By Gerald L. Dorf, Esq.
League Labor Relations Counsel
2006 by DORF & DORF, P.C.
INTEREST ARBITRATION REFORM: NOW
In April, 2006 the author’s column entitled “Interest Arbitration Reform: Again?” covered the background of the 1977 Amendment to the New Jersey Employer-Employee Relations Act (EERA) which provides for interest arbitration for police and fire personnel. The subsequent Police and Fire Interest Arbitration Reform Act resulted in some significant changes which have not met the expectations of the reformers.
BIENNIAL REPORT OF PERC
The January, 2006 Biennial Report of the Public Employment Relations Commission (PERC) on the Police and Fire Interest Arbitration Reform Act notes that during 2005 only 11 awards were issued with an average salary increase of 3.96 percent and that there were 54 reported voluntary settlements with an average salary increase of 3.94 percent. These figures continue to be well in excess of the Consumer Price Index (CPI) which is somewhat overstated with respect to public employees whose health insurance coverage is paid totally or in great part by the employer. With the CPI at approximately 2.5 percent and budget cap likewise at 2.5 percent (unless voted to be increased to 3.5 percent), what justification exists for increases and/or settlements 1.5 percent in excess of those figures?
Trends seem to be the key and arbitrators appear to be reluctant to buck the trends. What can arbitrators do to satisfy the voracious appetite for continuing wage increases in excess of both the CPI and the budget cap, while meeting the legitimate needs of the public employer? There are potential solutions which a few arbitrators have used and they include the following:
Adjustments in health insurance coverage These adjustments can include a payment of a portion of the premium by the employee, higher deductibles and co-payment of prescription drugs. Another potential solution is the availability of different health insurance plans with the employer providing a more modest coverage to employees and their families and the employee having the option to select a more generous plan and pay the difference in premiums.
In the private sector it is common for an employee to pay a portion of health insurance premiums. It is only beginning to grow (and some say glacially) in the public sector. The attitude of many public employees is that health insurance coverage was negotiated years ago and why should the employer expect credit for the increasing insurance payments? The plain fact is that the cost of health insurance coverage has increased not less than four or five fold in recent years.
Some public employers have sought a differentiated health insurance premium payment plan whereby the lowest paid employees make little or no payments for coverage and increases are paid by other more highly compensated employees on a graduated scale.
The State Health Benefits Plan (SHBP) presents a unique problem since employers are required to pay for the employee’s health insurance coverage and may on a uniform basis have employees pay all or a portion of the family coverage. The uniformity requirement provides that all employees be treated the same and any hold-outs will defeat the employer’s ability to gain payment of a portion of premiums by employees.
In interest arbitration, employers must carefully present proposals with respect to employee payment of a portion of their family coverage by providing that those employees covered by the SHBP will not make any payment until all employees have agreed or been required to make such payment.
In the event the employer’s health insurance coverage is other than SHBP, no such inhibition exists. Therefore, while it may be desirable to have uniformity it is not necessary other than under the SHBP in order to negotiate (with unionized employees). Thereafter it’s permissible to implement health insurance premium payment by one or more groups of employees, while not having such provision for other employees.
An increase in the deductible is another way to effectuate a cost saving. However, by increasing such deductible, the user of the health insurance plan is the one who is impacted (and perhaps that is how it should be) but such user may also be among the persons who can least afford the increase.
Suffice it to say, there is no easy or right answer and a mixture of multiple plans, employee contribution toward premium costs, increased deductibles, co-payment of prescription drugs (with differentiation for generic and brand names) and the like are all worthwhile to pursue.
Salary Steps In most police and fire agreements, there generally are five to seven salary steps and there seems to be no legitimate reason why additional steps should not be granted by arbitrators.
mplementation of such additional steps can apply to future hirees and not impact employees who are presently on the salary guide. Salary steps in current police and fire agreements can result in as much as a 100 percent salary increase from starting pay to top step in as little as five to seven years.
Longevity Prior to the adoption of the EERA in 1968, public sector collective negotiations existed, although not required by statute. Some real bargaining occurred but only in a minority of instances. Longevity existed, however, and this was a means whereby employees who reached the top of a salary guide had an opportunity of continuing to get additional increases in salary by virtue of their length of service. The common longevity provisions in many agreements is 2 percent after each five years to a maximum of 10 percent after 25 years of service. Some agreements provide for longevity on the basis of a flat dollar amount. From the employer’s point of view, the flat dollar amount is desirable since it does not increase automatically as salaries go up. There are instances in some North Jersey municipalities where police and fire employees receive as much as 20 percent for longevity and further compounding the issue are instances where longevity kicks in before the employee reaches the top of the salary guide. Neither of those circumstances, i.e. the seemingly excessive longevity percentage or longevity prior to reaching top salary would seem to be appropriate. This is an area where an arbitrator can help the employer rectify the situation.
Roll-up Costs Interest arbitrators in issuing 100-page decisions deal almost exclusively with salaries and some other economic items. The PERC salary increase analysis of interest arbitration awards notes salary increases and/or salary settlements and little if any attention is paid to other economic changes which are also cost items. For example, every time there is a salary increase, there are certain roll up costs such as the increased cost of a vacation day or other days off, the increase in pension, the increase in overtime, etc. Other economic costs often include the rolling in to salary of holidays which again increases the costs of pension, overtime, etc. These hidden costs are often ignored in costing-out a settlement or an award by the parties or the arbitrator.
Negotiations/Interest Arbitration Tactics Despite the statutory requirement that not less than three negotiations sessions be held in police and fire negotiations before an impasse may be declared, in many instances little or no negotiations take place. There appears to be no disincentive to require serious bargaining before an impasse may be declared, usually by the Union. Thus, especially where the employer is seeking some language and/or economic modifications, those modifications are often rejected out of hand by the Unions who assume (quite correctly) that the likelihood is slim of such changes being granted by an arbitrator. The path of least resistance for the arbitrator is to award a trend increase and let everything else remain status quo. Suppose, however, that an arbitrator were able to take into account the fact that little or no movement was made by either or both sides in negotiations in rendering his or her award. We are not suggesting that either side be rewarded for inundating the other with dozens of proposals. However, when the parties reach the impasse stage, their proposals should have been reduced to a more manageable amount which can be justified and the failure of either side to bend somewhat to the other in trying to reach an accommodation should perhaps be considered by the arbitrator.
Will that arbitrator serving as a mediator in the early stages of the process be able to use such apparent disinterest in the bargaining process to work out a deal in mediation? Today, that is hardly possible and indeed is frowned upon by the Act and case law.
Mediation/Arbitration It is a cliche perhaps but nevertheless a truism that all arbitrators are not created equal and all mediators are not created equal. That is, not every arbitrator is a good mediator. The interest arbitration process suggests (indeed virtually requires) that a mediation effort be made by the arbitrator before embarking upon the tortuous path of interest arbitration hearings. There are some arbitrators on the PERC Special Panel of Interest Arbitrators who are superb mediators. Indeed, such individuals seek to avoid writing interest arbitration awards and putting in the long hours in mediation that often yield fair and reasonable results. It is believed that the best contract settlements are those reached by the parties, with the second best being those reached in mediation and the worst those that are a result of arbitration. Well-trained, dedicated, resourceful arbitrator/mediators can assist the parties in reaching settlements. However, it takes two willing parties to do so. It would therefore seem that disincentives for failure by either or both sides to bargain and mediate seriously should somehow be crafted so that more reasonable and fair mediated settlements can result.
PERC, particularly under its new Chairman, has been reaching out to the Labor and Employment Relations Bar to solicit thoughts, ideas and suggestions to make the process work better. Will such efforts bear fruit? The answer is questionable so long as it appears that the police and fire unions are able to get what they want. If so, why should they change?
Some of the suggestions in the April, 2006 column with respect to cap law being applied by department, expanded arbitration lists, selection of arbitrators by lot and increased compensation for such arbitrators may help to remedy this situation. Regional bargaining should also be considered in an effort to end or severely constrict the whipsaw tactics which currently exist.
Will the Legislature and the Governor be willing to address property tax reform, including repairing the Police and Fire Interest Arbitration Statute? After all, it is police and fire salaries which drive other public employees’ salaries which constitute the lion’s share of public employer costs (being a labor intensive industry) which in turn drives the municipal budget and taxation.
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