 55. N.J.S.A. 18A:66-37.

If the cap is applied to all current employees, some employees will lose tens of thousands of dollars in accumulated leave payments unless they retire before July 1, 1997. Other employees not eligible to retire this July have current sick leave accumulations several thousand dollars higher than the proposed caps.2/

The Association asserts that the factfinder's cap was not proposed by the Board and retroactively reduces accumulated benefits in employee retirement banks. The employer's proposed cap would have simply frozen the benefits already earned by current employees as of the value of their accumulated leave on June 30, 1996. The Association maintains that implementation of the factfinder's cap would deprive employees of vested benefits in

2/	There are 42 persons who have sick leave accumulations valued at over $25,000 as of July 1, 1996. Of that group, 17 will be 55 or older with at least 25 years of service; 24 will have completed at least 25 years of service but will not have reached age 55; and one person would not be eligible for retirement in any form as he would not have 25 years service and would not have reached age 60. Of the group of 18 employees whose potential compensation would be diminished by the proposed $20,000 cap to take effect on July 1, 1998, eight will be 55 or older with at least 25 years of service; seven will have completed at least 25 years of service but will not have reached age 55; and three would not be eligible for retirement in any form as they would not have 25 years service and would not have reached age 60. The list also includes 13 other employees whose leave balances as of June 30, 1996 were above $18,000 but below $20,000. Based upon their listed ages and years of service as of July 1, 1998, eight individuals would be eligible for retirement without a reduction in compensation, three would be eligible for retirement but only with a reduced benefit, and two would not be eligible for retirement.

violation of their constitutional rights and would constitute age discrimination. It also asserts that the award forces older employees to give up their teaching careers to maintain earned benefits and constitutes an unlawful retirement incentive.

The Board argues that employees who have accumulated sick leave have mere expectations of future compensation, not vested rights. It asserts that employees who can retire have a meaningful alternative to having the value of their accumulated leaves reduced. The Board also asserts that the provision is facially neutral and that contractual language has been held not to constitute age discrimination even if it may have a disparate impact on older workers.

When these negotiations began, neither side questioned the negotiability of the other's proposal concerning this topic, as neither party sought to reduce the amount or value of leave allowances already accumulated. That possibility arose when the factfinder, as part of an overall proposal to resolve the dispute, recommended a change in the benefit that was different from either party's proposal. The Association asserts that the factfinder's recommendation is illegal. Judge MacKenzie's ruling has placed the issue before the Commission.

To obtain interim relief, the moving party must demonstrate both that it has a substantial likelihood of prevailing in a final Commission decision on its legal and factual allegations and that irreparable harm will occur if the requested

relief is not granted. Further, the public interest must not be injured by an interim relief order and the relative hardship to the parties in granting or denying relief must be considered. Crowe v. De Gioia, 90 N.J. 126, 132-134 (1982); Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 35 (1971); State of New Jersey (Stockton State College), P.E.R.C. No. 76-6, 1 NJPER 41 (1975); Little Egg Harbor Tp., P.E.R.C. No. 94, 1 NJPER 37 (1975).

Local 195, IFPTE v. State, 88 N.J. 393 (1982), sets the standards for determining negotiability:

[A] subject is negotiable between public employers and employees 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. To decide whether a negotiated agreement would significantly interfere with the determination of governmental 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 404-405]

Those employees who are over the $25,000 cap and can retire would have to do so immediately to retain the full value of their leave allowances. But retirement would also mean giving up tenured teaching positions, possibly many years before the employees would otherwise retire. Early retirement, while preserving full compensation for the leave allowances, would also reduce potential pension compensation. As years of service go up,

so too does the percentage of annual salary to be received as a pension. Thus, if the cap is applied retroactively, employees with a choice could retain the value of their accrued leave only by giving up tenured employment and higher pension payments. Other employees who are over the $25,000 cap cannot retire immediately. They would lose amounts in excess of the caps unless they forfeit their opportunity to earn a pension.

The Association claims that the United States Constitution and the New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 et seq., preempt the cap. Hunterdon Central H.S. Bd. of Ed. v. Hunterdon Central H.S. Teachers Ass'n, P.E.R.C. No. 80-4, 5 NJPER 289 (¶10158 1979), aff'd 174 N.J. Super. 468 (App. Div. 1980), aff'd o.b. 86 N.J. 43 (1981), authorizes the Commission to consider whether a constitutional prohibition preempts a negotiations proposal.

The Fourteenth Amendment to the United States Constitution provides in part:

No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. [U.S. Const. amend. XIV, §1; emphasis added]

The part of the underlined phrase beginning with the first "nor" is known as the "due process" clause. The part of the underlined phrase beginning with the second "nor" is known as the "equal protection clause." Both clauses protect rights also shielded by

Article 1, ¶1 of the New Jersey Constitution. Pennsylvania Greyhound Lines v. Rosenthal, 14 N.J. 372, 384 (1954). In addition, Article I, paragraph 10 of the United States Constitution (the contract clause) provides, in part, that "No State ... shall pass any ... Law impairing the Obligation of Contracts...." Article IV, section 7, paragraph 3 of the New Jersey constitution is essentially identical.

These constitutional guarantees are triggered when a state or political subdivision impairs a person's use, interest or enjoyment of property or some other substantial right the individual holds or enjoys, including rights acquired through contractual relationships. These interests are often referred to as "vested rights" or "property interests." Our Supreme Court has stated:

The term "vested right" is not defined in either the Federal or State Constitution; but it would seem that generally, the concept it expresses is that of a present fixed interest in which right reason and natural justice should be protected against arbitrary state action--an innately just and imperative right that an enlightened free society, sensitive to inherent and irrefragable individual rights, cannot deny.

[Pennsylvania Greyhound Lines, 14 N.J. at 384-385]

Public workers have sought to protect "vested rights" allegedly acquired through their employment. See Charles v. Baesler, 910 F.2d. 1349, 1351-1357 (6th Cir. 1990). For example, pension benefits may be considered "vested rights" and thus protected from termination or modification upon retirement. See Spina v. Consolidated Police and Firemen's Pension Fund

Commission, 41 N.J. 391 (1964)(retirees have property interest in their pension benefits; modification in years of service required before retirement did not impair rights of active employees); see also Weiner v. Essex Cty., 262 N.J. Super. 270 (Law Div. 1992)(loss of retiree health benefits infringed retirees' property rights in violation of state and federal constitutions); cf. Gauer v. Essex Cty. Div. of Welfare, 108 N.J. 140, 150 (1987)(retirees of an abolished public agency could not have their health insurance premium payments terminated by successor agency.3/

A public employee can earn employment benefits by operation of a statute or by contract, including collective negotiations agreements. See State v. State Supervisory Employees Ass'n, 78 N.J. 54, 80-82 (1978). Where a benefit has been provided by statute, employees who have met the conditions precedent for its receipt may have a vested right to that benefit. See Taureck v. City of Jersey City, 149 N.J. Super. 503 (Law Div. 1977)(benefits of law providing that municipal and county employees receive credit for prior service cannot be waived by collective negotiations agreement). Similarly, a benefit arising through a contractual arrangement may be deemed vested after an employee has met the conditions required for its

3/	Cases involving loss of pension benefits as a consequence of a public official's forfeiture of office are not relevant since the public officials in those cases had not met the conditions for a pension given their misconduct or criminal behavior. See Corvelli v. Bd. of Trustees, 130 N.J. 539 (1992).

acquisition. See, e.g., Weiner; but cf. State Troopers Fraternal Ass'n v. State, N.J. (1997), Dkt. No. A-59 (4/24/97) (retroactive application of regulation may impair private interest of troopers in receiving pay adjustment).

I first ask whether the Association has demonstrated a substantial likelihood of proving that employees have a vested statutory right to payment for their accumulated sick leave benefits. I conclude that it has not.

Sick leave for education employees has been legislatively regulated. N.J.S.A. 18A:30-1 through 30-7. N.J.S.A. 18A:30-3 provides that any remaining days of an employee's minimum sick leave allowance in a given year "shall be accumulative to be used for additional sick leave as need in subsequent years." And N.J.S.A. 18A:30-3.4 mandates that such allowances, once granted, shall be "irrevocable."

The statutory bar against diminution has been construed as applicable only to using sick leave days, and not to other forms of compensation tied to sick leave balances. See Keller v. Lower Cape May Reg. Sch. Dist. Bd. of Ed., 1986 SLD 1537 (Com'r of Ed.)(terms of contract negotiated between retiring superintendent and board waived any right to payment for unused leave accumulated in another district; denial did not violate statute); Hardgrove v. Bridgewater-Raritan Bd. of Ed., 11 N.J.A.R. 510 (EDU 1986); aff'd o.b. App. Div. (A-25-86), certif den. 108 N.J. 655 (1987)(sick leave statutes did not vest terminated, non-tenured employee with

right to remain on payroll until sick leave was exhausted or to receive payment based upon accumulated sick leave). I thus conclude that employees do not have a statutory right to receive payment for accumulated sick leave upon retirement.

I next ask whether the Association has demonstrated a substantial likelihood of proving that employees have a contractual right to payment for their accumulated sick leave benefits. Payment to a public employee for unused sick leave is a form of compensation, rather than a gratuity. See Maywood Ed. Ass'n v. Maywood Bd. of Ed., 131 N.J. Super. 551, 557 (Law Div. 1974). Article 9 of the parties' collective negotiations agreement speaks about this form of compensation: employees are contractually entitled to have accumulated sick leave and some unused personal days added to their "retirement banks" and to receive payment for accumulated sick leave days upon retirement. Given the unconditional language in the contract, this past and current entitlement to retirement bank credit appears to differ from a "mere expectation" about future salary payments. Contrast Williams v. Plainfield Bd. of Ed., 176 N.J. Super. 154 (App. Div. 1980)(administrator's reduced salary expectation, after transfer to a lower paying post without a present salary reduction, did not impair vested right).

I next ask whether the Association has demonstrated a substantial likelihood of proving that the contractual entitlement cannot be retroactively diminished by the factfinder's report. No

New Jersey case answers this question. I will therefore look at decisions from other jurisdictions which have considered whether a contractual right to payment for unused, accumulated leave to employees on retirement, termination or death may be reduced or eliminated.

In Gilman v. Cheshire Cty., 126 N.H. 445, 493 A.2d. 485 (1985), the New Hampshire Supreme Court held that a public employer could not reduce vested payments for accumulated sick leave days earned before a cap was imposed. The Court stated:

Payment for sick leave, where authorized in the terms of the employment, is not a mere gratuity, but constitutes compensation for services rendered. Such payment is in the nature of deferred compensation in lieu of wages earned. Once the services are rendered, the right to receive the promised compensations vests.

In the instant case, services were rendered under the 1980 policy, and sick leave benefits under that policy were a part of the compensation for those services. The decedent earned certain benefits, the payment for which was to be made at a future date. Although the payment of those benefits was deferred, the employer could not impair its obligation to pay those benefits by changing its sick leave policy after the compensation was earned so as to divest the rights of those already benefiting from it.

[493 A. 2d. at 488]

Observing that the payments were inducements for workers to become and remain employees, the Court further reasoned that:

[b]enefits would serve as little inducement if they could be whisked away at the whim of the public employer. In many instances, the employee would have no assurances of receiving promised benefits unless he terminated employment while favorable policies were still in effect.

[Id.]

The Court, however, concluded that the vesting of a right to compensation already earned did not preclude future changes:

[T]his opinion should not be read to preclude employers from modifying the terms of employment. Rather, this opinion merely limits the ability of an employer to modify rights which have vested under the previous terms of employment.

[Id. at 489]

Other courts have reached similar results. See Matson v. Housing Auth. of Pittsburgh, 353 Pa. Super. 445, 510 A.2d 819 1986)(change in policy of payment for unused vacation and sick leave made to receive federal grant could not deprive employees of previous accumulated leave); Ramsey v. Whitley Cty. Bd. of Ed., 844 F.2d. 1268 (6th Cir. 1988)(policy that deprived employee of payment for accumulated, unused sick days affected employer's property interest). Cf. Sonoma Cty. Org. of Public Employees v. Sonoma Cty., 23 Cal. 3d 296, 591 P.2d. 1 (1979)(state law barring use of state funds to pay for increases beyond increases granted to state employees unconstitutionally impaired employees' rights under collective bargaining agreement); Knecht v. Bd. of Trustees, 591 So. 2d 690 (La. 1991)(denial of use of accrued leave allowances violated current and retired employees' vested rights). The courts have carefully distinguished between situations, as in Williams, involving actions reducing future compensation levels, and situations reducing benefits already earned. See, e.g., Alston v. City of Camden, 471 S.E. 2d. 174 (S.C. 1996)(cap on accumulated sick leave payments did not offend Constitution where employees over maximum were allowed to maintain

current balances and right to future payment for unused leave or opt into new plan); Pritchard v. Elizabeth City, 81 N.C. App. 543, 344 S.E. 2d. 821 (N.C. App. 1981)(redefinition of firefighters' workday for vacation purposes was not unconstitutional where ordinance was applied prospectively). Contrast Smith v. Morris, 778 S.W. 2d 857 (Tenn. App. 1988)(no vested contractual right to payment for unused sick leave where resolution granting benefit stated that benefit would be reviewed yearly and modifications should be anticipated). And the courts have also distinguished sick leave policies that grant the future use of sick leave not taken in prior years from policies providing for sick leave payments on retirement or separation from employment. For example, in Christian v. Ontario Cty., 92 Misc. 2d. 51, 399 N.Y.S. 2d. 379 (N.Y. Sup. 1977), the Court stated:

Where the statute or contract provides that the employee may accumulate his sick leave with "cash on termination", the sick benefit is not contingent but is vested as soon as the sick leave is accumulated. However, where there is no provision for a cash payment on termination these sick leave benefits are contingent upon the employee becoming sick during the term of employment and they are lost upon termination of the employee, or at least upon his termination in a healthy condition. [399 N.Y.S. 2d. at 381]

This case law appears to support finding that employees who have accumulated sick leave cannot have their current accumulated sick leave balances reduced unilaterally by the employer. However, none of the cases answers whether sick leave balances obtained through an earlier collective negotiations

agreement can be modified by a subsequent collective negotiations agreement.

There is no dispute that payment for accumulated sick leave days is mandatorily negotiable and that parties may negotiate prospective limits or caps on the amount of accumulated days or on the amount an employee shall receive for unused days upon retirement. This case, however, does not arise in the typical context where the parties have negotiated such an agreement. Cf. Schacht v. City of New York, 39 N.Y.2d 28 (1976)(plaintiff's claim to benefits waived by collective bargaining agreement). The Association voted to abide by the factfinder's report sight unseen. That report recommended retroactive caps that had not proposed by either party and that significantly reduced the retirement banks accumulated by employees.

Given the case law arising in the non-collective bargaining context, and assuming that retirement banks of accumulated sick leave days can be reduced through negotiated caps, I nevertheless conclude that it is likely that the Commission will hold that any such caps must be entered into knowingly. Red Bank Reg. Ed. Ass'n v. Red Bank Reg. H.S. Bd. of Ed., 78 N.J. 122, 140-41 (1978). That was not the case here because the record shows that the factfinder recommended a retroactive cap not proposed by either party.

The Association also argues that implementation of this cap beginning July 1, 1997 constitutes an unlawful inducement to retire under Fair Lawn Ed. Ass'n v. Fair Lawn Bd. of Ed., 79 N.J. 574 (1979). In that case, the Supreme Court invalidated a school board's supplemental retirement benefits program because it provided an incentive for early retirement that could substantially affect retirement age and thus the actuarial assumptions of the Teachers' Pension and Annuity Fund. The Board responds that Fair Lawn is distinguishable because payment for unused sick leave is lawful, the factfinder did not intend to encourage early retirement, the provision will not have the effect of encouraging early retirement, and there is no evidence that implementation of this cap would, in fact, compromise the actuarial integrity of pension plan assumptions.

I believe that the Association has shown a substantial likelihood of proving that implementation of this portion of the factfinder's report would contravene Fair Lawn. It does not matter whether the agreement forces early retirement or induces early retirement: whether a collective negotiations agreement authorizes a direct incentive for retirement or penalizes employees who choose not to retire, the effect on a pension plan is the same. I also do not believe that the factfinder's intent is relevant given the effect. The factfinder delayed implementation of the cap to permit employees eligible for pay in excess of the cap to retire during the 1996-97 school year and

receive the higher payment. Application of this provision to those employees serves as an inducement to retire now, whatever the factfinder's intent. As in Fair Lawn and unlike other forms of compensation that are rewards for past or present services, the amount to which some teachers are entitled under this proposal will decrease if they do not retire by July 1, 1997. And it is of no moment that the ultimate impact on the teachers' pension plans is not now capable of quantification. Id. at 585. To wait for an injurious effect to become apparent would be unwise. Ibid; see also N.J.S.A. 34:13A-8.1. I thus conclude that it is likely that the Commission will hold that implementation of this portion of the factfinder's report would contravene Fair Lawn.

Because certain employees must decide whether to retire by July 1, 1997, I also conclude that the Association has shown that these employees will be irreparably harmed if the disputed portion of the report is implemented. Balancing the equities, I find that the harm to these employees outweighs any harm to the Board in preserving the status quo until final resolution of this matter or until negotiations render it moot. I therefore will stay implementation of the portion of the factfinder's report applying the accumulated sick leave cap to employees who already have accumulated leave balances in excess of the cap.

ORDER

Application of the factfinder's proposed caps on "Compensatory Pay At Retirement" to employees who already have accumulated amounts in their retirement banks in excess of those caps is stayed. This order shall remain in effect until the Commission issues a final decision or until negotiations render it moot.

BY ORDER OF THE COMMISSION

Ira W. Mintz

Special Assistant to the Chair

DATED:	May 9, 1997

Trenton, New Jersey