California Statutes Generally Prohibit A General Law City From Contracting With A Private Entity For Nonspecial Services

In a case involving an employees’ association’s challenge to a city’s plan to contract out for a variety of city services, a court of appeal found that as a general rule, California statutes prohibit a general law city from contracting with private entities to provide nonspecial services.  (Costa Mesa City Employees’ Association v. City of Costa Mesa (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., September 13, 2012).

Facts

In 2004, the City of Costa Mesa (“City”), a general law city, entered into a collective bargaining agreement with the Costa Mesa City Employees’ Association (“CMCEA”), which represents workers employed by City.  Article 14.1 of their Memorandum of Understanding (“MOU”) provides that City will make employee associations “part of discussions regarding the contracting of services.”  Article 14.2 provides that the parties agree “that should a decision be made to contract out for a specific service which is at the time being performed by employees covered by this MOU, the employees affected will be given sufficient notice (a minimum of six months) in which to evaluate their own situation and plan for their future.” 

On March 1, 2011, Costa Mesa’s City Council approved an outsourcing plan to outsource the following City services:  “street sweeping, graffiti abatement, animal control, jail operations, special event safety, information technology, graphic design, reprographics, telecommunications, payroll, employee benefit administration, building inspection, and park, fleet, street and facility maintenance.”  The Public Services Director sent layoff notices on March 17 and March 31, 2011, to over 100 employees represented by the CMCEA.  The notices stated that in light of the decision to contract out for City services, the Director was sending layoff notices to every employee in a position that is subject to outsourcing.  The letter informed the employees that they will be subject to layoff effective their last shift for the pay period ending September 30, 2011.  The letter informed each employee that the layoff notice was contingent on his or her position being outsourced and that the notice may be rescinded by the City Council.

CMCEA filed a lawsuit against City and its chief executive officer (collectively, City) alleging the outsourcing plan violates the Government Code because it includes plans for outsourcing jobs that do not involve “special services” and that the plan violates the MOU.  CMCEA requested a preliminary injunction to prevent City from implementing the plan while the lawsuit is pending.  The trial court granted CMCEA’s request for a preliminary injunction and enjoined City from contracting with a nonlocal agency for any service that a CMCEA employee was then performing and from laying off CMCEA members as the result of such contracting.

Decision

The court of appeal rejected City’s argument that the trial court erred in granting the preliminary injunction.  To obtain a preliminary injunction, the moving party is required to bring forth evidence that it will suffer irreparable injury or interim harm if an injunction is not issued.  If it meets this threshold requirement, the court is required to determine “(1) the likelihood that the moving party will ultimately prevail on the merits and (2) the relative interim harm to the parties from issuance or nonissuance of the injunction.”

City conceded that job loss qualifies as irreparable harm but contended that CMCEA members were not in imminent danger of losing their jobs because City had only issued one request for a proposal for jail operations.  The court concluded that although there is a possibility that the process would not result in the outsourcing of any jobs, “CMCEA members were in serious peril of being terminated” as evidence by the layoff notices sent to the employees.      

The court concluded the trial court did not abuse its discretion in concluding that greater harm would be incurred by CMCEA without a preliminary injunction than by City if an injunction is issued.  Although the court recognized that residents and taxpayers have a substantial interest in the cost-effective provision of services, the injunction does not prevent City from continuing to pursue its outsourcing plan.  City may still receive bids and assess whether outsourcing is the appropriate course of action for each service even though it may not actually consummate any outsourcing contracts with a nonlocal agency.

The court concluded that there is some possibility that CMCEA will prevail on the merits of its action against City.  The outsourcing plan violates the MOU because City did not involve CMCEA in any discussions about the evaluation of costs for contracting the services.  City did not send the layoff notices until after it had already decided on its outsourcing plan.  There is no evidence City discussed the matter with CMCEA before it sent out the notices as required by article 14.1 of the MOU. 

Also, the court found that state statutes generally prohibit a city from contracting with a private entity for the provision of nonspecial services.  Government Code § 37103 provides that a city “may contract with any specially trained and experienced person, firm, or corporation for special services and advice in financial, economic, accounting, engineering, legal, or administrative matters.”   Government Code § 53060 provides, “The legislative body of any public or municipal corporation or district may contract with and employ any persons for the furnishing to the corporation or district special services and advice in financial, economic, accounting, engineering, legal, or administrative matters if such persons are specially trained, experienced and competent to perform the special services required.”  In contrast, Government Code § 54981 does not limit a city’s contracting rights to those involving special services.  Section 54981 provides, “The legislative body of any local agency may contract with any other local agency for the performance by the latter of municipal services or functions within the territory of the former.”  However, § 54981 by its terms only authorizes contracts between local agencies, such as cities, and does not authorize a city to contract with a private entity for the provision of city services. 

The Legislature has specifically expressed its intent to permit a local agency to contract for specialized services that the agency is unable to provide for itself such as operation of a jail or administration of its payroll services.  However, the court found that there is no indication that the Legislature intended to allow City to outsource any of the other services it seeks to outsource. 

As a general law city, City is bound by the state’s general laws.  The court concluded that Government Code §§ 37103 and 53060 limit a city’s right to contract with private entities.  As these statutes have been interpreted over the years, they generally prohibit a city from contracting with a private entity for the provision of nonspecial services. 

Although there are factual issues that may impact the outcome of this case, such as the precise nature of the services that City seeks to outsource, the court found that CMCEA would suffer irreparable harm in absence of the preliminary injunction.  The court concluded there is some possibility that CMCEA will prevail on its claims against City.  After considering the relative harm to the parties, the court concluded that the injunction was not improvidently granted and affirmed the decision of the trial court. 

Questions

If you have any questions concerning the content of this Legal Alert, please contact the following from our office, or the attorney with whom you normally consult.

Bruce A. Scheidt, Laura Izon Powell, David W. Tyra or Jeffrey L. Massey | 916.321.4500

 

Published In: Administrative Agency Updates, General Business Updates, Government Contracting Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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