Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. CPF 09 509993
NEEDHAM, J.
Respondent the City and County of San Francisco (City) laid off over 500 employees who were represented by appellant Service Employees International Union 1021 (Union) under a collective bargaining agreement (CBA). Union challenged the layoffs by filing a grievance alleging that the layoffs were not, in fact, necessitated by a lack of funds, and that the City had violated other aspects of the CBA. After that grievance was rejected, Union filed a petition to compel arbitration, which the City opposed. (Code of Civ. Proc., § 1281.2.) The trial court denied the petition, concluding that the layoffs were based on a lack of funds and consequently, were the result of a management decision that is not subject to arbitration under the CBA.
Union argues on appeal that the case should have been ordered to arbitration to determine whether the layoffs were necessary and to resolve ancillary allegations concerning lack of notice, “bumping” rights for workers being laid off, discrimination and retaliation in the selection of the employees to be laid off, and the City’s failure to negotiate in good faith about the impact of the layoff. This court issued an opinion affirming the judgment, reasoning that substantial evidence supported the superior court’s conclusion that the layoffs were based on a lack of funds and were not arbitrable under the CBA. (Service Employees International Union 1021 v. City and County of San Francisco (Jan. 10, 2011, A128046) [nonpub. opn.].) The California Supreme Court granted Union’s petition for review and transferred the matter back to us with directions to vacate our decision and reconsider the cause in light of its recent decision in International Assn. of Fire Fighters, Local 188, AFL-CIO v. Public Employment Relations Bd. (2011) 51 Cal.4th 259 (International Fire Fighters), issued two weeks after our original decision in this case.
“Bumping” rights generally entitle an employee with more seniority to take the position of an employee with less seniority. (Daniels v. Shasta–Tehama–Trinity J. Community College Dist. (1989) 212 Cal.App.3d 909, 925.)
Having reconsidered the issues in light of International Fire Fighters, we now conclude that the petition to compel arbitration should have been granted. Although the trial court properly determined that the layoff decision itself was based on a lack of funds and was beyond the scope of arbitration under the CBA, other issues raised by the Union’s grievance involved the implementation of that decision and were subject to arbitration. We reverse the order denying the petition to compel arbitration.
I. FACTS AND PROCEDURAL HISTORY
Union is an employee organization within the meaning of Government Code section 3500 et seq., known as the Meyers-Milias-Brown Act (MMBA). It represents several classifications of City employees under the auspices of the CBA, effective July 1, 2006 through June 30, 2011. The CBA establishes a grievance procedure applicable to “any dispute which involves the interpretation or application of, or compliance with this Agreement, discipline or discharge.” The fourth and final step of this grievance procedure is binding arbitration.
A “Management Rights” clause contained in paragraph 12 of the CBA provides, “Except to the extent there is contained in this Agreement an express and specific provision to the contrary, nothing herein shall be construed to restrict any legal city rights concerning direction of its work force, or consideration of the merits, necessity or organization of any service or activity provided by the City. The City shall also have the right to determine the mission of its constituent departments, officers, boards and commissions; set standards of services to be offered to the public; and exercise control and discretion over the city’s organization and operations. The City may also relieve employees from duty due to lack of work or funds, and may determine the methods, means and personnel by which the City’s operations are to be conducted.” This provision is consistent with section A8.409 of the San Francisco City Charter: “In accordance with applicable state law, nothing herein shall be construed to restrict any legal City rights concerning direction of its work force, or consideration of the merits, necessity, or organization of any service or activity provided by the City. The City shall also have the right to determine the mission of its constituent departments, officers, boards and commissions; set standards of services to be offered to the public; and exercise control and discretion over the City’s organization and operations. The City may also relieve City employees from duty due to lack of work or funds, and may determine the methods, means and personnel by which the City’s operations are to be conducted.”
Beginning in 2009, the City decided to lay off large numbers of its employees due to the nationwide recession and resulting budget shortfalls. In the early spring, Union agreed to forego holiday pay on ten legal holidays and the City agreed to postpone further layoffs until after November 15, 2009. On June 23, 2009, the City board of supervisors approved an amended version of the CBA that included paragraph 137: “Between the date of ratification of this agreement through November 15, 2009, the City shall not effectuate any additional new layoffs of any represented employees.” The amendment did not prohibit layoffs after that date.
In mid-September 2009, the City notified over 500 employees represented by Union that they were being laid off effective November 16 or November 30, 2009. As acknowledged in a declaration signed by Andre Spearman, a field team supervisor of Union, representatives from the City and Union met “numerous times” between October 6 and November 5, 2009.
On October 26, 2009, Union submitted a grievance alleging that “[n]o ‘lack of funds’ justifies the layoffs.” The grievance also alleged that the layoffs violated provisions in the CBA regarding discrimination, retaliation, notice, meet and confer requirements, and bumping rights. The remedy requested by the grievance was the immediate rescission of layoff notices and the reinstatement of employees with compensation for lost pay, benefits and interest. The City responded to the grievance by sending a letter to Union asserting that it (the City) had an unrestricted right to lay off employees due to lack of work or funds and noting that Union had failed to make any factual allegations supporting the claims of lack of notice and discrimination.
On November 12, 2009, Union filed a petition to compel arbitration. The petition alleged, “Since on or about October 26, 2009 and continuing to date, a dispute has existed over the interpretation or application of provisions of the [CBA].” A copy of the grievance was attached as an exhibit and incorporated by reference. The City filed opposition, asserting that the layoffs were due to a lack of funds and were not arbitrable. It relied primarily on the decision in Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644 (Engineers).)
In support of its opposition, the City presented the declaration of Kerry Ko, the client services director from the San Francisco Department of Human Resources who managed the layoff process. According to Ko, “Like most municipalities around the state and around the country, the City faced an enormous budget shortfall for the 2009-10 fiscal year, and is currently facing another crisis as its revenues decline. As a result, the City has had to lay off a significant number of employees”
The City also presented the declaration of Greg Wagner, the director of the Mayor’s Office of Public Policy and Finance: “The California Constitution, City Charter and Administrative Code require the Mayor to submit a balanced budget to the Board of Supervisors each year by June 1. [¶] [¶].... The weak economy and delayed economic recovery in California, and the Bay Area in particular have dramatically and adversely impacted the City’s fiscal condition over the past year. Anticipated tax and other revenues have decreased significantly. Revenues from the State of California to the City have also been considerably reduced. Given the State and local economy, the City has faced considerable challenges in balancing the current year’s budget. The City eliminated a $575.6 million projected General Fund budget shortfall in preparing its 2009-2010 budget. [¶]... The City worked to eliminate service cuts to the greatest extent possible, although service cuts and the reduction of some programs was necessary to balance the budget, along with the elimination of City positions. [¶] Balancing the FY 2009-2010 budget as required by the City Charter necessitated position eliminations. Of the City’s $3.05 billion General Fund budget for FY 2009-10, 49.5% is used to pay for salaries and benefits of City employees. Because salaries and benefits are such a large share of City expenditures, the City found it necessary to eliminate certain positions to balance its budget. The City’s final 2009-10 budget included a reduction of 1, 080.17 full-time equivalent positions compared to the prior fiscal year.”
Wagner’s declaration went on to explain that his office was currently working with the Controller to project the fiscal year 2010-2011 budget deficit; that they predicted a reduction of $62.2 million in revenue as compared to 2009-2010; that if the City did not proceed with the scheduled layoffs it would not be able to balance the budget without reducing other expenditures; and that the shortfall could not be met by the general fund reserve if losses or expenditures exceeded the amount of those funds.
The trial court denied the motion to compel arbitration. Citing Engineers, supra, 30 Cal.App.4th 644, it concluded, “A severe budget shortfall resulted in the employee layoffs that are the subject of this Petition. The layoffs are an exclusive management decision which does not properly come before an arbitrator.”
II. DISCUSSION
The CBA and the San Francisco City Charter give the City the right to lay off employees based on the lack of funds. These provisions are consistent with the MMBA, under which “a local public entity may unilaterally decide that financial necessity requires some employee layoffs.” (International Fire Fighters, supra, 51 Cal.4th at p. 276.) The superior court denied the petition to compel arbitration because it interpreted Union’s grievance as a challenge to the City’s determination that layoffs were financially necessary. Union argues that this was error because the grievance also raised arbitrable issues concerning the implementation of the layoffs.
Code of Civil Procedure section 1281.2 provides, “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists.... [¶].... [¶].... [¶]... [¶] If the court determines that a written agreement to arbitrate the controversy exists, an order to arbitrate a controversy may not be refused on the ground that the petitioner’s contentions lack substantive merit.” The question of arbitrability and the scope of the issues to be arbitrated is determined by the trial court, not the arbitrator. (Engineers, supra, 30 Cal.App.4th at pp. 652-653.)
The right to compel arbitration depends upon an agreement to arbitrate. (Engineers, supra, 30 Cal.App.4th at p. 653.) Doubts as to whether an arbitration clause covers a particular controversy should be resolved in favor of arbitration, but there is no public policy favoring arbitration when the parties have not agreed to resolve a dispute in this manner. (Id. at pp. 652-653.) “[W]hile the trial court must not decide the merits of an alleged controversy when ruling upon a petition to compel arbitration, it must nevertheless determine the threshold question of whether the petition adequately alleges facts demonstrating the existence of an arbitrable controversy.” (Graphic Arts Internat. Union v. Oakland Nat. Engraving Co. (1986) 185 Cal.App.3d 775, 780.) When the trial court’s decision on arbitrability is based on the resolution of disputed facts, we review the decision for substantial evidence, presuming the trial court found every fact and drew every inference to support its ruling. (Engineers, at pp. 652-653.) Issues of law are reviewed de novo. (Laswell v. AG Seal Beach, LLC (2010) 189 Cal.App.4th 1399, 1406.)
Here, the CBA defined a grievance as “any dispute which involves the interpretation or application of, or compliance with this Agreement, discipline or discharge, ” and required the parties to arbitrate those grievances which were not resolved at earlier stages of the grievance procedure. But it also gave the City the unfettered right to relieve employees based on a lack of funds, thus exempting such decisions from collective bargaining and the grievance process established under the CBA. Put another way, there is no agreement to arbitrate a decision to lay off employees that is based on a lack of funds.
A similar issue was presented in Engineers, supra, 30 Cal.App.4th 644, in which the court considered the arbitrability of a grievance brought by a public employees’ organization. As in this case, the city charter and collective bargaining agreement granted the city the exclusive right to relieve city employees for lack of work or lack of funds. (Id. at pp. 650-651.) The organization filed a grievance on behalf of an employee who was laid off on this basis, alleging that the financial reasons for the layoff were pretextual. (Id. at pp. 648-649.) The trial court rejected the organization’s petition to compel arbitration of the issue, resolving the conflicting evidence regarding the reason for the layoff in favor of the city. (Id. at p. 649.) The appellate court affirmed, deferring to this factual determination and concluding that because the layoff was based on a lack of work/lack of funds, it was a management decision within the city’s prerogative and was not subject to arbitration in light of the city charter and collective bargaining agreement. (Id. at pp. 650, 654-655.)
Here, the evidence presented by the City in its opposition to the motion to compel arbitration included the declaration of Greg Wagner, which outlined in some detail the drop in revenues that accounted for the budget shortfall. Also presented was the declaration of Kerry Ko, explaining the financial motivation of the layoffs. Though Union alleged in its grievance that the City could save money in other areas without the layoffs, this did not contradict the City’s evidence that the layoffs were being made for financial reasons and that a balanced budget required the elimination of job positions. Substantial evidence supports the trial court’s conclusion that the layoff decision arose from a lack of funds. (See Engineers, supra, 30 Cal.App.4th at pp. 654-655.) Like the appellate court in Engineers, we defer to this determination and conclude the layoff decision itself was not an appropriate subject for arbitration.
This does not end our inquiry. Union’s grievance did not simply challenge the layoff decision, it also alleged that the manner in which the layoffs were implemented violated a number of provisions in the CBA: paragraphs 16 (which sets out the “objective of the parties” to maintain programs and public service jobs to the extent possible), 62 (prohibiting discrimination based on race, gender and similar categories), 71 (prohibiting discrimination and retaliation based on union activity) 121 (requiring use of city-wide “bumping” rights for workers who are being laid off), 123 (requiring minimum of 60 days notice for layoffs) and 125 (requiring City to meet and confer with Union after notice of layoffs have been sent to consider alternative proposals and/or the impact of the layoff). Union contends that these ancillary issues were arbitrable under the CBA, even if the underlying layoff decision was not.
We reject this claim with respect to paragraph 16, which provides in full, “Recognizing the challenging fiscal realities facing San Francisco and the State of California, the parties agree that in order to preserve City services and employment, they must work cooperatively to identify operational efficiencies, explore additional sources of revenue, and, if necessary, reduce the size of the City workforce through attrition, retraining, and reorganization. The parties further agree that it is in their mutual interest to avoid unnecessary reductions in direct public services and to prevent existing City employees from becoming jobless and therefore they mutually agree that they shall focus their efforts to maintain programs and public service jobs to the fullest extent possible.” The claim that City violated this provision is effectively an argument that the City should have reduced its expenditures in other areas or obtained new revenues, rather than resorting to layoffs. As such, it is a challenge to the City’s determination that layoffs were a financial necessity and is not a proper subject of arbitration. (See Engineers, supra, 30 Cal.App.4th at pp. 650, 654-655.)
The remaining allegations in the grievance, which pertain to discrimination, retaliation, bumping rights, notice, and meet and confer requirements, do not directly challenge the underlying decision to lay off workers based on financial considerations. Instead, they are claims that City violated particular provisions in the CBA when implementing the layoffs. As such, they do not fall within the “Management Rights” provision of the CBA, and are an appropriate subject of the grievance procedure, including arbitration. Engineers does not require a different result, because in that case the employee organization had limited its grievance to a claim that the layoff at issue was unnecessary and pretextual, and did not allege other violations of the collective bargaining agreement. (Engineers, supra, 30 Cal.App.4th at pp. 648-650.) The trial court should have compelled arbitration of the ancillary claims in Union’s grievance that the City violated paragraphs 62, 71, 121, 123 and 125 of the CBA.
This result is consonant with the Supreme Court’s recent decision in International Fire Fighters, in which a union claimed that the Public Employment Relations Board (PERB) had improperly dismissed its charge that the City of Richmond engaged in unfair labor practices by refusing to bargain over a decision to lay off firefighters. (International Fire Fighters, supra, 51 Cal.4th at p. 264.) After determining that judicial review of PERB’s decision was appropriate under the narrow circumstances presented, the court considered the extent to which cost-saving layoffs were a mandatory subject of collective bargaining under the MMBA. (Id. at pp. 267-271.)
The court noted, “Under the MMBA, the scope of representation [for purposes of collective bargaining] covers ‘all matters relating to employment conditions and employer-employee relations, including, but not limited to, wages, hours, and other terms and conditions of employment, except, however, that the scope of representation shall not include consideration of the merits, necessity, or organization of any service or activity provided by law or executive order.’ ” (International Fire Fighters, supra, 51 Cal.4th at p. 272, citing Gov. Code, § 3504.) Acknowledging the “vague, seemingly overlapping” nature of this definition, the court explained that some decisions by public employers directly affect the terms and conditions of employment and yet fall with the “retained freedom” of the employer to manage its affairs. (International Fire Fighters, at pp. 272, 273.)
Balancing the interests involved, the court stated the following rule: “[U]nder the MMBA, a local public entity that is faced with a decline in revenues or other financial adversity may unilaterally decide to lay off some of its employees to reduce its labor costs. In this situation, a public employer must, however, give its employees an opportunity to bargain over the implementation of the decision, including the number of employees to be laid off, and the timing of the layoffs, as well as the effects of the layoffs on the workload and safety of the remaining employees.” (International Fire Fighters, supra, 51 Cal.4th at p. 277, italics added; see also Los Angeles County Civil Service Com. v. Superior Court (1978) 23 Cal.3d 55, 64; Fire Fighters Union v. City of Vallejo (1974) 12 Cal.3d 608, 621-622.) The ancillary claims in Union’s grievance involve the implementation of the layoff decision, including the number and identity of the employees to be laid off (discrimination, retaliation and bumping rights under paragraphs 62, 71 and 121), the timing of the layoffs (notice under paragraph 123), and the effect of the layoffs on remaining employees (meet and confer requirement to consider impact of layoff under paragraph 125).
The City argues that the layoff decision/layoff implementation dichotomy of International Fire Fighters does not apply because Union is seeking to compel “grievance arbitration, ” which concerns the interpretation of an existing collective bargaining agreement, rather than “interest arbitration, ” which concerns the formation of a new collective bargaining agreement and is thus itself a component of the collective bargaining process. (See County of Sonoma v. Superior Court (2009) 173 Cal.App.4th 322, 341–342.) We are not persuaded. Though International Fire Fighters and the cases it cites do not discuss the issue in the context of a grievance, it would make little sense to say that the implementation of a layoff decision is subject to collective bargaining, but not to a grievance procedure used to resolve alleged breaches in the collective bargaining agreement. If the MMBA requires an employer to bargain over the implementation of a layoff, the union must have a vehicle to enforce alleged breaches of this duty. In this case, the grievance procedure, ending with arbitration, is the vehicle the parties have chosen to resolve such disputes.
III. DISPOSITION
The judgment (order denying petition to compel arbitration) is reversed with directions to the superior court to grant the petition to compel arbitration under the CBA. The issues submitted to the arbitrator(s) shall not include the financial necessity for the layoffs challenged by the grievance, but shall be limited to issues pertaining to the implementation of those layoffs, specifically, to Union’s claim in its grievance that the City violated paragraphs 62, 71, 121, 123 and 125 of the CBA. Costs on appeal are awarded to Union.
We concur. JONES, P. J., SIMONS, J.