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IUPA Legal Brief - Court Overturns Furloughs in Prince Georges County Maryland
Aug 29, 2009 (11:08:35)
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On August 18, 2009, the U.S. District Court in Maryland ruled that furloughs of Prince Georges County employees violated the United States Constitution. While this decision was highly dependent on the facts, it provides a basis to press governments to use alternative methods for reducing deficits before balancing their budgets on the back of law enforcement officers, and to push governments to provide information and explanations for proposals which may violate agreements with locals.
In 2008, in response to a forecasted budget deficit, Prince Georges County Maryland furloughed county employees for 80 hours. As a result, the employees’ pay was reduced by 3.85%. While the County saved $20 million by the furloughs, it also had $230 million in reserves at the time of the furloughs. The County also had just received an AAA credit rating, which it seemed bent on retaining.
The Unions challenged the furloughs in federal court, arguing that the furloughs violated the Contract Clause of the United States Constitution because the furloughs violated the unions’ collective bargaining agreements with the County. The Contract Clause provides that the government may not use its power to impair contracts, particularly contracts that the government enters into. Thus, even in difficult times, the government is not free to pick and choose which contracts it will honor. In order for the Contract Clause to apply there must be a contract, and the government must substantially impair (or violate) the contract. However, even a substantial impairment may be justified if it is reasonable and necessary to serve an important public purpose.
In the Prince Georges County case, the contracts giving rise to the claims were the collective bargaining agreements between the unions and the County. (Other agreements, such as agreements regarding pensions, may also be considered contracts.) The Court found that the furloughs impaired the collective bargaining agreements because by “furloughing employees, the County reduced [the contractually guaranteed] salaries/wages and hours.” The Court also found that a reduction in salary totaling 3.85% was clearly a substantial impairment. (In another case, a court found that a furlough resulting in a salary reduction of 0.95% was a substantial impairment.)
The County argued that even if it did violate the contracts, its actions were permissible because the furloughs were “reasonable and necessary to serve an important public purpose,” namely cutting the budget deficit. However, a government deficit does not render any cost cutting decision the government makes immune to challenge. The Court explained that the “County is not free to pick and choose whether to impair its own financial obligations in order to remedy its financial woes.” Instead, the government must ensure that the cuts are necessary and reasonable. Of course what is “reasonable” and what is “necessary” is variable and subjective, and greatly dependent on the facts of a case.
In finding that the furloughs were not reasonable and necessary, the Court closely examined the basis for the furloughs. The Court also compared a 1993 Baltimore Teachers Union decision in which another court found that furloughs of Baltimore City employees were reasonable and necessary. A number of factors were particularly important to the Court’s decision.
First, the Court found that the County had substantial reserves and the County failed to articulate a valid reason for not using the reserves. The Court noted several times that when the “County adopted the [furlough plan], it had approximately $230 million in reserves.” The Court found that “the County's reasons for not using any of its reserves are vague and designed to suit its own obscure needs.” (The unions asserted that the County made the furloughs to please the Wall Street credit rating agencies.) By comparison, the court in the Baltimore Teachers Union case found the furloughs reasonable because the “City, prior to implementation of the furlough plan, ‘was approaching the point where it had to begin cutting basic services and initiating the breakdown of government,’” and there was no assertion that reserves were available.
Second, the County had failed to exhaust alternatives to the furloughs. After noting a number of revenue saving measures that were not taken by the County, the Court explained, that the “choice of which revenue-saving measure the County selected is outside the Court's purview, however the menu of alternatives does not include impairing contract rights to obtain forced loans to the [County] from its employees. Although perhaps politically more difficult, or embarrassing, the Court finds that numerous other alternatives were within the County's reach.”
Third, it appeared that the County was not being straightforward and that its actions were politically motivated. The Court repeatedly pointed to the County’s “vague” justifications, and its contradictory explanations. The Court also seemed put-off because the County seemed to ignore other potential budget cuts, and seemed bent on avoiding use of its reserves even if it meant violating the contracts. Thus, the Court found that “although the County suggests to the Court that it faced dire circumstances and had no other reasonable alternatives, the record suggests otherwise and the County's actions resemble trappings of doing that which was ‘politically expedient.’”
While the Court ruled that the furloughs were unconstitutional, it added a warning at the end of the decision:
“While the Court intends its holding to be clear, it cautions that the holding ought not be read to extend beyond the unique factual circumstances of this case. As previously stated, “at least some deference to legislative policy decisions to modify ... contracts in the public interest must be accorded,” thus depending on the circumstances, the County may be authorized to take any and all steps it perceives as reasonable and necessary to close budget gaps, including but not limited to furloughs. Moreover, furloughs have occurred nationally in both the public and private sector, and in light of the economic forecast, furloughs are likely to continue. This Court's holding is not a pronouncement regarding furloughs in general, but rather applies to the narrow issue of the legality of the [furloughs] as proposed by the Prince George's County Executive.”
Some important conclusions flow from this case.
- Local unions should carefully examine any potential agreements to determine whether the government’s actions violate the terms of the agreements.
- Governments cannot breach their contracts simply by claiming that they have a deficit. They must justify their decisions.
- The government must consider alternatives, even politically difficult ones, prior to impairing the contract.
- The government may need to explain why it took the actions it took, and why it declined to take alternatives.
- Unions should closely examine the fiscal reserves that a government has, and review any reasons the government has given for not using these reserves.
Most importantly each case will be highly dependent on the unique facts involved in each decision. Therefore, locals should consult with their attorneys early on in the process to determine their rights. The I.U.P.A. has resources to help locals and their attorneys in these cases.
Please email me if you would like a copy of the decision, or a copy of this legal update in MS word.
Aaron Nisenson
General Counsel
International Union of Police Associations, AFL-CIO
1549 Ringling Blvd, Suite 600
Sarasota, FL 34236-6772
(800) 247-4872
Fax (941) 487-2570
