Employee Bonuses and the COVID-19 Pandemic

Editor's note: For an example of a local premium pay ordinance written to comply with the state prohibitions against retroactive pay increases for public employees, see Island County Resolution No. C-52-21 (August 17, 2021), which provides premium pay to certain employees for work performed after the resolution was adopted.

It seems non-controversial. Many government employees —  first responders, public hospital workers, transit drivers, and others — have worked hard during the COVID-19 emergency to provide essential services to the public, in some cases at considerable risk to their health and safety. If a local government wants to reward those employees with a bonus, applied after the fact (retroactively), it can do so, right?

Perhaps not. Washington law places significant restrictions on the ability of local governments to provide premium pay or bonuses to employees based on work already performed. The reason for this is that if an employee has already been paid for work performed, it is an improper use of public funds to pay that employee a second time (in the form of an additional, after-the-fact payment).

This blog will consider whether local governments may give bonuses to employees for working through the COVID-19 pandemic.

Washington’s Prohibition on Retroactive Pay Increases

Two provisions in the Washington Constitution come into play. First, Article 2, Section 25 provides in part that:

 [t]he legislature shall never grant any extra compensation to any public officer, agent, employee, servant, or contractor, after the services shall have been rendered, or the contract entered into…

Although this constitutional provision references only the legislature, Washington courts have interpreted it to apply to local governments as well.

Article 8, Section 7, which prohibits gifts of public funds, also plays a role since a retroactive increase in compensation could be construed as a payment not supported by consideration — i.e., a gift.

Therefore, as a general matter, increases in pay should apply to future work. The MRSC webpage on Employee Recognition Programs states as follows:

Local governments, like private sector employers, may wish to acknowledge their employees, recognizing their achievements and rewarding their efforts to make government more responsive, efficient, and cost effective. Unlike their private counterparts, however, local governments must consider constitutional prohibitions against gifts if they intend to reward employees with cash, dinners, prizes, etc.

Cities and towns of all classes have authority to establish and administer employee incentive programs for their employees, so long as the program and appropriately definite performance standards are established before the period covered by the program.

The Washington Attorney General (AGO 1995 No. 13) provides additional analysis of why local government employers are prohibited from increasing pay or providing bonuses for work already performed:

To ensure that employee incentive programs are consistent with these constitutional restrictions, incentives and awards should be provided only for meeting established performance standards or goals that exceed normal employment requirements. Such incentives and awards also should be structured as a component of the compensation in return for which city or county employees provide their services, in such a way that the employees have an expectation of earning the incentives or awards when they are performing their work. This would preclude purely retroactive increases in compensation, including bonuses where the employer decides “after the fact” that one or more employees should receive extra compensation for past services.

Under this analysis, employee incentives and recognition programs are permissible only when they apply to work performed after the incentive or recognition program is adopted.

Retroactive Pay Increases and COVID-19

In an April 6, 2020 memo, the Washington Attorney General’s Office noted that there is some flexibility regarding the prohibition of gifts of public funds in connection with loans and grants to low-income individuals and small businesses based on the impacts of the COVID-19 pandemic. However, there has not been guidance on whether essential workers may be rewarded financially for continuing to do their jobs during a pandemic.

In non-emergency times, if a public employer wanted to provide bonuses or premium pay to a group of employees, MRSC would recommend setting up the program at the outset and paying any such bonus moving forward based on the state constitution and AGO 1995 No. 13. What is different about the COVID-19 pandemic is that local governments really could not have anticipated its impact on employees when the emergency began in March 2020.

Nevertheless, it appears that there is not a clear legal path for a public employer wanting to reward employees who stayed on the job under difficult and dangerous circumstances that were not foreseeable at the outset.

Does ARPA Make a Difference?

The American Rescue Plan Act (ARPA) authorizes premium pay to essential workers but it does not change or preempt state law. Therefore, while ARPA itself authorizes premium pay with ARPA funds, it does not change the restrictions in state law on retroactive pay. A local government employer does have the option of adopting a prospective policy for premium pay, and ARPA funds could then be used for such a purpose.

Towards a Policy on Emergency Work

Emergencies are becoming more common. Between wildfires, flooding, the risk of earthquakes, tsunamis, and pandemics, emergencies are no longer infrequent and isolated events. A local government could consider adopting a policy now that would give it the ability to authorize premium pay or bonuses to essential workers under specified circumstances during future emergencies. Any such policy should note that bonuses will be provided if funding allows, and as determined by the governing body.

If your agency develops such a policy, please remember to share it with MRSC!