Judge Approves Stockton Bankruptcy Plan - Saves CalPERS Investment

In a decisive win for public employees, Judge Christopher M. Klein today ruled in favor of Stockton's bankruptcy plan of adjustment, preserving the city's contract with CalPERS. The judge noted that the bankruptcy cuts had already reduced compensation below market. Hopefully this ruling will help stabilize police recruitment and retention in Stockton which has been unable to fill vacant police positions and has experienced a loss of nearly half its veteran officers over the last 3 years.

Earlier this month, Judge Klein had ruled that bankruptcy law preempted state law barring the impairment of CalPERS pensions in bankruptcy. City officials acknowledged that if the pensions were impaired they would experience a further exodus of police officers and city employees, who would have to obtain employment in another CalPERS or reciprocal agency within six months to retain their classic employee pension status under PEPRA. Judge Klein noted that re-doing the entire pension system would be no simple task. To even compete in the labor market, the City would also have to establish a new similar pension system that might be more expensive than CalPERS.

Judge Klein also held that PERS is not the creditor that would suffer the impairment. He found that the employees would receive the pension cuts, not PERS, and that employee compensation must be considered as a whole, including pension obligations. Many Stockton employees, including the police department, had made considerable sacrifices to keep the city afloat. These sacrifices included eliminating retiree health care completely, cutting salaries for current employees by 20-30%, reducing pensions for new hires, and requiring employees to contribute to their pensions. The Judge held that these changes were the result of long, difficult negotiations between labor organizations and the city. Judge Klein held that labor agreements cannot easily be set aside and recognized the importance of those negotiations and post-bankruptcy labor agreements.

Judge Klein concluded his ruling by issuing a stern warning to other public entities considering Chapter 9 bankruptcy. As the City's attorneys fees alone totaled nearly $14 million, Judge Klein stated that the high costs exceeded expectations and present a sobering lesson why municipalities should not file for bankruptcy. The objecting creditor, Franklin Templeton's, attorney told Judge Klein:  "Obviously, we're disappointed by your ruling. We will evaluate our next steps."

PERB Vindicates Right of Public Safety Professionals to Wear Union Insignia on Duty

In a decisive win for labor, the Public Employment Relations Board (PERB) overturned an administrative law judge and held firefighters at Sacramento’s airports have the right to wear Sacramento Area Fire Fighters, IAFF Local 522 union logos on duty.

The case has statewide importance for two reasons. First, the ruling means public safety professionals, such as firefighters and peace officers who were a uniform, still have the right to wear union insignia on duty. Second, firmly established that the right to wear union insignia cannot be limited to pins, but includes other apparel such as T-shirts, caps, and clothing.

In County of Sacramento (2014) PERB Decision No. 2393-M, firefighters wanted to wear union logos on the Class B uniform t-shirts, caps, and sweatshirts. Local 522 provides the apparel at cost to firefighters it represents throughout the Sacramento area. The Local 522 apparel conforms to uniform specifications and includes the union logo.

For a time, firefighters were allowed to wear the union logo apparel occasionally. In October, firefighters wore pink versions of their union logo apparel to support breast cancer awareness. There were no operational problems or complaints. Then, the County ordered the firefighters not to wear “hats, T-shirts and sweatshirts with the union logo” and announced it would discipline any firefighter who wore the union logo.

Local 522 filed an unfair practice charge with PERB, alleging the prohibition against wearing the Local 522 logo interfered with their rights under the Meyers-Milias-Brown Act, one of California’s public sector collective bargaining statutes. Local 522 members expressed their strong desire to support and show solidarity with their union which they had worked hard to join by wearing union apparel on duty.

The County claimed the firefighters did not have the right to wear union insignia on their Class B uniform. It claimed that since the firefighters wore public safety uniforms, the County had the right to ban union insignia since they were not part of the uniform. The County also claimed union members only have a right to wear small union pins, not other kinds of union apparel.

PERB rejected the County’s arguments and upheld the right of Local 522 members to wear the union logo. PERB held the “fundamental right to wear union insignia at work” applies equally to employees who wear public safety uniforms. PERB rejected the notion that a union member’s right to wear union insignia is limited to wearing pins, noting, “The County offers no logical argument why a protected right to wear union insignia transforms into an unprotected right because the insignia appears on clothing rather than an object that is attached to clothing.”

Thus, PERB held the County had to demonstrate there was a special circumstance justifying the restriction on wearing the union logo. The County provided no evidence of a special circumstance and the evidence showed several other agencies permit firefighters to wear union insignia at work without incident. Thus, PERB decided the County violated Local 522 members’ rights and ordered it to cease and desist and post notice of its violation of state law.

Local 522 was represented in the matter by Jeffrey R. A. Edwards, a senior associate at Mastagni Holstedt, APC.

Court of Appeal Publishes Indio Opinion After Requests Filed by PORAC LDF, Upland POA

The California Court of Appeal issued an order directing the publication of its earlier case Indio Police Command Unit Association v. City of Indio. As previously noted on this blog, in that case the court upheld an award of attorney's fees based on the injunction noting that the association's lawsuit enforced an important public interest.

Regarding the labor relations issue, the Court of Appeal held that the City violated its meet and confer obligations under the Meyers-Milias-Brown Act (MMBA). The police chief advised the PCU's counsel of his intention to implement a "strategic reorganization" plan of the department's command structure, which would eliminate the captain and four lieutenant positions, and result in the demotion of certain PCU members and the layoff of one PCU member. The police chief then asserted that he could implement this reorganization plan without providing an opportunity to bargain.

The Court of Appeal rejected the City's argument. Generally, an employer's action is subject to the mandatory bargaining requirements of the MMBA if it will have a significant effect on wages, hours, and other terms and conditions of employment, including a permanent transfer of work away from a bargaining unit. Here, the City plan would eliminate certain positions represented by the PCU, demote some of the officers, resulting in the loss of wages and seniority, and layoff at least one PCU member. The plan, therefore, would have a significant impact on wages, hours, and other terms and conditions of employment and the City had an obligation under the MMBA to meet and confer over it.

Originally the case was unpublished, meaning that no other party could cite to it as support for their legal arguments. However, recognizing the importance of this case to public safety labor associations, PORAC LDF and the Upland POA filed requests that the court publish its decision. On October 9, 2014 the court granted that petition allowing all attorneys to rely on this strong precedent to enforce the rights of public service employees.  Mastagni Holstedt attorney Jeffrey R. A. Edwards filed the request on behalf of PORAC LDF. Upland POA President Moe Duran filed the request on behalf of Upland POA.

Stockton Bankruptcy Ruling May Not Have Practical Affect on Employee Pensions

During Stockton bankruptcy proceedings on Wednesday, October 1, 2014, Judge Klein stated the City could reject the CalPERS contract under the bankruptcy code. Pension reform supporters overstate Judge Klein's oral ruling as a major blow to public employee pensions. In reality, this ruling may not affect Stockton employee pensions.

Judge Klein heard oral arguments from the City and its creditors about whether the contract between CalPERS and the City could be rejected in bankruptcy. The City's proposed bankruptcy plan maintains the City's CalPERS obligations and preserves employee pensions. One of the City's creditors, Franklin Templeton Investments, argued it was unfair for the City to maintain its contract with CalPERS at the expense of other creditors. State law provides that CalPERS contracts may not be impaired in bankruptcy. However, the state law contradicts the bankruptcy code, which allows impairment of contracts that have not been fully performed. Judge Klein ruled the City could cut ties with CalPERS under the bankruptcy code and impair employee pensions to allow more money for other creditors.

While this ruling suggests pensions may be vulnerable during municipal bankruptcies in the future, it is unlikely to affect pensions in this case. Judge Klein's oral ruling is not yet binding. He is scheduled to rule on the City's proposed plan on October 30, 2014. If he confirms the plan, this issue is avoided altogether because the current plan does not impair the CalPERS contract.

Even if the City has the option to reject the CalPERS contract, the City recognizes doing so would be highly impractical. The costs of losing the CalPERS contract greatly outweigh any potential benefits. This would force Stockton to join another retirement system, such as the San Joaquin County Employee Retirement Association, or create its own retirement system. Both options would likely cost at least as much as maintaining its CalPERS contract. 

If the City lost its contract with CalPERS, it may not be able to offer pensions to employees. The City estimated it could only recover 60% of the money necessary to fund its employees' pensions if CalPERS terminated its contract. Losing employee pensions would make the City unfit to compete in the labor market. This would inevitably cause a mass exodus of employees from the City and make it extremely difficult to attract new employees. Under PEPRA, Stockton employees would have to start working for another CalPERS contracting agency within six months after CalPERS terminates its contract with the City to avoid being treated as "new employees" and subjected to significantly worse pension formulae and cost-sharing rules.

Terminating the CalPERS contract would also throw the entire bankruptcy proceeding back into chaos. It would breach most, if not all, labor agreements as well as the settlement the City negotiated for retiree medical. The City would be forced to revise its current plan and reallocate the available funds. Additionally, it would give CalPERS a claim in the bankruptcy worth well over $1 billion.

In short, while the ruling is disconcerting, there is a significant chance this will not have any practical affect on Stockton employee pensions.