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October 2, 2010

California Supreme Court Upholds Implemented Furloughs of State Employees

The California Supreme Court recently upheld the Governor’s unilaterally-implemented mandatory furloughs of represented state employees. [Professional Engineers in California Government et al. v. Arnold Schwarzenegger et al. (California Supreme Court Case No. S183411, October 4, 2010).] The Court determined that the Budget Act of 2008 “reasonably included the furlough plan that was then in existence,” and therefore the Legislature approved the Governor’s furlough plan as required by law. The Court’s ruling was premised on state law that specifically requires the Legislature to approve provisions of memoranda of understanding requiring the expenditure of state funds in the annual Budget Act.

The Court’s interpretation of the applicable collective bargaining law impacts other public employers seeking to impose furloughs on represented employees. The Court held that the “emergency” statutes included in the
Dills Act (which governs collective bargaining by state employees) did not “constitute a source of substantive authority for the [employer] to take any particular type of action regarding the terms and conditions of employment.”
The statutory language at issue is very similar to the “emergency” language found in the Meyers-Milias-Brown Act (which applies to Cities, Counties, and Special Districts) at Government Code section 3504.5. In sum, the Court
held that furloughs are a mandatory subject of bargaining, unless expressly authorized by a governing collective bargaining agreement or if there is some other statutory source.


On December 1, 2008, Governor Arnold Schwarzenegger declared a fiscal emergency, called the Legislature into special session, and submitted to the Legislature a comprehensive plan to address the budget problem. On
December 18, 2008, the Legislature passed its own proposed budget that did not include a furlough provision that the Governor had recommended. The following day, the Governor issued an executive order mandating
a two-day per month unpaid furlough for most state employees. Various unions filed lawsuits contending that the Governor lacked the authority to unilaterally implement a furlough on represented employees. The trial
court issued a decision concluding that the Governor possessed the authority to impose the furlough in response to the fiscal emergency facing the state. The unions appealed to the Court of Appeal; however, the California Supreme Court exercised its authority to transfer the consolidated cases directly to it for oral argument and decision.

Legislature’s Authority to Reduce Compensation

The Court rejected most of the Governor’s arguments in support of his unilateral authority to impose furloughs on represented employees. The Court first held that neither the California Constitution nor the Government Code grant the Governor the inherent authority to impose furlough days. The Court stated that the Governor only possesses the authority to unilaterally impose a furlough if an applicable memorandum of understanding (MOU) grants such authority. In analyzing the applicable MOUs, the Court stated that there was considerable doubt as to whether they gave the Governor that authority. The Court also rejected the Governor’s argument that an “emergency” existed authorizing him to unilaterally impose the furlough. The Court broadly held that the “emergency” provision only allows for unilateral action if there is some other source of authority for the action at issue.

The Court then held that the Legislature has the prerogative under the Dills Act to authorize the reduction of employee compensation. The Court found that Government Code section 3517.6(b) provided the separate source of authority for the furloughs. Section 3517.6(b) states that “f any provision of the memorandum of understanding requires the expenditure of funds, those provisions of the memorandum of understanding may not become
effective unless approved by the Legislature in the Annual Budget Act.” Thus, the Legislature retained the ultimate control (through the budget process) over expenditures of state funds required by the provisions of an
MOU. The 2008 Budget Act (which was approved by the Legislature in mid-February 2009) included language reducing appropriations for employee compensation in an amount that reflected the savings that the
Governor had sought through the twoday per month furlough. By reducing appropriations, the Legislature no longer approved the higher salaries in effect before the furloughs.

What Does this Decision Mean for MMBA Agencies?

The primary holding of this case is applicable only to the state. However, some of the Court’s reasoning is relevant to local agencies. First, it is important to recognize that a furlough is within the scope of representation and
cannot be unilaterally imposed unless there is language in an applicable MOU authorizing such action. The Court recognized this by stating, “There can be little question that the issue whether an employee’s wages may be reduced by the implementation of a mandatory furlough lies at the heart of the matter of ‘wages, hours, and other terms and conditions of employment.’”

Second, the Court has shed light on its view of the “emergency” language found in the Dills Act at Government Code section 3516.5. This provision is similar to the “emergency” language found in the MMBA at Government
Code section 3504.5. The Court concluded that this language does not provide an independent source of authority for an employer “to take any particular type of substantive action” in an emergency situation. In essence, the Court stated that there must be “some other source” of authority allowing an employer to “take a particular type of action relating to matters within the scope of representation.”

Finally, an agency must carefully review an applicable management rights clause before determining whether it can unilaterally implement a furlough. Here, the Court rejected this argument where the management rights clause allowed the employer could take actions “to the extent consistent with the law and the MOU.” The Court held that this language suggests that the management rights clause “was not intended to override all of the other, more specific provisions of the MOU governing wages, hours, and other terms and conditions of employment.”


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