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Public Employer Must Arbitrate Contract Dispute Over Furloughs or Other Wage and Work-Hour Reductions, Even During a Fiscal Emergency

   Published on:  30 Jun, 2013

Today in City of Los Angeles v. Superior Court (Engineers & Architects Association) (2013) S192828, the California Supreme Court published one of the most important decisions in decades protecting the collective bargaining rights of public employees by confirming that disputes over wages and work hours are subject to arbitration, even during a declared fiscal emergency. The Supreme Court also confirmed the presumption in favor of arbitrating labor contract disputes, even when the parties disagree over whether disputes implicate reserved “management rights.” The Engineers & Architects Association (“EAA”) was represented by Carroll Burdick & McDonough LLP Partners Gregg Adam, Jonathan Yank, Gonzalo Martinez, and Gary Messing.

The backdrop to the case was a dispute over whether the City of Los Angeles’s (“the City”) imposition of furloughs during a declared fiscal emergency violated the wage and work-hours provisions of several Memoranda of Understanding (“MOUs”) between it and EAA. In an earlier ruling, the Second District Court of Appeal had determined that arbitration of such a dispute would unlawfully delegate to the arbitrator the City’s discretionary salary-setting and budget-making authority.

The Carroll Burdick team persuaded the Supreme Court to review the decision of the Court of Appeal at the request of EAA. Today’s decision reversed the lower court’s “unlawful delegation” holding, reasoning that, “[b]y ratifying the MOUs, the City made discretionary choices in the exercise of its salary-setting and budget-making authority. By deciding whether the furlough program violates the terms of those MOUs, the arbitrator would not be exercising any such discretionary authority. Rather, the arbitrator’s role would be limited to interpreting the MOUs for the purpose of determining whether the furlough program violates the terms of those MOUs.” In a nutshell, the City had already exercised its discretionary powers by agreeing to abide by terms of the MOUs, and the arbitrator would merely determine whether it had violated those terms.

On a second issue (raised by the City), the Supreme Court rejected a claim that “management rights” language in the MOUs precluded arbitration of the dispute. The Court reaffirmed the strong presumption in favor of arbitrating labor disputes and, while acknowledging some ambiguity in the MOUs’ “management rights” provisions, held that it was for the arbitrator to determine the substance of those terms.

The significance of this case to public sector labor associations and the public servants they represent cannot be overstated. Had the Supreme Court ruled in favor of the City on the “unlawful delegation” issue, it would have effectively eviscerated employees’ collective bargaining rights by precluding enforcement of any contract provisions impacting wages and work hours. By ruling in favor of EAA, the Court’s decision ensures the ability of public employee associations to bargain for and enforce contract protections of their members.