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A Florida public employer's decision to subcontract is a statutory management right.

The unresolved issue in Florida of whether a public employer must collectively bargain with a union over the decision to subcontract out work performed by employees represented by a union has now been decided by the Florida Public Employees Relations Commission in Amalgamated Transit Union, Local 1593 v. Hillsborough Area Regional Transit Authority (HARTA), 24 FPER [paragraph] 29,247 (July 1, 1998). In Florida, public employers are required under the Public Employees Relations Act (PERA) to bargain with unions over "wages, hours, and terms and conditions of employment" before making any changes to such items. See F.S. [sections] 447.309. They are not, however, required to bargain before making changes in the workplace that are reserved to public employers under the management rights provision, F.S. [sections] 447.209.[1] The issue before the commission, therefore, was whether the decision to subcontract is a term or condition of employment under [sections] 447.309, or whether a public employer may unilaterally subcontract the work of bargaining unit employees to a public or private entity without first bargaining with the union over the decision. After avoiding the issue since the 1980s,[2] the commission held that the decision to subcontract is a management right under [sections] 447.209.

In HARTA, the union and public employer bargained to impasse over management rights and past practices provisions in a successor contract. Within the management rights provision of the predecessor contract was a clause that limited the employer's right to subcontract to only newly created positions. After the parties rejected the special master's recommendation for resolving the impasse, HARTA, acting as the legislative body pursuant to the impasse procedures under PERA, imposed a management rights provision that permitted HARTA to unilaterally subcontract not only new positions, but all bargaining unit jobs. An unfair labor practice charge ensued, alleging that HARTA committed an unfair labor practice under [sections] 447.501(1)(a) and (c)[3] by legislatively imposing a waiver on the union's right to bargain over the issue. The hearing officer recommended that the commission find that the decision to subcontract was a mandatory subject of bargaining and that HARTA violated PERA.

In a splintered decision, the commission rejected the recommendation and held that subcontracting is permitted without bargaining as a management prerogative essential to the public employer's ability "to `determine unilaterally the purpose of its constituent agencies ... and [to] exercise control and discretion over its organization and operations.'" Id. at *10 (quoting [sections] 447.209). In reaching this result, the commission relied heavily on the approach taken in New Jersey, a state that also constitutionally guarantees public employees the right to collectively bargain.[4]

Subcontracting a "Political Question" Properly Decided in Public Forum

A public employer may decide to subcontract with a private enterprise for a variety of reasons. The employer may seek to make changes in operations or in the manner it will manage, finance, or deliver a public service, decisions that may be reserved to public employers under [sections] 447.209. At the same time, the employer may seek to lower costs by having the work performed at lower wage and benefit levels--subjects that are amenable to collective bargaining under [sections] 447.309.[5] In Florida public sector labor law, when a disputed subject of bargaining "both directly relates to employment security or conditions of employment and also directly relates to the functioning of an enterprise ... a balancing test must be applied to determine which characteristic predominates." Fraternal Order of Police, Miami Lodge 20 v. City of Miami, 609 So. 2d 31, 34 (Fla. 1992). In City of Miami, the court declared that if the decision to subcontract "fundamentally impacts" a public employer's ability to determine its purpose, set standards for the services it provides to the public, or exercise control over its organization and operations, the decision falls within [sections] 447.209 and may be made without the obligation to bargain.

Rather than balance the parties' interests in subcontracting on a case-by-case basis, the commission in HARTA decided that in all cases a public employer's interest in unilaterally deciding to subcontract outweighed the collective bargaining interests of public employees. After quoting at length a passage from a 1982 New Jersey Supreme Court decision, Local 195, International Federation of Professional and Technical Engineers, AFL-CIO v. State, 88 N.J. 393,443 A.2d 187 (N.J. 1982),[6] the commission stated that the decision to subcontract is a "political question" that involves the restructuring of an employer's operations and is, therefore, more appropriately decided in a public forum than at the collective bargaining table. To hold otherwise, the commission stated, would be to "significantly interfer[e] with the determination of policy by elected officials."

The commission also was concerned that there was no practical way for it to review a subcontracting decision case by case before the decision was made--the approach taken in a number of other public sector jurisdictions. In addition, reviewing the decision after it was made would place a hearing officer in the difficult position of determining what factors motivated a public employer, which by law must make its decisions collectively by vote of several public officials. By holding the decision to subcontract is a per se management right, the commission alleviated the uncertainties in bargaining and adjudication which otherwise would result from a case-by-case approach. This notwithstanding, the commission also held that the employer must provide the certified bargaining agent enough notice of its "intention to subcontract" that the union has a "reasonable opportunity" to request that the employer bargain over the impact of the decision--including, possibly, a separation package and out-placement assistance for those bargaining unit employees whose jobs are eliminated.

Commissioner Gertz, the designated union representative on the commission, strongly dissented from the majority's position, citing decisions in the private sector as well as in many public sector jurisdictions that decided the issue on a case-by-case basis. The dissent would adopt the balancing of interests approach enunciated in the U.S. Supreme Court's decision, Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203 (1964) (holding that when an employer decides to subcontract out its maintenance work to effect labor cost savings and replaces bargaining unit employees with another group of employees to perform the same work without any change in basic operations, the decision is a mandatory subject of bargaining). If labor cost savings are the primary motive behind the decision to subcontract, Commissioner Gertz reasoned, the union should be given an opportunity to meet, or beat, the contract price on economic issues. If the parties cannot negotiate an effective solution, she added, the employer could unilaterally implement the subcontract. Conversely, where the subcontracting decision results in a change in the scope and direction of the employer's enterprise, an employer would not be required to bargain over the decision, since it would be a management right under [sections] 447.209. On this point, the dissent noted that a public employer, like HARTA, required by law to provide a service, could not go out of the business of providing that service. Nevertheless, the dissent concluded, a balancing approach would not unnecessarily impair policymaking and would preserve the constitutional right to bargain over the decision to subcontract "`result[ing] in decisions which are ultimately better for society as a whole,'" and "`in the more effective and efficient operation'" of a public entity. HARTA, 24 FPER [paragraph] 29,247, *35 (quoting City of Miami v. F.O.P., Miami Lodge 20, 571 So. 2d 1309, 1324 (Fla. 3d DCA 1990) (rehearing en banc). Finally, the dissent rejected the majority's position that a hearing officer would have difficulty in reviewing unilateral subcontracting decisions case by case, stating that a hearing officer's scrutiny of the decision after the fact will be no more burdensome than in other cases where motive is an issue.

Other Public Sector Jurisdictions

Although the tests applied in other public sector jurisdictions vary as to the burdens of proof or factors that a court or agency will consider in determining whether the decision to subcontract is a mandatory subject of bargaining, many look at the effect of the decision on the employment relationship and at whether the reasons a public employer subcontracted, or transferred the work from one group of employees to another, were to effect changes in policy or in mandatory subjects of bargaining.[7] By applying a Fibreboard analysis or a modification thereof, many public sector jurisdictions substantially limit a public employer's ability to make unilateral operational changes, as is seen in decisions in Michigan, Washington, and Wisconsin.

In an early landmark decision, a Michigan appellate court held that even if a public employer is not motivated by labor cost savings, a subcontracting arrangement that did not result in the termination of operations was a mandatory subject of bargaining. Van Buren Public School District v. Wayne County Circuit Judge, 232 N.W.2d 278, 90 LRRM 2615 (Mich. Ct. App. 1975). In Van Buren, the court held that even though the school district's decision to subcontract busing services was not based on labor cost savings, Fibreboard still governed since the employer essentially replaced one group of employees performing the work with another. Although the school district sold all of its school buses to the subcontractor, which was to substantially improve the transportation system, the court held that the changes in the quality of services alleged by the employer did not amount to a change in basic operations and, therefore, had to be bargained over Acknowledging that the school district could not change its basic operations or standards of services because the state legislature had expressly set those standards, the court stated that only when the school district "cease[s] providing transportation to all of its students" may the decision be unilaterally made.[8]

The Washington Employment Relations Commission reached a similar result 10 years later in International Association of Fire Fighters, Local 1445 v. City of Kelso, Case No. 5435-U-84-989, Dec. No. 2120-A PECB (March 15, 1985). It held that a city's decision to terminate existing bargaining unit work for economic reasons was a mandatory subject of bargaining. The city transferred its firefighting functions to another public entity, via an interlocal agreement under which the city was to provide equipment and raise revenues for continued services to its citizens. However, because the work continued to be performed and the city retained the ability to terminate the agreement, the commission held it had not gone out of the firefighting business. The commission distinguished the case from First National Maintenance Corp. v. NLRB, 452 U.S. 666 (1981), in which the U.S. Supreme Court held that a private employer's decision to close part of its business for economic reasons was a management prerogative. Only when the city by statutory authority later annexed its firefighting functions to another public entity and "relieved itself of any legal involvement whatsoever in the product or service formerly provided" could it be said to have gone out of the firefighting business. International Association of Fire Fighters, Local 1445 v. City of Kelso, Case No. 5647-U-85-1035, Dec. No. 2633-A PECB (October 17, 1988), aff'd in part and rev'd on other grounds, 790 P.2d 185, 57 Wash. App. 721 (Ct. App. Wash.), appeal denied, 797 P. 2d 512, 115 Wash. 2d 1010 (Wash. 1990).

Although Wisconsin generally follows the majority approach, the Wisconsin Supreme Court in Unified School District No. 1 of Racine County v. Wisconsin Employment Relations Commission, 259 N.W.2d 724, 97 LRRM 2489 (Wisc. 1979), expressly rejected the "change in services" or "essential services" requirements, based largely on Fibreboard, that had been applied in that state's private sector cases.[9] Noting the difference between the public and private sector, particularly since Wisconsin legislators provided for a management rights provision in the Municipal Employment Relations Act, the court looked to the "business" realities of the public sector, in which an employer may not have the option of shutting down operations or relocating. Thus, the court reasoned, basing the negotiability of subcontracting on the degree of operational change was inappropriate in the public sector. For instance, even if a public employer did not change the direction of its services, the subcontracting decision itself may represent a choice among "alternative social or political goals or values" that is best made through the political process and not through collective bargaining. In such situations, the court stated, the integrity of the political process is a necessary limit on the scope of bargaining.

Notwithstanding the public-private sector distinction drawn by the Wisconsin Supreme Court, in balancing the interests, the court held that the school district's decision to subcontract food services was primarily related to wages, hours, and terms and conditions of employment since the subcontract did not affect any policy or functional changes in the food services being provided. Wisconsin appellate decisions since Racine have proven no less restrictive of an employer's unilateral decision to subcontract than Michigan or Washington. For instance, a county's decision to subcontract with a private entity to staff its youth home was found to be prompted more by the termination of its lease at the extant facility than by its desire to relocate or reduce its capacity. Brown County v. Wisconsin Employment Relations Commission, 138 Wis.2d 254, 405 N.W. 2d 752 (Ct. App. Wis. 1987). The decision was, therefore, a mandatory bargaining subject. Only when a county sold its nursing home to a private operator that had no contractual obligation to provide nursing home services was it relieved of its bargaining obligations. Local 2236, AFSCME, AFL-CIO v. Wisconsin Employment Relations Commission, 157 Wis.2d 708, 461 N.W.2d 286 (Ct. App. Wis. 1990).[10]

Although it is theoretically possible in Washington, Wisconsin, and Michigan that decisions to subcontract, short of going out of business, will implicate policy concerns significant enough to tip the balance in favor of unilateral decisionmaking by public employers, the case law indicates that it rarely will, if at all.[11] The question then arises whether the "going out of business" under First National Maintenance should be the baseline for what constitutes a management right. As the court in Van Buren and the dissent in HARTA acknowledged, many public employers are required by law to provide a service and may be limited in their ability to relinquish those duties. Therefore, under a standard that requires bargaining over all decisions to subcontract short of "going out of business," a number of tribunals have effectively held that subcontracting is a per se mandatory bargaining subject. The adoption of such a restrictive approach in Florida would be inconsistent with [sections] 447.209, which states that a public employer shall have control over the entity's operations and organization and shall retain the power to set standards for services. Section 447.209 does not state that these rights are limited to the right to go out of the business of providing a service.

HARTA permits unilateral subcontracting short of "going out of business," recognizing that a public employer's decision to subcontract for economic or other reasons is itself an inherent policy decision best made by representatives elected by citizens and taxpayers on whose behalf the services are provided. The commission has thereby reserved to public employers the ability to operate more efficiently and economically, whether it be through subcontracting or through competition- driven, creative solutions at the bargaining table.

Other Considerations

Public employers and public employee unions may face a number of statutory and constitutional issues beyond those discussed in HARTA. They may include the following:

* Although difficult to prove, subcontracting and privatization decisions based on union animus have been challenged as a union-avoidance measure.[12] In addition, if the new private employer refuses to recognize or bargain with the union, depending on whether the employer is considered a "successor employer,"[13] it could face refusal to bargain charges under 29 U.S.C. [sections] 158(a)(1) and (5), as well as allegations that the refusal was based on union animus. However, the public sector union that makes a bargaining demand must be a "labor organization" as defined in the National Labor Relations Act (NLRA).[14] When the public sector union's constitution implicitly limits membership to public employees, it has been held that the private employer need not recognize the "predecessor union" and may properly challenge its representation.[15]

* Subcontracting can take many forms, and may range in complexity and the degree of retained control, depending on many factors, including available funds, the laws and regulations governing the standards of service, and the type of entity involved. Counsel representing parties in subcontracting or privatization issues should be aware that the extent of the delegation by the public entity may have an impact on such issues as 1) whether the private entity is an employer of the employees in question under state labor relations laws;[16] 2) whether the private entity is a successor employer under the NLRA; and 3) whether the National Labor Relations Board will have jurisdiction over the employer under 29 U.S.C. [sections] 152(2), which defines "employer" under the NLRA.[17]

* While the Florida First District Court of Appeal considers HARTA, other Florida courts are hearing challenges brought by public employee unions to unilateral subcontracting and privatization decisions under civil service laws.[18] States deciding the civil service issue have reached varying results. States with constitutions that authorize the state legislature to establish a merit system have upheld privatization efforts,[19] while other states with more expansive civil service provisions in their constitutions have barred privatization efforts in certain circumstances.[20] Subcontracting in the public sector may involve changes in financing, management, standards of service, and policy that are fundamental to the manner in which government will operate. As HARTA acknowledges, who will provide government services and how are a matter of great public concern. The commission has held that these "political questions" are best answered by elected officials who represent both the general public and public employees.

[1] FLA. STAT. [sections] 447.209 provides, in pertinent part: "It is the right of the public employer to determine unilaterally the purpose of each of its constituent agencies, set standards of services to be offered to the public, and exercise control and discretion over its organization and operations."

[2] Big Bend PBA v. City of Callaway, 19 FPER [paragraph] [24,190 (1993); Monticello Professional Firefighters Ass'n, Loc. 3095, IAFF v. City of Monticello, 15 FPER [paragraph] [20,225 (1989), aff'd, 565 So. 2d 364 (Fla. 1st D.C.A. 1990); Amalgamated Transit Union, Loc. 1596 v. Orange-Seminole-Osceola Trans. Auth., 12 FPER [paragraph] 17,134 (1986),per curiam aff'd, 500 So. 2d 1352 (Fla. 1st D.C.A. 1987).

[3] Public employers are prohibited from: "(a) Interfering with, restraining, or coercing public employees in the exercise of any rights guaranteed them under this part" and "(c) Refusing to bargain collectively, failing to bargain collectively in good faith, or refusing to sign a final agreement agreed upon with the certified bargaining agent for the public employees in the bargaining unit."

[4] See FLA. CONST. art. I, [sections] 6, providing, in pertinent part, that "[t]he right of employees, by and through a labor organization, to bargain collectively shall not be denied or abridged...." and N.J. CONST. art. I, [paragraph] 19, "[p]ersons in public employment shall have the right to organize, present to and make known to the State, or any of its political subdivisions or agencies, their grievances and proposals through representatives of their own choosing."

[5] Features amenable to collective bargaining include wages, hours, and other terms and conditions of employment.

[6] A portion of the passage quoted by the commission is as follows: "The issue of subcontracting does not merely concern the proper technical means for implementing social and political goals. The choice of how policies are implemented, and by whom, can be as important a feature of governmental choice as the selection of ultimate goals. It is a matter of general public concern whether governmental services are provided by government employees or by contractual arrangements with private organizations. This type of policy determination does not necessarily concern solely fiscal considerations. It requires basic judgments about how the work or services should be provided to best satisfy the concerns and responsibilities of government. Deciding whether or not to contract out a given government service may implicate important tradeoffs.

"Allowing such decisions to be subject to mandatory negotiation would significantly impair the ability of public employers to resort to subcontracting.... Imposing a legal duty on the state to negotiate all proposed instances of subcontracting would transfer the locus of the decision from the political process to the negotiating table, to arbitrators, and ultimately to the courts. The result of such a course would significantly interfere with the determination of governmental policy and would be inimical to the democratic process." Local 195, 88 N.J. at 407-08 (internal citations and quotations omitted) (emphasis added).

[7] See, e.g., Van Buren Pub. Sch. Dist. v. Wayne County Circuit Judge, 232 N.W.2d 278, 90 LRRM 2615 (Mich. Ct. App. 1975); Int'l Assn of Fire Fighters, Loc. 1445 v. City of Kelso, Dec. No. 2120-A PECB (March 15, 1985). It is of critical significance that the relevant labor relations statutes at issue in the Van Buren and Kelso cases did not have management rights provisions, unlike Chapter 447. In Unified Sch. Dist. No. 1 of Racine County v. Wisconsin Employment Relations Corem'n, 259 N.W. 2d 724, 97 LRRM 2489 (Wisc. 1979), the Wisconsin Supreme Court pointed out that public sector jurisdictions that do not have such a clause may more appropriately rely on private sector precedent in deciding whether the decision to subcontract is a mandatory subject of bargaining. Id. at 731 n.4 (decided pursuant to a labor relations statute with a management rights provision); Local 195, 88 N.J. at 401-02 n.8 (declining to apply Fibreboard).

[8] See also Bay City Educ. Ass'n v. Bay City Pub. Sch., 430 Mich. 370, 422 N.W.2d 504 (Mich. 1988) (holding that a school board's decision, pursuant to a state statute, to terminate operation of a special education center for financial reasons and to transfer responsibility for the program to another school district was a fundamental change in operations analogous to First National Maintenance Corp., 452 U.S. 666, and an inherent educational policy decision).

[9] Under that test, the public employer would be required to bargain over the decision to subcontract if the subcontract did not "`change the basic direction' of the district's activities, or affect its `essential enterprise.'" Racine, 259 N.W. 2d at 729.

[10] See Mark Hazelbaker and David C. Hertel, Privatization and the "Primarily Related" Test: A Case For Clarification, 74 MARQVETTE L. REV. 451 (1991) (criticizing this line of cases as a bulwark to privatization and school choice programs).

[11] Note that other public sector jurisdictions may find that subcontracting decisions short of going out of business effectuate policy changes and are not subject to mandatory negotiations.

[12] See, e.g., City of Callaway, 19 FPER [paragraph] 24,190 (1993); City of Monticello, 15 FPER [paragraph] 20,225 (1989), aff'd, 565 So. 2d 364 (Fla. 1st D.C.A. 1990).

[13] See Harbert Int'l Servs. & Nat'l Ass'n of Gov't Employees, AFL-CIO, 299 NLRB 472 (1990); JMM Operational Servs., Inc. & IBT, Loc. No. 627, 316 NLRB 6 (1995) (finding that the employer was a successor even though the predecessor was a public employer); see also Lincoln Park Zoological Soc'y v. NLRB, 116 F. 3d 216 (7th Cir. 1997). If there is substantial continuity between the predecessor and successor enterprises in terms of work force, working conditions, operations, and nature of business, there is a presumption that the employees represented by the predecessor union favor continued representation by that union. JMM Operational Servs., 316 NLRB at 36-39.

[14] 29 U.S.C. [sections] 152(5).

[15] United Truck and Bus Serv. Co. & Rhode Island Gen. Council on Behalf of Loc. Union 1033, 257 NLRB 343 (1981) (granting employer's motion to dismiss local's representation petition on the grounds that the local, whose membership was limited to public employees, was not a "labor organization" within the meaning of 29 U.S.C. [sections] 152(5) of the NLRA).

[16] Florida Pub. Employees Council 79, AFSCME v. Sch. Dist. of Duval County ("Aramark"), 21 FPER [paragraph] 26,231 (1995) (holding that although the public entity that privatized its food services retained fiscal control and final hiring and firing power, the subcontractor, and not the school district, was the employer; thus, the certification petition was outside PERC's jurisdiction pursuant to [sections] 447.203(2)).

[17] See, e.g., Aramark Corp. v. NLRB, 156 F. 3d 1087 (10th Cir. 1998) (holding that Aramark was not a political subdivision within the exemption under [sections] 2(2) but remanding to the NLRB for further findings consistent with the 10th Circuit's precedent applying a government control test to determine whether Aramark was an employer within the jurisdiction of the NLRB).

[18] The argument would be that state employers who subcontract out work previously performed by career service employees violate FLA. CONST. art. III, [sections] 14 mandating that the legislature create a civil service system for state employees. For an article chronicling and analyzing these and other federal and state constitutional challenges to privatization, see Clayton P. Gillette and Paul B. Stephan III, Constitutional Limitations on Privatization, 46 AMER. J. COMP. L. 481 (1998).

[19] See, e.g., Moore v. Alaska DOT, 875 P. 2d 765 (Ala. 1994) (holding that privatization by agency that solicited bids for maintenance work previously performed by civil service employees was not barred by the constitution, since civil service laws vested agencies with discretion to take job reduction measures; and, neither the procurement statute nor the state's civil service laws prohibited privatization as a cost-cutting measure, while the provisions of both provided safeguards against political influence). In Local 195, 88 N.J. 393, 405-06, relied on in HARTA, the court held that the state's civil service laws "constrain the discretion of the State in selecting employees" but do not operate as a blanket prohibition on subcontracting, although reserving for another day rulings on subcontracts that may violate these laws.

[20] See, e.g., Professional Eng'rs in California Gov't v. DOT, 936 P. 2d 473 (Cal. 1997), reh'g denied, 1997 Cal. LEXIS 4427 (July 16, 1997) (holding unconstitutional a state statute that expanded the state's ability to subcontract in a manner inconsistent with state case law, which generally construes the civil service provision in the state constitution as prohibiting privatization where civil service employees can adequately and competently perform the work).

Nina Q. Smith is an associate at the Miami office of Ford & Harrison, a law firm exclusively representing employers in labor and employment matters.

This column is submitted on behalf of the Labor and Employment Law Section, Kevin E. Hyde, chair, and Damon Kitchen, editor.
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Author:Smith, Nina Q.
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Date:May 1, 1999
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