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June 27, 2013

City of Los Angeles Required to Arbitrate Furloughs Dispute

On June 20, 2013, the California Supreme Court (“the Court”) issued its decision in City of Los Angeles v. Superior Court (Los Angeles Super. Ct. No. BS126192).  The Court overturned the Court of Appeal’s decision below and ruled that arbitration of the dispute regarding the City’s furlough program does not constitute an unlawful delegation of discretionary authority to the arbitrator and therefore, that the City is contractually obligated to arbitrate the employee furloughs dispute.

In City of Los Angeles, approximately 400 city employees represented by the Engineers & Architects Association filed grievances in response to the City of Los Angeles’ (“City”) use of a furlough program to address a mounting fiscal crisis.  At the time, the City was facing a deficit in excess of $500 million dollars.  To address the anticipated budget shortfall, the City Council declared a fiscal emergency and passed a resolution directing the Mayor to adopt a plan to furlough city employees for up to 26 days per fiscal year.  The mayor adopted a plan that required civilian city employees to take one unpaid furlough day during each 80-hour pay period.  Despite the evidence that the City was facing an unprecedented fiscal emergency, the city employees argued that the furloughs violated the wage and work week provisions of the Memoranda of Understanding (“MOU”) governing their employment.  The City denied the grievances at each level of review.  Under the terms of the MOUs, the final step of the grievance process was submission of the dispute to binding arbitration before the City’s Employee Relations Board.  The City refused to arbitrate the grievances and asserted that its decision to impose mandatory furloughs was not subject to arbitration.
The Union filed a petition in superior court to compel arbitration of the furloughs dispute, which was granted.  The City petitioned the Court of Appeal for a writ of mandate and the petition was granted.  The Court of Appeal concluded that any agreement to arbitrate was unenforceable because binding arbitration of the dispute would improperly delegate to the arbitrator the City’s discretionary salary-setting and budget-making authority.

The Court disagreed with the Court of Appeal’s conclusion that arbitration of the furloughs dispute would involve a surrender or delegation by the City of its discretionary powers to set salaries and fix the budget.  Instead, the Court reasoned that by ratifying the MOUs, the City made discretionary choices in the exercise of its salary-setting and budget-making authority.  The Court did not believe an arbitrator would be exercising any discretionary authority by deciding whether the furlough program violates the terms of the MOU.  Instead, the arbitrator’s role would be confined to interpreting the MOUs for the purpose of determining whether the furlough program violates the terms of the MOUs.

The Court also considered whether the City has a contractual duty to arbitrate the employee furloughs dispute.  Under the MOU’s arbitration provision, the City assumed a general contractual obligation to arbitrate disputes concerning the interpretation of the MOUs.  The Court found that the employee furlough dispute was indeed the type of issue that involved an interpretation of the MOUs and was subject to arbitration.  It also rejected the City’s argument that the Management Rights Clause of the MOU exempted the dispute from arbitration.

Lastly, it is worth noting that, especially in recent years, the California Supreme Court has handed down many of its decisions in unanimous fashion.  In this case, however, the Court was split 4-3.  There was a very long and forceful dissent, signed by Justices Corrigan, Chin and Baxter, which argued that the majority misread the language in the contract and deprived the City "of its rightful authority to act in a fiscal emergency.”  Consequently, the City plans to file a Petition for Rehearing.

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