5526726905_66ccfbaf3b_zIn the closing days of the March term, the Illinois Supreme Court agreed to wade yet again into the contentious and politicized area of public employee wages and benefits. State of Illinois v. American Federation of State, County, and Municipal Employees, Council 31 poses the question of whether pay raises promised in the State’s contracts with its employee unions are conditional on the Legislature actually appropriating the necessary funds.

In 2008, the State agreed to a four-year collective bargaining agreement with AFSCME, which represents most state employees. The CBA provided for small twice-yearly wage increases in 2009, 2010 and 2011. But with the State mired in budget woes, AFSCME agreed to defer the mandated wage increases in 2009 and 2010.

In early 2011, then-Governor Quinn proposed a budget which included sufficient appropriations to fund the required raises for that year, but the legislature rejected parts of the budget. When the budget was finally approved, the State’s Central Management Services determined that there was insufficient money in it to finance the agreed increases for employees at 14 agencies. Those employees’ wages were frozen at 2011 levels, while employees at all other state agencies began receiving the increases.

AFSCME sought arbitration of the dispute. The union argued that the State was required to pay the mandated increases, but the State argued that it owed no duty to pay any employees unless and until the legislature appropriated sufficient funds – which had not happened. The arbitrator entered his award, finding that the State’s position would have required him to add language to the arbitration agreement – which he lacked the power to do. The arbitrator ordered the increases paid.

The State filed a complaint in Circuit Court seeking to vacate the award, together with an emergency motion for stay. The trial court granted the stay. In the weeks that followed, the legislature made supplemental appropriations, and several agencies experienced enough attrition to pay the increases to remaining employees, but employees in six agencies remained without the mandated increases.

The trial court held that an overriding public policy made the CBA and the subsequent agreements invalid unless the legislature appropriated the necessary funds. Following a hearing, the judge determined that the affected agencies had the funds to pay partial increases. Both the State and AFSCME appealed. Following the trial court decision, the State reached an agreement with the union to pay the partial increases due under the trial court’s decision. The State’s negotiators agreed to withdraw its appeal, but the Attorney General refused to do so. Nevertheless, AFSCME members ratified the agreement, and the increases were paid.

The Appellate Court (First District, Division 2) reversed in an opinion by Justice Neville. The Court began by summarily rejecting the notion that the State’s payments under the trial court order had mooted the appeal. The Court also briefly noted that no party had questioned its power to decide the case, even though the Justices’ staffers were members of AFSCME subject to the CBA at issue. In any event, the Court concluded that the rule of necessity authorized the Court to proceed.

The Court began by addressing the State’s argument that the arbitrator had improperly declined to disregard the language of the CBA and other union agreements on public policy grounds. The Court rejected the State’s argument, finding that the arbitrator’s authority was drawn from the agreement between the parties, and if the agreement did not expressly give him the power to consider public policy, he had no power to do so.

The State pointed to language in the CBA providing that the “provisions of this contract cannot supersede law.” Given that Section 21 of the Public Labor Relations Act provided that “employers” may negotiate multi-year collective bargaining agreements “subject to the appropriation power of the employer.” According to the State, this meant that all CBAs were by definition conditional on appropriations.

The Appellate Court disagreed. The problem, the Court found, was that the State overlooked the Act’s definition of “employer,” which expressly excluded the General Assembly.

The State next made a related argument, claiming that public policy forbade the State from negotiating any binding contracts which required the payment of funds the legislature hadn’t appropriated yet. There were two fatal flaws in that argument, the Court concluded. First of all, it ran squarely into the constitutional contract clause, which provides that “no . . . law impairing the obligation of contracts . . . shall be passed.” Second, it conflicted with the language of the Act, which expressly authorized multi-year contracts.

The Court quoted at length from a 1992 decision of the Iowa Supreme Court, AFSCME/Iowa Council 61 v. State, which the Court said involved an identical argument that the State owed its employees nothing under a CBA until appropriations were made. But the Iowa Supreme Court concluded that it would be doing the state no favors if it accepted the argument: “To do so would seriously impair its ability to function. The government must finance its affairs, must contract for buildings, highways, and a myriad of other public improvements and services. It would lead to untenable results if a government, after having contracted for needed things, did not have to pay for them.”

At bottom, the Court concluded, the State’s argument meant that notwithstanding the language of the contract clause, the legislature had a right to impair any contract involving the state at any time. Such an argument was untenable, the Court found. If the State wanted to make its promises to pay contingent on appropriations, it would have to include express language in the contract saying so.

The Court held that the arbitrator’s final award drew its essence from the State’s agreements with the union and didn’t offend public policy. Accordingly, the trial court erred by modifying the award in part.

We expect AFSCME to be decided in eight to ten months.

Image courtesy of Flickr by Donkey Hotey (no changes).