Court affirms PERC decision mandating questionable
method of calculating 2-percent arbitration cap
Under the interest arbitration cap law, an arbitrator is prohibited from awarding salary increases
which average more than 2 percent per year. The
method used by an arbitrator to calculate whether
proposed increases do not exceed that cap has
been the subject of litigation. An important part of
the calculation is whether an arbitrator should or
must take into account an employer’s savings that
result from officers who retire or leave for other reasons during the term of a proposed contract.
In decisions after the cap law was passed in 2010, PERC prohibited arbitrators from considering those savings. Recently, the
Appellate Division upheld PERC’s decisions and approved the
agency’s instructions to arbitrators.
In State v. New Jersey Law Enforcement Supervisors Assn., the
Appellate Division addressed the issue of whether an interest
arbitrator is required or permitted to consider actual salary cost
savings enjoyed by a public employer during the term of a proposed new contract when calculating a salary award under the
2-percent cap. The Appellate Division concluded that actual savings cannot be considered by an arbitrator.
In this case, the union challenged PERC’s decision affirming
the arbitrator’s award, and argued that the arbitrator erred by
using the method suggested by the employer to calculate base
salary costs, rather than the method proposed by the union.
Specifically, the employer’s calculations included the salaries of
officers who retired or left for other reasons. By contrast, the
union’s calculations provided the actual cost savings as a result
of retirement and attrition. Based on prior PERC decisions, the
arbitrator agreed that employer’s method was correct, and PERC,
not surprisingly, agreed. The court affirmed PERC’s decision.
Essentially, the methodology mandated by PERC, and
approved by the court, is as follows. The cost of salary (which
may include longevity and any other monetary benefits that are
tied to salary) are calculated in the 12 months prior to
the expiration of the contract. If a contract expired on
Dec. 31, 2015, the costs are calculated from Jan. 1, 2015
through Dec. 31.
Once you have that amount, the calculation is generally to determine 2 percent of that figure for each
year of the proposed contract. That dollar amount is
the maximum available for an arbitrator to award, and
that includes the costs of salary step and longevity
increases. To calculate the cost during the proposed
term of the new contract, you start with all officers on the payroll
as of the last day of the term of the expired contract and then follow their salaries and longevity through the length of the proposed agreement, including any officers who retire or leave for
other reasons. It does not allow for consideration of any savings
for any officers who retire or leave for other reasons during the
period of the proposed contract. It would also not include costs
or savings from new officers hired to replace departing officers.
In addition, the union, in this case, also appealed the fact that
the arbitrator did not award the full 2 percent per year but something less than the maximum. The court concluded that an arbitrator is not required to award an average of 2 percent each year.
The court reaffirmed that the 2 percent is a maximum and an
arbitrator may award less than the maximum.
The practical, and clearly inequitable, impact of this decision
is that an arbitrator cannot consider savings to the employer
resulting from officer