New Jersey Adopts 2% Cap on Interest Arbitration Awards for Public Employees – Will New York Be Next?

On December 21, 2010, New Jersey Governor Chris Christie signed legislation establishing a 2% cap on the aggregate increase in base salary per year that can be provided in an interest arbitration award. The New Jersey law may serve as a model for a similar effort in New York. Since he has taken office, New York Governor Andrew Cuomo has vowed to introduce changes to reduce the cost of State and Local government. He has stated that “New York is at a crossroads, and we must seize this opportunity, make hard choices and set our state on a new path toward prosperity…We simply cannot afford to keep spending at our current rate. Just like New York’s families and businesses have had to do, New York State must face economic reality.” In order to achieve his cost saving measures, Governor Cuomo has introduced legislation calling for a 2% cap on property taxes. In addition, he has established by Executive Order a Mandate Relief Redesign Team as well as theSpending And Government Efficiency (Sage) Commission which will conduct a rigorous and comprehensive review of mandates imposed on local taxing districts and government spending “with the goal of saving taxpayer money, increasing accountability and improving the delivery of government services.”

With Governor Cuomo calling for such wide-reaching changes, and groups such as the New York Conference of Mayors (NYCOM) calling for the Governor to implement changes to Interest Arbitration (e.g., redefining “ability to pay”, prohibiting the consideration of non-economic items, limiting the number of times that a union can consecutively go to interest arbitration), it is possible that legislation similar to that signed by Governor Christie in New Jersey will be introduced in New York. In fact, former Gubernatorial candidate and Suffolk County Executive Steve Levy has already publicly embraced New Jersey’s 2% interest arbitration cap, and has indicated that he plans to call on the New York State Legislature to enact similar legislation. According to Mr. Levy, such a cap would, “save the county of Suffolk between $7 million and $10 million per year for the police force alone, considering the police union received a 3.5 percent increase in the most recent round of mandatory arbitration.”

What Does the New Jersey Legislation Provide?

The 2% cap – which mirrors New Jersey’s 2% cap on property tax increases – provides that an arbitrator shall not render an award which, on an annual basis, increases base salary items by more than 2% of the aggregate amount expended by the public employer on base salary items. The legislation provides that the aggregate monetary value of the interest arbitration award does not have to be distributed in equal annual percentages over the life of the agreement. Therefore, the monetary value of an award may exceed 2% in an individual contract year, provided that the monetary value of the award in the other contract year(s) is adjusted so that the aggregate monetary value of the award over the term of the agreement does not exceed the maximum 2% increase.

As defined by the new legislation, “base salary” means “the salary provided pursuant to a salary guide or table and any amount provided pursuant to a salary increment, including any amount provided for longevity or length of service.” Also included in an employee’s “base salary”, and therefore subject to the 2% cap, are “any other item agreed to by the parties, or any other item that was included in the base salary as understood by the parties in the prior contract.” The legislation specifically excludes from “base salary non-salary economic issues such as pension, health and medical insurance costs.” Non-salary economic issues are defined by the legislation as any economic issue that is not included within the definition of base salary. The legislation also prohibits an arbitrator from awarding “base salary items and non-salary economic issues which were not included in the prior collective negotiations agreement.”

In addition to the 2% cap, the legislation makes several other changes to the overall interest arbitration process: capping the fees that an arbitrator can receive; randomizing the arbitrator selection procedure if the parties cannot agree to an arbitrator; requiring that arbitrators receive yearly ethics training; allowing a party to file a petition with the Public Employment Relations Commission (PERC) alleging that the other side is not negotiating in good faith; and vesting PERC with the ability to assess the non-prevailing party the cost of all legal and administrative costs associated with the filing and resolution of the petition.

The entirety of the legislation, not just the 2% base salary cap, sunsets after 39 months. The legislation also establishes an eight-member task force designed to study the effect and impact of the changes made by the legislation. This task force will presumably make a recommendation as to whether the changes to the interest arbitration process should be continued once the legislation sunsets.