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by John Tennant

Prop V Passes – What It Means for You

There is no getting around the unpleasant fact that on November 2nd, the voters of San Jose passed Proposition V by a wide margin. This of course means that the process of resolving impasses in labor contract negotiations via binding arbitration has been altered dramatically from its original form, as passed initially by the voters back in 1980.

The good news is that unlike most of their counterparts in California, police officers and firefighters in San Jose still possess the right to go to arbitration if negotiations with the City break down, resulting in an arbitration panel deciding the provisions of any new labor contract. For the vast majority of Californias finest, the public employer simply implements its last, best offer after impasse in collective bargaining is reached an arrangement that a former colleague of mine likened to collective begging.

The bad news is that the arbitration process for resolving impasses known as interest arbitration and set forth in detail in City Charter Section 1111 has been weakened considerably. This article attempts to summarize the damage wrought by Prop V.

The first major change in the interest arbitration text concerns the process by which the City and the SJPOA (or firefighters union) select the neutral arbitrator. The neutral arbitrator is actually the chair of a three-person arbitration panel, with the other two panel members appointed by the City and police (or fire) union, respectively. If those two arbitrators cannot mutually agree on the third, neutral arbitrator who, as you might have guessed, is the person ultimately rendering the decision then the parties must request the Santa Clara County Superior Court to appoint a retired judge to serve as the neutral arbitrator. Prior to Prop V, the parties received a list of professional labor arbitrators from Californias State Mediation and Conciliation Service, from which, upon failing to reach mutual agreement on an arbitrator, they would alternately strike names until the last person left became the neutral.

It is difficult to say what precisely will be the result of having retired judges resolve labor contract impasses. The cost of arbitration will certainly increase for both the City and the unions, as the fees demanded by retired judges for their services far exceed the more modest figures routinely earned by traditional labor arbitrators. I would guess that the City authors of Prop V envision retired judges to be of a more conservative stripe than labor professionals hence, the thought that such judges might render more austere or employer-friendly decisions. I can offer no predictions on that score.

The second major change to interest arbitration is that the hearings before the arbitrator are now open to the public and all documents submitted in arbitration are public records. While it is difficult to argue against the principle of transparency in a democratic system of government, allowing the public to have a ringside seat at the process by which public servants compensation is determined is to stretch that principle to the breaking point. It also misapprehends the reality of the interest arbitration process which can often assume the aspect of mediation where a conscientious neutral arbitrator will attempt to mediate the parties differences in the hope of reaching a mutually acceptable decision. Such peacemaking efforts will be stifled if both parties know that a compromise on their part might be subject to a hostile reaction when viewed in public by the more militant components of their respective constituencies. There is, after all, a reason why negotiations for peace in the Middle East as crucial as they are to all of our futures occur in private, with the successes or failures only announced afterward to the public. Efforts to achieve labor relations peace are no different.

The next and most far-reaching change to interest arbitration concerns the criteria by which the arbitration panel renders its decision. Here it is worth quoting at length the language which, while left unchanged by Prop V, used to constitute the sum total of what the arbitrators are bound to consider in making their rulings:

The Arbitration Board shall decide each issue by majority vote by selecting whichever last offer of settlement on that issue it finds most nearly conforms with those factors traditionally taken into consideration in the determination of wages, hours, and other terms and conditions of public and private employment, including, but not limited to, changes in the average consumer price index for goods and services, the wages, hours, and other terms and conditions of employment of other employees performing similar services.

Again, while that language was left essentially unchanged by Prop V, additional criteria were added that put the economic condition of the City at the forefront of the factors the arbitrators must consider in making their decision. While there isnt sufficient space to elucidate each and every aspect of the new criteria, some of the more labor-hostile factors are as follows:


  1. Henceforth, the primary factors in decisions regarding compensation shall be the Citys financial condition and, in addition, its ability to pay for employee compensation from ongoing revenues without reducing City services.

    While this factor has always been primary in the sense that a union usually doesnt decide to go to arbitration if it seems likely that an arbitrator will find its proposals to have the effect of reducing City services, the new language appears to require an arbitrator to give the benefit of the doubt to the employer regarding any dispute over whether City services would actually be reduced.


  2. An arbitrator cannot render a decision which increases the projected cost of compensation for the bargaining units at a rate that exceeds the rate of increase in revenues from the sales tax, property tax, utility tax and telephone tax averaged over the prior five fiscal years.

    Here, again, it is hard to imagine a union making a proposal that would in fact outpace the Citys revenue increases, but one can imagine a situation where pay raises had lagged so far behind the market standard for other police officers/fire fighters that such a proposal might not be unthinkable if the City had turned the proverbial economic corner with palpable signs of economic growth despite a sluggish previous five years.


  3. An arbitrator cannot render a decision which creates a new or additional unfunded liability for which the City would be obligated to pay.

    This is a direct and fatal blow against any effort to improve retirement benefits for current employees. Any time you enhance retirement benefits for already employed workers, you create an unfunded liability insofar as the City and those workers have not, ipso facto, been paying into the retirement system the monies necessary to fund such enhancement since the commencement of those workers employ with the City. In sum, if such language had existed in the past, we would never have been able to improve retirement benefits from 75% of final average salary to 90% -- nor would any other police officer/fire fighter in the state, if such language had been commonplace.


  4. An arbitrator is forbidden from making a ruling which retroactively increases or decreases compensation, including, but not limited to, enhancements to pension and retiree health benefit for service already rendered but excluding base wages.

    Here, there is both good and bad news. The bad is that, henceforth, there can never be any retroactive benefit increase or decrease. The good news is that such benefits would arguably include the sick leave cash-out benefit. Secondly, wage increases are exempted which is good in the sense that we might still obtain retroactive wage increases in the future (assuming that the economy ever returns to something approaching a healthy state) but bad in the sense that one could imagine a retroactive wage decrease. Given that the prior arbitration language was silent on this score and the fact that we did obtain retroactive wage increases, a retroactive wage decrease has always been possible, if not probable.


  5. The arbitrators shall also consider and give substantial weight to the rate of increase or decrease of compensation approved by the City Council for other bargaining units.

This new provision contradicts other language in the original text which ties what the arbitration panel might award to the wages . . . of other employees performing similar services, i.e., other police officers and fire fighters. In other words, it is now no longer simply external comparability that matters; internal comparability must also be taken into consideration. Given that the wage and benefit increases for non-sworn workers have tended to be somewhat less than those attained by public safety employees, the upshot of this new language is obvious.

A final restriction on the arbitration panels award concerns items referred to as non-cost. Henceforth, there can be no award which deprives or interferes with the discretion of the Police Chief or Fire Chief to make managerial, operational or staffing decisions, rules, orders and policies in the effective and efficient provision of police and fire services to the public. This is strong stuff as it appears to deliver to management a potential trump card regarding any non-cost managerial decision, e.g., a six-month shift change, re-assignment of personnel, etc. Just how far this new provision goes will be the source of fierce contention.

Lastly, there is a provision which is almost certainly illegal. Its a poison pill for any would-be challenger of the legality of Prop V to swallow. It reads as follows: Should any such portion of this Section 1111 be enjoined or declared invalid, all provisions shall be deemed invalid and inoperative and there shall be no compulsory arbitration for fire and police department employee disputes. In other words, even if you win in court in striking down any of Prop Vs provisions, you ultimately lose, as the entirety of interest arbitration for San Joses police officers/fire fighters goes away, and collective begging becomes the norm. My other client, the San Francisco POA and other SF unions succeeded last summer in having a similar poison pill provision in a so-called pension reform measure (which was happily defeated at the polls) ruled unconstitutional by a superior court. I have little doubt that a court would rule the same in San Jose, but that would still leave us with the unpalatable substance of the texts new constraints on interest arbitration.

In closing, there is no getting around the fact that San Joses voters have chosen to weaken the interest arbitration process hitherto relied upon by the Citys police and fire fighters as the lone substitute for the right to strike a right they do not possess. Prop V is most likely a reflection of a general sense that the pendulum has swung too far in labors direction, as misguided a perception as that may be. Indeed, it is now our duty to correct it. And herein lies the real lesson, to my mind, of the passage of Prop V. We need to win anew the confidence of San Joses citizens, whom you serve diligently and faithfully, in the equity of the compensation and retirement afforded you for the dangerous work you perform. We cannot rely on arbitrators or courts for our collective economic future and, in fact, we never have been able to so rely, despite what many believe. Whatever strength we derive as a public employee union comes ultimately from the public, the people we serve, not from arbitrators or the courts. And this holds true for the whole of American society, which has too often looked solely to third parties like the court system to right all the wrongs in our fractured world. As one of my favorite jurists, James Bradley Thayer, famously said, Under no system can the power of courts [substitute here: arbitrators] save us from ruin; our chief protection lies elsewhere.

Roll the Union On . . .

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