City of Pittsburgh v. Commonwealth

653 A.2d 1210, 539 Pa. 535, 1995 Pa. LEXIS 69

• Court: Supreme Court of Pennsylvania
• Decided: January 23, 1995
• Status: Published

Opinions

OPINION OF THE COURT

FLAHERTY, Justice.

This case poses the question of whether a city which establishes a revised pension plan applicable to new employees pursuant to the requirements of the Municipal Pension Plan Funding Standard and Recovery Act, (“Act 205”),¹ is required to enter into mandatory labor negotiations concerning the revised plan or whether it may establish its new pension plan upon consultation with the union.

The American Federation of State, County and Municipal Employees, District Council 84, AFL-CIO (AFSCME) is the exclusive representative of a bargaining unit of City of Pittsburgh employees. From January 1, 1986 to December 31, 1987, AFSCME and the city were parties to a collective bargaining agreement which stated that the labor contract was the total agreement between the parties, including wages, salaries, pensions and all fringe benefits, and that there was to be no change in the contract during its term except by mutual agreement.

In September of 1987 the city enacted an ordinance establishing a revised pension plan with reduced benefits for employees hired on or after January 1, 1988. The ordinance was enacted after the city elected to participate in the recovery program of Act 205, which provides for the reorganizing of financially distressed pension funds in order that the funds may become financially viable.

The purpose of Act 205 is to mandate actuarial funding for municipal pension plans and to establish a “recovery program for municipal pension systems determined to be financially distressed.” Act 205, 53 P.S. § 895.101, note. In order to qualify for relief under the act, a municipality must first have its pension plans reviewed by a commission which is authorized to determine whether the plans are distressed and to classify the level of distress. The classifications are “minimal,” “moderate” or “severe.” The city’s plan was determined to be severely distressed.

In order to avail itself of state financial assistance under Act 205, a municipality whose pension plan is severely distressed is required to employ a statutorily mandated recovery program designated as “Recovery Program Level III.” 53 P.S. § 895.606. Pursuant to this program, the municipality must, inter alia, establish a revised pension benefit plan for newly hired employees which is less costly than the plan applicable to current employees. 53 P.S. § 895.606(b)(2). As indicated above, the city enacted such a revised pension plan.

However, the city did not bargain with AFSCME concerning the revised pension benefit plan. Rather, the city participated in “meet and discuss” sessions with AFSCME.

On March 31, 1988, AFSCME filed a charge of unfair labor practices with the Pennsylvania Labor Relations Board (PLRB), alleging that the city had committed unfair labor practices in violation of the Public Employee Relations Act (“PERA”)² in implementing a revised pension benefit plan without first entering into mandatory negotiations with the union. A hearing examiner issued a proposed decision on February 9, 1989, finding that the city did not commit an unfair labor practice. AFSCME filed exceptions, and PLRB sustained the exceptions, finding that the city’s implementation of the revised pension benefit plan without bargaining was an unfair practice under PERA.

The city appealed to the Court of Common Pleas of Allegheny County, which on August 27, 1992 affirmed PLRB. The city then appealed to Commonwealth Court. On March 1, 1993, Commonwealth Court affirmed the lower court. This court granted allocatur in order to determine whether the lower courts were in error in holding that the city is required, on the facts of this case, to bargain with its union before establishing a revised pension benefit plan applicable to new employees.

The essential issues raised by the case are whether the provisions of Act 205 are in conflict with the provisions of PERA, and if there is a conflict, how it must be resolved.

Section 701 of PERA provides that employers have a mandatory duty to bargain “with respect to wages, hours, and other terms and conditions of employment.” 43 P.S. § 1101.701. There is no disagreement that pensions are included within this mandated bargaining.

Section 702 of the PERA provides:

Public employers shall not be required to bargain over matters of inherent managerial policy, which shall include but shall not be limited to such areas of discretion or policy as the functions and programs of the public employer, standards of services, its overall budget, utilization of technology, the organizational structure and selection and direction of personnel. Public employers, however, shall be required to meet and discuss on policy matters affecting wages, hours and terms and conditions of employment as well as the impact thereon upon request by public employee representatives.

43 P.S. § 1101.702.

Section 703 of the PERA provides:

The parties to the collective bargaining process shall not effect or implement a provision in a collective bargaining agreement if the implementation of that provision would be in violation of, or inconsistent with, or in conflict with any statute or statutes enacted by the General Assembly of the Commonwealth of Pennsylvania or the provisions of municipal home rule charters.

43 P.S. § 1101.703.

Act 205, on the other hand, provides, in pertinent part: Establishment of a revised benefit plan for newly hired municipal employees. The municipality may establish a revised benefit plan of the pension plan applicable to any employee first hired on or after the effective date of the instrument establishing the revised benefit plan____ A revised benefit plan for newly hired municipal employees shall be developed with consultation with representatives of the collective bargaining unit applicable to the affected type of municipal employee, if any, and shall be within the scope of collective bargaining pursuant to the applicable law subsequent to the establishment of the revised benefit plan.

53 P.S. § 895.607(e) (Emphasis added).

The city argued before Commonwealth Court that since Act 205 allows a participating municipality to establish a revised pension benefit plan without collective bargaining, establishing the plan must be a matter of “inherent managerial policy,” and therefore outside the requirement of mandatory negotiation.³

In rejecting the city’s argument, Commonwealth Court stated that while establishing a revised pension benefit plan affects the city’s budget, and while establishing a budget is a matter of inherent managerial policy (and therefore exempt from mandatory bargaining), establishing the revised plan is only one component of a much larger budget, and is not a matter of inherent managerial policy. As to the city’s argument that Act 205 permits establishing the plan without bargaining, Commonwealth Court, relying on our decision in PLRB v. State College, 461 Pa. 494, 337 A.2d 262 (1975), held that although otherwise bargainable items might be excluded from bargaining if the legislature “explicitly and definitively” excluded them, Act 205 did not remove the city’s new pension benefit plan from bargaining.⁴

In State College, this court was called upon to interpret the then-recently-enacted PERA with respect to a number of matters which the school district-employer claimed were exempt from bargaining because they were inherently managerial under section 702. The union in State College claimed these matters were not exempt because they concerned wages, hours and other terms and conditions of employment under section 701. In that case, the legislature had offered no guidance as to whether the disputed matters were subject to bargaining or not, and we held:

A determination of the interrelationship between sections 701 and 702 calls upon us to strike a balance wherein those matters relating directly to “wages, hours and other terms and conditions of employment” are made mandatory subjects of bargaining and reserving to management those areas that the public sector necessarily requires to be managerial functions.

461 Pa. at 506, 337 A.2d at 267-68. This balance is to be struck by the PLRB in the first instance, and the courts thereafter.

Based on our reading of the above-mentioned statutes and case law, we disagree with Commonwealth Court that the city must participate in mandatory negotiation with respect to the establishment of its revised pension benefit plan.

Reading section 607(e) of Act 205 in pari materia with section 702 of the PERA, we conclude that the city’s decision to avail itself of the assistance offered by Act 205 is an inherently managerial decision. If it were not, section 607(e), requiring the establishment of a revised benefit plan, presumably would require negotiations so as not to be in conflict with the PERA. By allowing the city to establish a revised plan without mandating labor negotiations, the legislature has, in effect, brought this activity within the ambit of section 702 (inherent managerial activity).

We reject the view that because the city is not required to participate in the recovery program of Act 205, it is not required to participate in that portion of the recovery program which mandates changes in pension benefits for newly hired employees. Rather, we regard the legislative creation of the opportunity to participate as authority to participate fully, even when doing so expands, however slightly, the scope of inherently managerial activity.

PLRB and the lower courts were in error in holding that such mandatory activity was not “inherently managerial” pursuant to section 702 of the PLRA.⁵

For the foregoing reasons, the order of Commonwealth Court was in error. Order of Commonwealth Court is reversed.

ZAPPALA, J., files a concurring opinion. MONTEMURO, J., files a concurring opinion which is joined by CAPPY, J. PAPADAKOS, J., files a dissenting opinion. MONTEMURO, J., is sitting by designation.

1 . Act of Dec. 18, 1984, P.L. 1005, No. 205, as amended, 53 P.S. § 895.101.

2 . Act of July 23, 1970, P.L. 563, No. 195, 43 P.S. § 1101.101 et. seq.

3 . The city’s position is:

this case does not present the question of distinguishing between mandatory and illegal subjects of bargaining but rather whether the legislature has directed that this is a subject over which bargaining is permissible but not mandatory.

City's brief at 21.

4 . The portion of this court’s State College opinion on which Commonwealth Court relies states:

[Ijtems bargainable under section 701 are only excluded under section 703 where other applicable statutory provisions explicitly and definitively prohibit the public employer from making an agreement as to that specific term or condition of employment.

461 Pa. at 510, 337 A.2d at 270. (Emphasis added.)

5 . PLRB argues that in Philadelphia v. District Council 33, AFSCME, 528 Pa. 355, 598 A.2d 256 (1991), this court rejected the argument that a public employer could use the provisions of Act 205 to excuse its unilateral adoption of a revised pension plan. In that case, the employer had been preliminarily enjoined from altering its pension plan, which was controlled by the terms of an existing labor contract, and in reviewing the propriety of the preliminary injunction, a majority of this court held that the union was likely to prevail on the merits of the case because the employer improperly breached its contract.

Philadelphia v. District Council 33 has no application to this case because here the collective bargaining agreement had expired when the city implemented the revised benefit plan.