Johanson v. Department of Social and Health Services, State of Wash.

• Decision Date: 31 July 1998
• Docket Number: No. 20428-2-II,20428-2-II
• Citation: 959 P.2d 1166,91 Wn.App. 737
• Court: Washington Court of Appeals
• Parties: Deanna L. JOHANSON and the Washington Federation of State Employees, Respondents, v. DEPARTMENT OF SOCIAL AND HEALTH SERVICES, STATE OF WASHINGTON, Appellant.

Page 737

91 Wn.App. 737

959 P.2d 1166

Deanna L. JOHANSON and the Washington Federation of State Employees, Respondents, v. DEPARTMENT OF SOCIAL AND HEALTH SERVICES, STATE OF WASHINGTON, Appellant.

No. 20428-2-II.

Court of Appeals of Washington Division 2.

July 31, 1998.

Mitchel Roland Sachs, Assistant Attorney General, Olympia, for Appellant.

Edward Earl Younglove, Swanson, Parr, Cordes, Younglove & Peeples, Olympia, for Respondents.

HOUGHTON, Chief Judge.

The Department of Social and Health Services (DSHS) appeals from the trial court's ruling that its decision to close a treatment facility for fiscal reasons was not a valid basis for impairing a collective bargaining agreement between the State and the Washington Federation of State Employees (WFSE). We affirm.

FACTS

Summary of Findings of Fact

The trial court's findings of fact are verities on appeal and are summarized as follows. ¹ Deanna Johanson worked as a psychiatric counselor in the PORTAL program at the Northern State Multi-service Center (Northern State). The PORTAL program was a state-run, long-term residential treatment center for voluntarily committed, chronic mentally ill patients. Many of the patients were chemically addicted. Although the PORTAL program included some chemical dependence treatment, its primary focus was on mental illness.

The 1993 Legislature directed DSHS to establish "a consolidated, privately operated program specializing in the involuntary treatment of chemically dependent clients, and the voluntary treatment of mentally ill chemical abusers" at Northern State. DSHS was also directed to phase out the PORTAL program. Layoff notices were sent to the PORTAL civil service staff.

WFSE is the exclusive bargaining representative for the Institutions Bargaining Unity of DSHS, of which the former PORTAL employees were members. The collective bargaining agreement between DSHS and WFSE set forth that Article XII: CONTRACTING OUT

Management retains those rights based upon law or State rules and regulations to contract and sub-contract work. Management will not, however, contract or sub-contract work when such action will cause the elimination of classified positions or preclude the performance of work typically and historically accomplished by civil service personnel within the institution.

It is further agreed that Management shall not contract or sub-contract work for new programs or expansion of existing programs for regular and ongoing work that is typically and traditionally accomplished by civil service personnel.

Although the PORTAL facility was not certified as for mentally ill, chemical abusing patients when the Legislature directed closure in 1993, PORTAL had sought certification at this time and lacked only the required certified chemical dependency counselors. The Director of the Washington State Department of Personnel could have authorized PORTAL to recruit outside the merit system for employees who met the certification requirements. Or the state could have provided funds to train and certify PORTAL employees. In either circumstance, the WFSE contract would not have been impaired. Instead, the state closed PORTAL and privately contracted for the treatment of the voluntarily committed, mentally ill chemical abusers at Northern State.

The Pioneer Program, which was located with PORTAL on the Northern State grounds, was an independent, privately owned program for involuntary treatment of chemically dependent individuals. Apparently, there was a dispute about the extent to which persons in the PORTAL and Pioneer programs were referred to the other program. After the Legislature directed phase out of the PORTAL program, Pioneer successfully bid for the newly established program.

Johanson appealed her layoff by reduction in force to the Personnel Appeals Board. That Board dismissed her appeal on grounds that it did not have the jurisdiction to hear appeals based upon a constitutional challenge to a legislative act.

Summary of Conclusions of Law

The trial court entered conclusions of law determining that, although the collective bargaining agreement reserves DSHS's right to privately contract for work, if required by state law, the contract also prohibits private contracting if its effect is the elimination of classified positions under the state civil service system. The trial court further concluded that: (1) the legislation substantially impaired the contractual relationship between the parties because it eliminated all classified positions at the PORTAL program; (2) the Legislature's decision to close the PORTAL facility, because it was not certified to treat mentally ill, chemical abusers, was for fiscal reasons; and (3) fiscal reasoning was not a valid basis for legitimately impairing the collective bargaining agreement and the Legislature's directive to close the PORTAL facility and privately contracting for a mentally ill, chemical abuser program, unconstitutionally impaired the collective bargaining agreement.

The trial court then ordered that Johanson and other civil service employees laid off by the reduction in force at PORTAL be reinstated. DSHS appealed and this court entered a stay on appeal of the trial court's ruling.

ANALYSIS

Fiscal Basis

DSHS first contends that under WAC 356-30-330(1), ² an agency is authorized to layoff employees for a lack of funds. DSHS further asserts that under Laws of 1993, 1st Sp Sess., ch. 24, § 204(b)(c), the PORTAL program was eliminated due to lack of funding, therefore, causing DSHS to lawfully reduce Johanson's position. But DSHS's argument begs the question whether § 204(2)(b) and (c) ³ unconstitutionally impaired the collective bargaining agreement between Johanson and DSHS.

Under Article I, Section 10 of the U.S. Constitution ⁴ and Article I, Section 23 of the Washington State Constitution ⁵, "any form of legislative action" that impairs the obligations of contracts is presumed unconstitutional. Washington Fed'n of State Employees v. State, 127 Wash.2d 544, 560, 901 P.2d 1028 (1995) (quoting Ruano v. Spellman, 81 Wash.2d 820, 825, 505 P.2d 447 (1973)). A collective bargaining agreement is contract protected by Article I, Section 23. Carlstrom v. State, 103 Wash.2d 391, 394, 694 P.2d 1 (1985).

The prohibition against any impairment of contracts "is not an absolute one and is not to be read with literal exactness." Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 428, 78 L.Ed. 413, 54 S.Ct. 231, 88 A.L.R. 1481 (1934). But when a state interferes with its own contracts, those impairments "face more stringent examination under the Contract Clause than would laws regulating contractual relationships between private parties." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 n. 15, 57 L.Ed.2d 727, 98 S.Ct. 2716 [2722 n. 15] (1978). Accord Caritas Servs., Inc. v. Department of Social and Health Servs., 123 Wash.2d 391, 402-03, 869 P.2d 28 (1994)....

This court uses a 3-part test to determine if there has been an impairment of public contract: (1) does a contractual relationship exist, (2) does the legislation substantially impair the contractual relationship, and (3) if there is a substantial impairment, is it reasonable and necessary to serve a legitimate public purpose. Caritas, 123 Wash.2d at 403, 869 P.2d 28; Carlstrom [ ], 103 Wash.2d 391, 694 P.2d 1[ ].

Washington Fed'n of State Employees, 127 Wash.2d at 560-61, 901 P.2d 1028 (quoting Tyrpak v. Daniels, 124 Wash.2d 146, 151-52, 874 P.2d 1374 (1994)).

Both parties concede that there was a contract between DSHS and the PORTAL employees. Moreover, no one strongly asserts that the loss of employment was not detrimental to the contractual rights of the employees. ⁶ Tyrpak, 124 Wash.2d at 153, 874 P.2d 1374 (diminution in value of a public contract, caused by the government constitutes an impairment); Caritas Servs., 123 Wash.2d at 404, 869 P.2d 28 (application of a statute to a public contract that relieves the State performing its financial obligation, impairs the contract); Carlstrom 103 Wash.2d at 395-97, 694 P.2d 1 (deferring salary increase based upon economic emergency was a substantial impairment of the contract when the State was aware of its financial problems while negotiating the employment contract making the change one in degree not in kind.)

Thus, the relevant question is whether the substantial impairment was reasonable and necessary to a legitimate public purpose. Carlstrom, 103 Wash.2d at 396, 694 P.2d 1. "This prong of the impairment test calls for two broad and interrelated inquiries: (1) can a legitimate public purpose for the legislation be identified? and, if so, (2) is the legislation reasonable and necessary to achieve that public purpose"? Tyrpak, 124 Wash.2d at 156, 874 P.2d 1374. In determining whether impairment of the contract was both reasonable and necessary, the court engages in an independent analysis of whether the legislative purpose could have been achieved by less drastic measures. Carlstrom, 103 Wash.2d at 396, 694 P.2d 1.

The exercise of the State's police power to protect the health, safety, and welfare of the public is a legitimate public purpose, however, purely financial obligations do not necessarily come within the ambit of the police powers. Caritas, 123 Wash.2d at 413, 869 P.2d 28. In Carlstrom, the State Legislature canceled contractual salary increases of the teacher's union due to an economic emergency. The Court held that "although limitation of public spending is a legitimate state goal, 'its weight is diminished in contract clause analysis when the state limits its own previous financial commitments.' " Carlstrom, 103 Wash.2d at 396, 694 P.2d 1 (quoting Continental Ill. Nat'l Bank and Trust Co. v. State of Washington, 696 F.2d 692, 701 (9th Cir.1983)); Washington Fed'n of State Employees v. Spokane Community College, 90 Wash.2d 698, 585 P.2d 474 (1978) (college had no authority to contract out services regularly and...