PERB: “Exploding” Offers Can Be Evidence of Bad Faith

City of Arcadia (2019) PERB Decision No. 2648-M (Issued on 6/12/19)

This is another very long decision involving several legal issues. I am just going to focus on one issue: PERB’s holding that, ”a party cannot in good faith make an exploding proposal unless it can adequately explain a legitimate basis for doing so.” An “exploding” proposal is one that expires on a given date.

Here are the essential facts. The City of Arcadia (City) and the Arcadia Police Civilian Employees Association (Union) were parties to a Memorandum of Understanding (MOU) that expired on June 30, 2014. In September 2013, the City notified the Union that it wanted to begin successor negotiations with the goal finishing by the end of November 2013. The stated reason was that city council elections were in April 2014 and at least two incumbents could not run for re-election. By November, the City apparently had reached tentative “deal points” with other labor groups but not the Union. The City told the Union that it would close negotiations if no deal was reached by the end of November and not re-open them until the Spring. The Union objected to the City’s “need for speed” since the MOU did not expire until June 30, 2014. The Union also objected to the City’s offer of “signing bonuses” only if a deal was reached by the end of November. The City acceded that negotiations could reconvene in the Spring but confirmed that signing bonuses would likely “not be on the table” at that time. The Union then filed an unfair practice charge.

The ALJ dismissed the charge alleging bad faith bargaining relating to the “exploding” offer. The Board reversed. The Board characterized exploding offers as a form of regressive bargaining since subsequent offers become less generous. Typically, to avoid bad faith bargaining a party “must show changed economic conditions or other changed circumstances to support its regressive posture.” In addition, the Board argued that, “when a party issues an exploding offer without an adequate explanation as to why its bargaining position should become less generous on a given date in the future, it effectively imposes its own ground rule and deadline, evidences unlawful inflexibility, and manifests a take-it-or-leave-it attitude.”

As an example, the Board noted that when an employer offers a retroactive wage increase, its initial lump sum wage cost invariably escalates the longer negotiations continue. However, according to the Board, many employers in such circumstances can set aside the money needed to pay the retroactive wage increase as time goes on without a ratified contract. Therefore, an employer asserting that it cannot set aside money in this manner, or asserting a different basis for its exploding offer, “must be in a position to prove its rationale if requested to do so.”

Here, the City defended its offer because the spring city council elections could result in a new majority with different goals. However, the Board held that this explanation was insufficient because there were several months remaining between the City-imposed deadline and the spring elections and also because the possibility of a new council majority with different goals was speculative. As a result, based on the totality of the circumstances, the Board held that the City’s “exploding” offer constituted evidence of bad faith bargaining.

Comments:

  1. I don’t have an issue with the Board’s central holding that an employer must explain why a proposal has an expiration date. My bigger concern is the Board’s apparent willingness to “second-guess” the employer’s proffered explanation. Here, the City said it wanted to get successor agreements in place before the upcoming council elections. This doesn’t seem unreasonable.  A new city council could have different spending priorities. Or the existing city council may want to have a deal in place as its “legacy.” Either rationale seems legitimate to me. Admittedly, at least based on the facts set forth by PERB, there was no explanation for why a deal had to be reached by the end of November, more than four months before the spring election. The failure to explain that gap likely caused the Board not to fully credit the City’s stated rationale in this case. But the key lesson here is that PERB will examine the legitimacy of the explanation for an exploding offer.
  2. In discussing possible legitimate reasons for an exploding offer, the Board focused primarily on economic ones. However, employers often have policy reasons for such offers. For example, some employers will offer a signing bonus to the first union that “comes in” when multiple tables are open. Getting the first union to reach agreement often times is the most difficult and has the benefit of setting a “pattern” for the rest of the unions.  I would think that such an explanation would be sufficient to demonstrate that the employer is not bargaining in bad faith. However, the Board did not discuss such an example.
  3. As another example, many employers have a policy of “no retro” salary increases. While this is not a traditional exploding offer, it has a potential “regressive” effect in that employees will not receive a salary increase for the time between expiration of a MOU and the the new one. Employers have such policies to encourage the conclusion of negotiations before the expiration of a MOU, which helps avoid strikes and avoids the disruption of being in a “status quo” period. Are these explanations sufficient to demonstrate that the employer is not bargaining in bad faith? I would think so but unfortunately the Board didn’t discuss such situations.
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Initial Thoughts on PERB’s Proposed Regulations

Since my last post PERB has added two more regulatory packages for consideration at its June 13, 2019 meeting. There are now a total of five: 1) exceptions; 2) recusal; 3) subpoenas and motions; 4) e-filing; and 5) SMCS. The proposed regulations are substantial and I encourage practitioners to take some time to review them.

Overall, I think the regulations are well-written and will provide much needed guidance in these areas. Because I may not be able to attend the meeting on June 13, I prepared extensive written comments to the Board. My letter to the Board is available by clicking this link: 2019-06-04 (ltr)(TGY)(PERB) Comments on Reg Packages – Fnl

In short, there are only two proposed regulations to which I expressed objection:

32150(h) – Adverse Inference for Failing to Comply with Subpoenas

PERB is proposing a regulation that expressly allows the Board to draw an adverse inference from a party’s failure to comply with a subpoena as an alternative to PERB seeking compliance with the subpoena in court. But here’s my objection. A responding party, typically an employer, may have good faith objections to a subpoena. Currently, the employer will have the opportunity for court review of the subpoena because enforcement can only be obtained from a superior court. But under this new regulation, the party issuing the subpoena can forego court enforcement and just ask for an adverse inference. This places the employer in an untenable situation since the employer will have no readily available means to obtain court review yet risks an adverse inference if it fails to comply. I think an adverse inference would only be appropriate if a party fails to comply after a final court order has been issued.

32700 – Electronic Signatures

Next, PERB is proposing a regulation to allow for electronic signatures. This is presumably in response to the Board’s decision in Regents of the University of California (2018) PERB Order Ad-459-H. I’m not opposed to electronic signatures; I think they are the future. But PERB’s regulation merely requires electronic signatures using “generally accepted security protocols or their equivalent.” I think this is far too vague of a standard given the importance of this issue. There are already regulations elsewhere in California that allow for digital signatures and provide for robust security protocols. For example, the regulations from the Secretary of State (SOS) require the use of technologies that comport to Public Key Cryptography, Signature Dynamics, or some other technology approved by the SOS. (2 Cal. Code of Regs., §22000 et. seq.)  I think PERB’s regulations should be much more specific as to the security protocols required for using electronic signatures.

Other than these two issues I only had a few additional comments on the regulations that I set forth in my letter.

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PERB Invites Comments on Regulatory Packages

PERB has published draft regulatory packages in three areas: 1) filing of exceptions; 2) standards for recusal of PERB personnel; and 3) subpoenas and motions. The draft regulatory packages can be found here. PERB is asking that stakeholders provide comments in person at its meeting on June 13, 2019, or in writing before that date.

The proposed regulations are substantial and significant and are definitely worth taking the time to review.  I hope to have some initial comments on the draft regulations soon….

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AB 1066: Striking Employees Eligible for Unemployment Benefits

AB 1066 was introduced by Assembly Member Gonzalez on February 21, 2019. This bill amends the Unemployment Insurance Code to allow striking employees to be eligible for unemployment insurance benefits after four weeks.  Specifically, AB 1066 currently provides that:

(b) The ineligibility of an individual to receive benefits pursuant to subdivision (a) shall expire after the first two four weeks of the trade dispute and shall, thereafter, be eligible.The one-week waiting period required by Section 1253 shall not be required in addition to the waiting period established in this subdivision.

This bill passed the Assembly on May 22, 2019, and is now in the Senate. According to the author, “Workers involved in a labor dispute merit support from the state, and this bill is one small step in ensuring all workers can exercise their right to strike.”

Comments:

  1. The California Chamber of Commerce has placed AB 1066 on its annual “job killers” list of bills.
  2. In reading the bill analyses for AB 1066, its crystal clear to me that the intent is to provide unemployment insurance benefits after four weeks of not working.  In other words, the “four weeks of the trade dispute” have to be continuous.
  3. For the public sector, I can’t think of a strike in recent times that lasted more than four continuous weeks. So this bill will practically have little effect on the public sector.
  4. However, I do believe the bill as written contains some ambiguity regarding the intent that the strike last a continuous four weeks. I’m specifically worried about intermittent strikes.  For example, if employees go on strike for 2 days on April 1st, and then go on strike again for two days on May 15th, would the employees striking on May 15th be eligible?  The intent is clear that they wouldn’t be eligible. But technically, the trade dispute would have lasted “four weeks” by that time. So ideally this language would be cleaned up to make that clear.

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Supreme Court: Not Yet Time to Examine “California Rule” On Pensions

Cal Fire Local 2881 et al. v. California Public Employees’ Retirement System et al. (State of California) (2019) Case No. S239958 (Issued on 3/4/19)

Today the California Supreme Court issued its long-awaited decision in the Cal Fire case. The issue was whether PEPRA unlawfully eliminated the opportunity for employees to purchase “air time” service credit. The Court held that because the Legislature did not intend to create a contractual right to the purchase of air time, there was no contractual impairment when that option was eliminated. Further, the Court held that air time was not a core pension right because it was not granted as deferred compensation for work performed.

However, all eyes were on this case to see whether the Court would take the opportunity to address the “California Rule” on pensions.  The Court declined the invitation:

The state and many amici curiae have urged us to use this decision as an occasion to re-examine the California Rule, the doctrine developed in our prior decisions defining the scope of constitutional protection afforded pension rights. … Underlying the California Rule is the constitutional contract clause, which prohibits state laws that impair contractual obligations. Because we conclude that California’s public employees have never had a contractual right to the continued availability of the opportunity to purchase ARS credit, the question of whether PEPRA worked an unconstitutional impairment of protected rights does not arise. … Our decision in this matter therefore expresses no opinion on the various issues raised by the state and amici curiae relating to the scope of the California Rule.

Comments:

  1. Based on the oral arguments, this holding was not unexpected. Indeed, the decision was unanimous (although Justice Kruger wrote a concurring opinion).
  2. Because the Court avoided addressing the California Rule, all eyes will now be on the Marin Ass’n of Public Employees v. Marin County Employees’ Retirement Ass’n case (Supreme Court Case No. S237460). That case has been on hold pending this case so there still needs to be briefing.
  3. To the extent one can “read into” this decision, I think it’s significant that the Court recognized the existence of a “California Rule” and even characterized the request of the State—made at the direction of Governor Brown—as seeking to modify or depart from the California Rule. Perhaps it is insignificant, but framing the issue as such potentially makes any change to the California Rule that much harder.

 

 

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