LABOR RELATIONS
By Gerald L. Dorf, Esq.
League Labor Relations Counsel
2006 by DORF & DORF, P.C.
INTEREST ARBITRATION REFORM: AGAIN?
The New Jersey Employer-Employee Relations Act, adopted in
1968, was amended in 1977 to provide for interest arbitration as
the statutorily imposed terminal step in the collective
bargaining process for police and fire personnel as defined by
the Act. The Police and Fire Interest Arbitration Reform Act
(L.1995, c. 425) was signed into law by Governor Christine Todd
Whitman and became effective on January 10, 1996. A number of
important changes were made in the Act, the most significant
being:
- The selection of the arbitrator by lot.
- The final step in the negotiations process being conventional arbitration (unless the parties agree otherwise)
rather than fair and final or "last best offer."
- The arbitrator being required to determine the "net economic change" to be awarded, thereby encouraging a selection
of changes from the final position(s) of both the employer and
union.
- Amending the criteria to be used by the arbitrator for resolution of the dispute to include two references to
the Cap Law (N.J.S.A. 40A:4-45.1 et seq.).
- A change and expansion in one of the criteria regarding the financial impact on the governing unit, its residents and tax
payers concerning the impact of the arbitrator's award on the
ability of the governing body to maintain existing programs,
expand existing programs or initiate new programs.
Consumer Price Index and The Cap Law
The Reform Act revisions were thought by public employers to
ensure that arbitrators would seriously consider governmental
finances in deciding economic changes. However, the Act has not
made much of an impact on the awards being issued by arbitrators,
in light of the Consumer Price Index (CPI) and/or the Cap Law.
During the ten year period from January 1996 through
December 2005 the average salary increases awarded in interest
arbitration according to the statistics of the Public Employment
Relations Commission (PERC) was 3.85 percent and the average salary
increases of reported voluntary settlements was 3.93 percent. In the
same ten year period, the CPI for all urban consumers as reported
by the United States Department of Labor, Bureau of Labor
Statistics for the United States increased by an average of 2.53 percent
per year. Thus, the salary increases alone as awarded by
arbitrators in interest arbitration or as reported in voluntary
settlement averaged about 50 percent higher than the CPI.
Are arbitrators disregarding the CPI and ignoring the Cap
Law which is currently 2.5 percent (and by an affirmative vote of a
municipal governing body can be increased to 3.5 percent)? The awards
and settlements are nearly a full 1.5 percent more than the Cap.
The CPI is a useful (although not infallible) barometer of
the "cost of living." In fact it is somewhat skewed higher than
it ought to be since among the factors included in the CPI are
the cost of health insurance and virtually all collective
bargaining agreements with the police and fire (as well as other
public sector unions) provide that the employer generally pays
for all or nearly all the cost of such health insurance. If we
were to "back out" of the CPI the cost of health insurance, the
CPI would probably be at least half a percent lower than the
published figures.
Trends In several counties in New Jersey (Bergen and Monmouth
Counties to cite two examples) it is not uncommon for police
officers with six of seven years' experience to be earning a base
salary of $80,000. In the event arbitration awards and/or
voluntary settlements continue to average nearly 4 percent, such police
officers will in approximately six years be earning a gross base
pay in excess of $100,000. Add to that base pay longevity
payments (often on a percentage basis) and that $100,000 figure
is exceeded in less time.
Another interesting anomaly is the salary guide, whose
impact is well known but little discussed in public. For
example, when the press reports that "police received a 3.8 percent
raise" that figure is not completely accurate because what is
being reported is the across-the-board raise that was agreed upon
or awarded. The report does not take into account the step
increases. There are numerous instances where police officers
and fire fighters in a period of four to six years will double
their pay. That is a 100 percent increase during that time frame and
not merely the 4 percent across-the-board increase.
How did we get to this situation and what remedies are
possible? Without question police officers and fire fighters
perform an absolutely essential public service and should be
appropriately compensated for such service. Were these
individuals underpaid decades ago? If so, that time has long
passed. Building upon the base that exists today, some reality
needs to set in. How can arbitrators be persuaded to award more
realistic salary figures and why are such unrealistic figures
being awarded today?
In many cases it boils down to the "trends" and the
following not uncommon scenario:
One municipality seeking to avoid interest arbitration
reaches a settlement with its police and/or fire employees. That
municipality may or may not have had sound advice and guidance in
its collective negotiations and/or simply wanted to get it over
with. Then such settlement is adopted by another municipality
and before long, we have a trend. In fact some "voluntary
settlements" are higher than the arbitration awards. Why might
that happen? It may have happened because municipal officials
were saying to themselves it is inevitable. There is this so-called trend and arbitrators are going to look at the trend and
we are going to lose. So why spend the time, effort and expense.
We will give an additional half percent or more and avoid
arbitration. And so that additional half percent or more gets
built into this year and the next year and after a number of
years it becomes "serious money."
Reform Considerations Is it time for further reform of the Interest Arbitration
Reform Act? Most municipal officials would say yes and those
reforms can take several paths. Among the reforms to be
considered are the following:
- Regional or area municipality negotiations Police and fire unions are much more monolithic in their thinking and
actions and are generally represented by experienced counsel.
Often, this leads to settlements with municipalities which are
represented by inexperienced (in labor relations matters) counsel
and/or members of a governing body who are anxious to resolve the
labor negotiations and in their anxiety to do so, agree to salary
increases in line with the "trend" or in excess of arbitration
awards in order to avoid the time, expense, etc. of the
negotiations/interest arbitration process. Thus, area or
regional "whip-sawing" occurs as other municipalities "fall in
line" believing the inevitability of an unfavorable award. While
there does not appear to be any legal impediment to such regional
or area bargaining, it may be useful to specifically encourage
such bargaining by providing for regional or area bargaining by
statute.
- Cap Law Amend the Interest Arbitration Reform Act to provide that the decision of an arbitrator may not award salary
increase(s) in excess of the Cap Law on a department salary line
basis and that such increases are limited to the percentage
established by the state or the lawful adjustment by the public
employer.
Thus, arbitrators will not be able to award salary increases
beyond the Cap Law on a department salary line basis and must be
fully cognizant of the fact that such award cannot impact upon
another department by short-changing that department in order to
pay for a higher increase for police or fire employees.
- Arbitrator Selection The number of arbitrators on the
PERC "Special Panel of Interest Arbitrators" is approximately 20
and varies by one or two each year. The 80-20 rule appears to
apply whereby 20 percent of the arbitrators are doing about 80 percent of the
work. Why? First, although the selection of an arbitrator is by
lot under statute, the parties are able to and have almost always
selected the arbitrator by mutual agreement. Thus, the 20 percent so
selected are clearly overburdened and the time for receiving an
arbitrator's award can range from six months to a year.
Furthermore, such selected arbitrators may (consciously or
otherwise) feel some inevitable constraint in the issuance of
their awards by virtue of the fact that they are selected by the
parties. An expansion of the present list of arbitrators is
warranted and suggestions from the labor relations community
should be solicited. Furthermore, those arbitrators on the
Special Panel who have rarely been selected should perhaps be
deleted and more of a "blue ribbon" panel established with higher
arbitrator fees.
Are any of the foregoing changes possible? They are
possible. However, it took 18 years (from 1977 to 1995) to amend
the initial Interest Arbitration Statute and we are only
ten years into the Reform Act. The 1995 Reform Act was opposed
strenuously by police and fire unions and literally was adopted
in the waning minutes of the Legislature in January 1996.
Is the time right for another change? Indeed it is!
___________________________
Gerald L. Dorf, Principal of Dorf & Dorf, P.C., has
been Labor Relations Counsel to the League and Director of the
League's Labor Relations Advisory Service for more than 30 years.
The service is provided via telephone to management officials of
member municipalities and is conducted by Mr. Dorf and his
office. The firm, located in Rahway, represents private and
public sector management in labor and employment law matters and
related litigation.
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