The California Supreme Court was recently asked to resolve the issue of “whether a charter city may arbitrate disputes over collectively bargained wage and hour provisions without unlawfully delegating to the arbitrator its discretionary budgeting and salary-setting authority.” The Supreme Court held that (1) the arbitration of the dispute involving furlough of city employees did not unlawfully delegate the city’s discretionary authority to the arbitrator, and (2) the city is contractually obligated to arbitrate the dispute. (City of Los Angeles v. The Superior Court of Los Angeles County (--- P.3d ----, Cal., June 20, 2013).
The City of Los Angeles (“City”) declared a financial emergency in May 2009. The City council of this charter city passed a resolution that directed the mayor to adopt a furlough plan for City employees. The mayor adopted a plan that required civilian employees to take one day of unpaid furlough for every eighty-hour pay period. Hundreds of employees represented by the Engineers & Architects Association (“Union”) filed grievances. The employees asserted that the furloughs violated provisions of the memorandums of understanding (“MOUs”) governing their wage and workweek. The City denied their grievances at each level of review. The final step in the grievance process involved submitting the dispute to binding arbitration before the City’s Employee Relations Board. Although the employees and Union made a timely request for arbitration, the City refused to arbitrate. The City asserted that the decision to impose mandatory furloughs on its employees was not subject to arbitration.
A superior court granted Union’s petition to compel arbitration. On appeal, the court of appeal concluded that any agreement to arbitrate the City’s decision to impose mandatory furloughs “was unenforceable because binding arbitration of the dispute would improperly delegate to the arbitrator the City’s discretionary salary-setting and budget-making authority.”
Supreme Court Decision
The Meyers-Milias-Brown Act provides that a local public entity has a duty to meet and confer in good faith with representatives of recognized employee organizations on issues involving wages, hours, and working conditions. When the parties reach an agreement, they prepare an MOU. Once approved, the MOU becomes binding and enforceable and neither party may make unilateral changes to it.
The MOUs that applied to the City and its employees provided that the final step in the grievance process was submission of the issue to binding arbitration. Article 5.1 of the MOUs provided that “[e]mployees shall be compensated for 40 hours per week at the regular hourly rate for their class and pay grade.” Article 6.1 of the MOUs provided that a work year consists “of 52 weeks of 40 hours each.”
The City asserted that it could order the furloughs pursuant to article 1.9, which provided that the MOUs do not limit or curtail powers the City had prior to the effective date of the agreement. These powers included the right to “relieve City employees from duty because of lack of work, lack of funds or other legitimate reasons, . . . [and to] take all necessary actions to maintain uninterrupted service to the community and carry out its mission in emergencies.” However, the exercise of these rights by the City “does not preclude employees and their representatives from consulting or raising grievances about the practical consequences that decision on these matters may have on wages, hours, and other terms and conditions of employment.” The Union claimed the MOUs authorize layoffs but not furloughs.
The City asserted it could not be compelled to arbitrate the issue of whether the furloughs were valid “because such arbitration would constitute an unlawful delegation to the arbitrator of two discretionary policymaking powers — salary setting and budget making — that the City’s charter vests in the city council.” Arbitration of a grievance does not involve creating general public policy. The Court held “that arbitration of the employee grievances challenging the furlough program as being in violation of the MOUs does not involve an unlawful delegation of the city council’s discretionary salary-setting and budget-making authority.”
The Court further concluded that the furlough dispute is subject to arbitration. The City had a general contractual obligation to arbitrate disputes over the interpretation of the MOUs. The employees’ grievance about the furloughs presented a dispute over the interpretation of the MOUs. The provisions of the MOUs that needed to be interpreted included the provisions establishing a forty-hour workweek, establishing the City’s right to relieve its employees from duty, reserving the City’s right to carry out its mission in an emergency, and allowing the City to exercise its reserved management rights.
The Court found that the MOUs did not expressly exempt furlough disputes from arbitration. The dispute was not over whether the City’s decision regarding the furlough was necessary. Instead, “the dispute is about whether the City’s decision to impose furloughs during a fiscal emergency involved the exercise of a reserved management right and whether it violated the wage and workweek provisions of the MOUs.” The Court concluded that this dispute falls within the arbitration provision of the MOUs.
The Court rejected the City’s argument that the MOUs grievance procedure was only “aimed at resolving ‘department-level disputes’” instead of disputes that were citywide. The Court further found that “there is no need or justification for requiring a clear and unmistakable waiver of the right to a judicial forum.” Finally, the Court found that construing the MOUs to prohibit furloughs would not impermissibly conflict with discretionary authority of the City council to set salaries and prepare the budget.
Accordingly, the Court found that the City is contractually obligated to arbitrate the furlough dispute and reversed the judgment of the court of appeal.