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November 29, 2010

RE: Recent PERC Decisions Regarding 1.5% Employee Health Benefits Contributions Conflict with DLGS Guidance and Case Law 

Dear Mayor:
As you know, P.L. 2010, c.2 made several changes to public employees’ health benefit coverage by requiring all current local employees to pay at least 1.5% of their base salary towards health benefits after the expiration of the current collective negotiations agreement. 

In April, several unions (including the New Jersey State Firefighters’ Mutual Benevolent Association and New Jersey Policemen’s Benevolent Association) filed a lawsuit against the State of New Jersey in Mercer County Superior Court, seeking to halt the implementation of the 1.5% wage deduction for contribution toward health benefits.  In a nutshell, the unions argued that P.L. 2010, c.2 violates the New Jersey Constitution and statutes by requiring a health benefits contribution, while ignoring the negotiation process and interest arbitration process, the mandated proceeding for resolving an impasse with fire and police employees. On May 21, 2010, the trial court denied the union’s request to enjoin the implementation of the P.L. 2010, c.2. A decision of the trial court on the merits of the union’s complaint should be forthcoming1.

In addition to the litigation challenging the legislation, a number of local unions have filed grievances and unfair practice charges against public employers for implementing the 1.5% wage deduction for medical benefits. The Public Employment Relations Commission (“PERC”) recently issued two decisions with respect to a public employer’s unilateral imposition of the legislated 1.5% of base salary contribution towards the cost of medical insurance benefits. In Township of South Orange, P.E.R.C. No. 2011-47, Docket No. SN-2011-004 (November 23, 2010) and Township of Edison, P.E.R.C. No. 2011-49, Docket No. SN-2011-014, PERC declined to restrain arbitration over a grievance filed by the police and fire unions over the Townships’ imposition of the 1.5% base salary contribution towards medical insurance finding that “this raises an issue of contract interpretation best suited for an arbitrator.”

In South Orange, the Township and PBAs collective negotiations agreements expired on December 31, 2007. In Edison, the agreement with the IAFF expired December 31, 2009. The agreements provided that they would remain in full force and effect until a successor agreement was executed. In accordance with P.L. 2010, c. 2, the Townships implemented a 1.5% of base salary contribution towards medical insurance benefits. The unions filed grievances challenging the application of the statute and the Township’s deduction of the 1.5% of base salary towards the cost of medical benefits. The Townships filed scope of negotiations petitions seeking to restrain arbitration of the grievances.

The Townships argued that since the parties’ collective negotiations agreement expired they were required by statute to implement the 1.5% contribution. The Union argued that an arbitrator should determine whether the terms of the agreement extends the life of the agreement until a successor agreement is negotiated and whether the employer violated the agreement by implementing deductions.

PERC recognized that local government employees must begin contributing at least 1.5% of base salary upon the expiration of any collective negotiations agreement in effect on May 21, 2010. PERC also recognized that by operation of statute, unit members will be required to make contributions when their collective negotiations agreements expire.

However, PERC found that nothing in P.L. 2010, c. 2 controls the answer to the question of when the collective negotiation agreement expires. PERC found that this raises a question of contract interpretation best suited for an arbitrator. PERC concluded that the unions may legally arbitrate their claim that the parties agreements remain in full force and effect until the execution of new agreements and, if true, that the employer violated the agreements by initiating a health benefits contribution of 1.5% of base pay.

Thus, notwithstanding the language of P.L. 2010, c. 2, the guidance from the New Jersey Department of Community Affairs, Division of Local Government Services Local Finance Notice and Frequently Asked Questions regarding the interpretation of P.L. 2010, c. 2, and the various trial courts analysis of when a collective negotiations agreement expires for the purposes of P.L. 2010, c.2, PERC has concluded that such a decision be left to an arbitrator.

We will keep you posted on any further developments on this matter. In the meantime, consult with your labor counsel for further guidance.

Very truly yours,


William G. Dressel, Jr.
Executive Director

1 On October 12, 2010, Judge Robert P. Contillo, P.J. Ch., issued a decision involving the Borough of Fort Lee and PBA Local 245 finding that the Borough was required to withhold the 1.5% medical contribution from the PBA members as “there is in place no unexpired collective negotiations agreement between the Borough of Fort Lee and the PBA.” In Fort Lee, the PBA and Borough were involved in interest arbitration proceedings and received an award from the arbitrator in December 2008, which the Borough appealed to PERC. In May 2009, PERC remanded the matter to the arbitrator for additional consideration on two issues. In July, 2009, the arbitrator issued a supplemental award which PERC affirmed in September 2009. In October 2009, the PBA filed an Order to Show Cause to compel enforcement of the award, and in November 2009, the Borough filed an appeal of the award with the Appellate Division. On October 12, 2010, Judge Contillo found that there had not been a collective negotiations agreement in place since December 2006, and that “under those circumstances a public employer like the Borough of Fort Lee is required to withhold from the member of the PBA the mandated 1.5% contribution.”

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