Morris School Dist. Bd. of Educ., Matter of

Decision Date22 April 1998
Citation310 N.J.Super. 332,708 A.2d 762
Parties, 158 L.R.R.M. (BNA) 2116, 125 Ed. Law Rep. 518 In the Matter of MORRIS SCHOOL DISTRICT BOARD OF EDUCATION, Respondent-Appellant, and Appeal of the EDUCATION ASSOCIATION OF MORRIS, Petitioner-Respondent.
CourtNew Jersey Superior Court — Appellate Division

David W. Carroll, Lawrenceville, for respondent-appellant (Carroll & Weiss, attorneys; Mr. Carroll and James F. Schwerin, on the brief).

Gail Oxfeld Kanef, Newark, for petitioner-respondent (Balk, Oxfeld, Mandell & Cohen, attorneys; Ms. Kanef, of counsel and on the brief).

Don Horowitz, Deputy General Counsel, for the Public Employment Relations Commission (Robert E. Anderson, General Counsel; Mr. Horowitz, on the brief).

Before Judges BAIME, BROCHIN and WEFING.

The opinion of the court was delivered by

BAIME, P.J.A.D.

The Morris School District Board of Education (Board) appeals from a scope of negotiation determination by the Public Employment Relations Commission (Commission). The Commission decided that a proposed cap on payments for unused paid sick leave, which retroactively diminished the value of amounts already earned by employees unless they retired within a phased-in grace period, constituted an illegal inducement to early retirement and was thus non-negotiable. The Commission concluded alternatively that the Education Association of Morris (Association) did not knowingly bargain away the accrued sick leave compensation of its members by consenting in advance to be bound by the recommendations of a factfinder, where the retroactive cap was first conceived by the factfinder and had never been proposed by either of the parties. We affirm.

I.

The Board is a public employer within the purview of the New Jersey Employer-Employee Relations Act ( N.J.S.A. 34:13A-1 to -21). The Association is the exclusive collective bargaining representative of the Board's teachers and other non-supervisory employees. The previous collective bargaining agreement expired on June 30, 1995. Upon reaching an impasse in their negotiations, the parties asked the Commission to appoint a factfinder. A factfinder's report is only a recommendation. We are told, however, that parties commonly agree to be bound by the factfinder's decision. In this case, the Association agreed in advance to accept the factfinder's recommendations, but the Board did not consent to be similarly bound.

The expired collective bargaining agreement provided that employees were entitled to accumulated sick leave compensation upon retirement. This fringe benefit has been permitted in the school district for some forty-five years. In its presentation to the factfinder, the Board proposed capping paid leave entitlements or, in the case of employees who had already earned more than that capped amount, freezing their paid leave accounts at present values. The Association proposed to maintain the current benefit with no change. Neither party suggested or argued that any cap would apply retroactively, reducing already earned accumulated sick leave benefits.

In his report, the factfinder characterized as "unusual" the expired collective bargaining agreement's failure to delineate a cap on accumulated sick leave. He recommended that the agreement be modified to cap the amount employees could receive at $25,000 if they retired after July 1, 1997, or at $20,000 if they retired after July 1, 1998. The factfinder proposed that accumulations exceeding the caps be forfeited, but the effective date be delayed "[t]o permit employees who are eligible for compensatory pay [above] the July 1, 1997 cap to retire during the 1996-1997 school year and receive the [higher amount]."

The Board quickly accepted the factfinder's recommendations. The Association brought suit in the Chancery Division, claiming that the cap would unconstitutionally deprive teachers of vested benefits and discriminate against older members. In its pleadings, the Association alleged that sixty to seventy employees would be affected by the caps. Some would lose substantial amounts unless they retired before July 1, 1997. Others who were ineligible to retire would be divested of accumulated sick leave pay exceeding the caps. The Chancery Division dismissed the action on the ground that the Commission had primary jurisdiction concerning whether retroactive application of the caps was outside the scope of negotiations.

The Association then petitioned the Commission for a scope of negotiations determination, seeking both interim and final relief. The Commission's designee stayed the factfinder's proposed caps on accumulated sick leave compensation. He concluded that implementation of the cap beginning July 1, 1997 would constitute an unlawful inducement to retire, thus impairing the actuarial assumptions underlying the teachers' statutorily created pensions. He also found that the Association had not knowingly waived the vested rights of its members to accrued sick leave compensation, because neither party had proposed retroactive application of the cap.

The Commission adopted the designee's findings. In reaching its conclusion, the Commission placed particular emphasis on the "unusual circumstances of this case." The Commission stressed that a party ordinarily may agree to accept a factfinder's report "sight unseen," and that "factfinders and interest arbitrators [commonly] make recommendations and decisions at variance with the parties' proposals on a given subject." The Commission carved out a "limited exception to the validity of [these] practices" because previous collective bargaining agreements had "encouraged employees not to use sick leave and personal days" by entitling them to accumulate and "bank" unused days "for payment upon retirement." The Commission chose not to decide whether a union could bargain away the accrued wages and benefits of some of its members. Instead, the agency assumed that "already accumulated benefits in retirement bank [could] be reduced through negotiated caps." However, the Commission determined that "there was no knowing waiver in this case since neither party had proposed retroactive caps and [because] the Association voted to accept the factfinder's report before it was issued."

II.

We first address the Commission's conclusion that the factfinder's proposed cap on accumulated sick leave compensation constituted an illegal inducement to retire. Under the factfinder's plan, eligible teachers could only avoid forfeiting that portion of their accumulated sick leave compensation that exceeded the cap by retiring during the 1996-1997 school year. Citing Fair Lawn Education Ass'n v. Fair Lawn Board of Education, 79 N.J. 574, 401 A.2d 681 (1979), the Commission concluded that the proposal might substantially affect retirement age and impair the fiscal integrity of the teachers' pension plan.

We harbor reservations concerning the Commission's application of the Fair Lawn decision. In Fair Lawn, our Supreme Court struck down a negotiated early retirement remuneration plan that had been agreed to by the local board and the teachers' union. The plan provided that teachers between the ages of fifty-five and sixty-four who retired early would receive an additional cash payment. Id. at 577, 401 A.2d 681. The payment was dependent upon age, not years of service, and was structured to provide greater benefits to those retiring at an earlier age. Ibid. The principal purpose was to encourage early retirements in order that tenured teachers could be replaced with less experienced instructors whose salary levels would be much lower. Ibid. Because an Attorney General's opinion indicated that a similar plan adopted in another district constituted an impermissible modification of the uniform pension plan applicable to teachers, the union brought a declaratory judgment action. Id. at 578, 401 A.2d 681. Both the union and the local board contended that the plan was valid. The Teachers' Pension and Annuity Fund (TPAF) was joined as a third party defendant and opposed the plan. A plenary hearing was conducted in which the TPAF presented substantial evidence indicating that if the plan were widely adopted, its pension costs would be "significantly increased." Ibid. Uncontradicted evidence was presented that the potential for early retirement under the plan would necessitate an $11,865,000 increase in the State's annual contribution. Ibid.

The Supreme Court concluded that the early retirement plan: "(1) lack[ed] statutory authorization; (2) contravene[d] [settled precedent]; and (3)[was] preempted by the comprehensive statutory scheme relating to the operation of retirement benefits." Id. at 576-77, 401 A.2d 681. While recognizing that N.J.S.A. 18A:27-4 authorizes boards to provide compensation in various forms, the Court held that the statute did not authorize payments for early retirement that were unrelated to years of service. Id. at 580, 401 A.2d 681. The Court stressed that "the parties to [the] contract intended to reward early retirement rather than the amount and quality of the work that a particular teacher had performed." Ibid. Since the payments under the plan were "unrelated to service, [they] [did] not constitute 'compensation' or 'customary fringe benefits' with respect to which negotiation [was deemed] permissible." Id. at 581, 401 A.2d 681.

Citing the strong evidence presented by the TPAF, the Court also found that the plan had the potential "to undermine the actuarial assumptions upon which the pension scheme was based." Id. at 583, 401 A.2d 681. In reaching this conclusion, the Court noted that "the probability of such plans being widely copied [was] strong." Id. at 584, 401 A.2d 681. "Considering that the very purpose of the payments [was] to induce early retirement," the Court emphasized that the effects of the plan could "in no way be deemed incidental." Id. at 585, 401 A.2d 681. As expressed by the Court, "[g]iven...

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