New York Legislature Could Legally Enact A Wage Freeze For Public Sector Employees

May 21, 2010

By: Subhash Viswanathan

Municipal providers of essential services have limited options when attempting to cope with the current fiscal crisis while still providing essential public services. Faced with dwindling revenue, they are also locked into collective bargaining agreements which require raises and/or “step” increases and lane movement. Consequently, while a non-unionized, private-sector employer may avoid layoffs by imposing a salary freeze, public employers have no such option. Without that flexibility, layoffs and a consequent loss of services by the public becomes the only option.

But, as a memorandum recently released by the Empire Center for New York State Policy concludes, a public sector wage freeze imposed through an enactment by the State Legislature is legal under both New York and federal law, if it is based on proper factual findings of fiscal emergency. Since its publication, the memorandum has received positive support from numerous news sources and political figures, including current Republican Gubernatorial candidate and Suffolk County Executive Steve Levy. According to the memorandum, a State statute that freezes salaries, including abrogating so called “step” increases and lane movement in existing collective bargaining agreements, will be valid under both state and federal law as long as specific legislative findings demonstrate that the scope and duration of the freeze is reasonable and necessary to protect the public. A brief summary of the memorandum is provided below.
 

The memorandum concludes that existing New York and federal case law supports the legality of a legislatively imposed wage freeze in New York. In Buffalo Teachers Federation v. Tobe, 464 F.3d 362 (2d Cir. 2006), the United States Court of Appeals for the Second Circuit rejected a challenge to a wage freeze imposed by the Buffalo Fiscal Authority (the “Authority”), a public benefit corporation created by statute. Under the enabling legislation, the Authority had the power to impose a wage and/or hiring freeze upon finding that such a freeze was “essential to the adoption or maintenance of a city budget or a financial plan….” The Authority determined that due to massive budget deficits a wage freeze was necessary. The wage freeze prevented members of several unions from receiving two percent wage increases under negotiated agreements. The unions sued, claiming that the wage freezes violated the Contracts Clause of the United States Constitution.

The Second Circuit upheld the constitutionality of the wage freeze. The Contracts Clause provides that no state shall enact any law “impairing the Obligation of Contracts.” Whether a state law impermissibly impairs contract rights depends on: (1) whether the contractual impairment is substantial and, if so; (2) does the law serve a legitimate public purpose such as remedying a general social or economic problem and, if such a purpose is demonstrated; (3) are the means chosen to accomplish this purpose reasonable and necessary.

Applying the test to the case before it, the Second Circuit found there was a substantial impairment of contract rights. But the Court also found that: “The New York legislature had a legitimate public purpose in passing the statute because Buffalo was suffering a fiscal crisis, and the Legislature passed the statute to address specifically the City’s financial problems. In addition, the Court concluded that for a wage freeze that impairs public sector collective bargaining agreements to be deemed reasonable, it must be shown that the state did not: (1) consider impairing the ... contracts on par with other policy alternatives; nor (2) impose a drastic impairment when an evident and more moderate course would serve its purpose equally well; nor (3) act unreasonably in light of the surrounding circumstances. The Second Circuit determined that the Buffalo wage freeze statute passed Constitutional muster under this test because: the fiscal emergency furnished a proper reason to impose a wage freeze to "protect the vital interests of the community;" the existence of the emergency "cannot be regarded as a subterfuge or as lacking in adequate basis;” and the wage freeze was not “unreasonable or unnecessary to achieve the important public purpose of stabilizing Buffalo's fiscal position.”

In reaching its decision, the Second Circuit was guided by the New York Court of Appeals decision in Subway-Surface Supervisors Ass’n v. New York City Trans. Auth., 44 N.Y.2d 101 (1978). There, the Court of Appeals ruled that a statute implementing a wage freeze for all New York City employees, and which precluded payment of wage increases provided for in collective bargaining agreements, was constitutional. When it passed that statute, the Legislature found there was a financial emergency in the City of New York requiring State action to remedy the crisis. Because there was no dispute that there was in fact a fiscal crisis in the City of New York, the Court held that it was "undisputed" the wage freeze served an "important public purpose."

Finally, the memorandum concludes that the Taylor Law – which confers on public sector employers and unions in New York State a statutory right to bargain collectively – would not bar a wage freeze because that right to bargain “may be circumscribed by a proper exercise of the police power… to maintain a stable economic environment.” Committee of Interns v. City of NY, 87 Misc. 2d 504 (Sup.Ct. N.Y. Co. 1976). As with Contracts Clause challenges, a challenge under the Taylor Law can be defeated by a factual record demonstrating that the exercise of the State’s police power is necessary to protect the public from the fiscal crisis. In order to meet its intended purpose, a wage freeze statute should expressly suspend the Triborough Law, which prohibits a public employer from altering any provision of an expired labor agreement until a new agreement is reached, including automatic pay increases under a salary step or longevity schedule. This is necessary to ensure that these increases will not simply roll over or be deferred during the period of the freeze only to become due the year the freeze is lifted.