Budget-Related Furloughs: Employers Must Bargain Both Decision and Effects

This Advisor column was originally published in June 2010.

In recent years, the faltering economy has forced many public employers to get creative in finding ways to reduce expenditures. Unpaid furloughs have proven an attractive alternative to layoffs for some employers looking to trim costs. Unlike layoffs, furloughs allow employers to hold on to valued employees pending an economic recovery and avoid significant hits to the employer's unemployment benefits bill. Additionally, some employers believe that completely shutting down municipal governments on certain days (with certain exceptions, such as public safety operations) can more effectively show citizens the gap between municipal needs and budgetary pressures.

Until very recently, there was debate over the scope of a public employer's duty to bargain mandatory unpaid furloughs. Many employers believed that the decision to implement furloughs was a management prerogative that need not be bargained, and that an employer was only obligated to bargain the effects of such a decision. Various unions filed unfair labor practice charges challenging that position, and one of those charges has now been analyzed and decided by the Washington Public Employment Relations Commission (“PERC”). In King County, Decision 10547-A (PECB, May 19, 2010), the Commission affirmed a hearing examiner's decision that an employer is obligated to bargain both the decision and the effects of budget-driven employee furloughs.

Background Regarding the Duty to Bargain Decisions vs. Effects

The PERC has long drawn a distinction between the duty to bargain regarding “mandatory” subjects such as wages, hours and working conditions, and “permissive” subjects such as entrepreneurial matters relating to the type or scope of services to be offered. An employer must bargain decisions relating to mandatory subjects, as well as the effects of those decisions. As to permissive subjects, however, an employer is not obligated to bargain the decision itself, but only the effects of that decision on employee wages, hours and working conditions.

Of course, while the rule itself sounds fairly straightforward, it can often be difficult to determine whether a particular matter is a mandatory or permissive subject of bargaining. The PERC has recognized that certain matters can relate to both conditions of employment and management prerogatives. In such cases, the PERC has declared, it will apply a balancing test to determine which characteristic predominates. Entrepreneurial decisions such as whether to merge with another public agency or discontinue a particular program in its entirety have been deemed permissive subjects, as they involve fundamental determinations regarding the nature of the employer's operations. As to those permissive subjects, the employer is not required to bargain the decision itself, but only the impact of that entrepreneurial decision on the terms and conditions of employment.

How should employee furloughs be treated under this balancing test? Some employers have argued vigorously that a decision to shut down operations entirely on certain days must be a management prerogative, as it relates directly to the employer's managerial right to determine the scope of services offered to the public. Along the same lines, employers emphasize that a decision to reduce its budget via furloughs is inherently a management right that is not subject to bargaining.

The PERC's Decision in King County, Decision 10547-A

While public employers have been grappling with the economic crisis since at least 2008, it has taken a couple of years for furlough cases to make their way up through the system for review by the full PERC. The first case decided by the PERC on the duty to bargain employee furloughs involved an unfair labor practice charge filed by the Amalgamated Transit Union (“ATU”) against King County.

Relevant Facts. During the fall of 2008, it had become clear to King County that there were significant budget problems on the horizon. In order to develop a balanced budget for 2009, the County needed to reduce expenses significantly. Accordingly, the County contacted the King County Coalition of Labor Unions (a group of some, but not all, of the labor unions representing County employees), seeking the coalition's assistance in achieving budget savings. The ATU is not a member of the coalition.

Shortly thereafter, the County notified the coalition that the County would shut down all non-essential services for 10 days in 2009, and offered to bargain the effects of that decision. The County and coalition then engaged in effects bargaining, but did not negotiate over the furlough decision itself. These parties were able to reach a tentative agreement on the effects. Subsequently, the County notified the ATU of the agreement, under which certain County offices would be closed for 10 days during 2009. Because the plan impacted 65 ATU-represented employees by resulting in their furloughs for 10 days, the ATU demanded to bargain about both the furlough decision itself and the effects of that decision. The County did meet with the ATU regarding the furlough plan, and the ATU proposed various alternatives to furloughs. The parties were unable to reach agreement, however. The County advised the ATU in December 2008 that it remained willing to continue bargaining the effects of its decision, but proceeded to implement the first of its 10 furlough days in January 2009. The ATU's unfair labor practice charge followed.

PERC Finds Duty to Bargain Decision and Effects of Furloughs. A PERC hearing examiner found that the County committed an unfair labor practice when it unilaterally implemented mandatory furlough days without bargaining the decision or the effects of that decision to impasse and without obtaining an award through interest arbitration. On appeal to the full Commission, the County argued that the decision to implement furloughs fell squarely within its managerial prerogative because the decision to close County offices is inherently a decision related to the level of services that the County wishes to offer. The PERC rejected this argument, affirming the examiner's decision that the furloughs were a mandatory subject of bargaining.

The PERC endorsed the examiner's finding that the County's reason for implementing furloughs was to achieve labor savings, and not to eliminate services. Unlike a situation in which an employer is making a wholesale change to the scope of its operations, the PERC explained,

this employer's decision to close its offices does not constitute a programmatic change of any employer service, rather the decision to implement furloughs simply precludes certain services from being available on ten days of the year. The employer presented no evidence demonstrating that the decision to close certain offices was a strategic one based upon a study or experience, or that it was actually eliminating or making wholesales changes to its services. See Lapeer Foundry and Machine, Inc., 289 NLRB 952 (1988) (explaining the different bargaining obligations between decisions to reduce employee wages and decisions to modify the employer's business structure). Accordingly, the employer's argument that the decision to implement furloughs was based upon an entrepreneurial decision is not credible.

Decision 10547-A at 6.

No Business Necessity Excused Bargaining. Notably, the PERC went on to reject the County's defense that the furloughs were a business necessity. The PERC has explained that a business necessity may excuse bargaining where compelling practical or legal circumstances necessitate a unilateral change of employee wages, hours or working conditions. While an employer may be relieved from the duty to bargain a change dictated by a business necessity, it still must bargain the effects. In the King County case, the PERC found that while outside forces may have impacted King County's budget, no outside force compelled the employer to choose furloughs as the means by which to reduce its budget. The County could have, for example, followed the layoff provisions in its labor agreement or negotiated some other alternative.

Lessons Learned

Public employers around the state undoubtedly hope that the economy is beginning to turn the corner, and that further efforts to reduce budgets will not be necessary. For those jurisdictions that must continue looking for ways to reduce spending, however, furloughs remain a viable option. That said, in light of the PERC's decision in King County, employers seeking to use furloughs must be prepared to engage in and exhaust the collective bargaining process (including taking a matter through interest arbitration for interest arbitration eligible groups) prior to implementing furloughs. The lead time needed to ensure satisfaction of the bargaining obligation may, as a practical matter, prevent the use of furloughs in cases where an employer must move quickly to address a budget deficit and where the union involved opposes furloughs as a solution.