Source: https://www.flra.gov/decisions/v38/38-032.html
Timestamp: 2019-04-21 00:13:37+00:00

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This case is before the Authority on a negotiability appeal filed by the Union under section 7105(a)(2)(E) of the Federal Service Labor-Management Relations Statute (the Statute). The appeal concerns three proposals that initiate a change in the percentage of each bargaining unit employee's health insurance premium paid by the Agency.
For the reasons discussed below, we find that the proposals concern conditions of employment of bargaining unit members under section 7103(a)(14) of the Statute and do not interfere with the Agency's right to determine its budget under section 7106(a)(1) of the Statute. Therefore, we find that the proposals are within the duty to bargain.
The Army and Air Force Exchange Service (AAFES) operates the military exchanges on Army and Air Force bases throughout the world. The military exchanges provide merchandise and services at reasonable prices for military personnel and their families. All normal operating expenses, including salaries and benefits for the civilians employed at the exchanges, come from the sale of goods and not from funds appropriated from Congress. Agency Statement of Position at 12. Consequently, the AAFES is operated as a Non-appropriated Fund Instrumentality (NAFI) See Calder v. Crall, 726 F.2d 598, 599-600 (9th Cir. 1984).
The dispute arose during negotiations between AAFES and the Union, one of several unions representing civilian workers employed by the Agency. In an action taken independently from the negotiations, the Agency announced that it would increase the cost of group health insurance premiums for all of its employees.(1) The Union, which represents employees covered by the group health plan, submitted proposals on the subject. In essence, the proposals required an increase in the percentage of health insurance premiums paid by the Agency for those employees the Union represents. The Agency refused to negotiate over the proposals, asserting that they were outside its duty to bargain.
a. the employer will pay 70% of the total group insurance premiums applicable to each participating unit member, and the unit member will pay 30%.
b. for the duration of the AAFES-AFGE Master Agreement, premium increases necessitated by claims of Participants in the AAFES Group Insurance Plan shall be apportioned according to the percentage in sub-section "3.a." above.
c. otherwise, the Group Insurance Plan as applied to each participating unit member will remain unchanged.
Because the proposals are related and the parties have treated them jointly in their analysis, we will address them together.
The Agency first maintains that the proposals are outside the duty to bargain because they do not concern a condition of employment under the Statute. The Agency argues that the proposals concern a money-related fringe benefit because they require the Agency to make a substantial payment to the AAFES Group Insurance Plan. The Agency acknowledges that the Authority has consistently held that "federal agencies must bargain over pay and money-related fringe benefit matters where, as here, they do not concern matters specifically provided for by law and are otherwise consistent with applicable law and regulations." Agency's Statement of Position at 17. However, the Agency maintains that based on the language and legislative history of the Statute, the Authority's decisions on the issue are incorrect. Therefore, the Agency contends that the Authority should reverse its prior decisions.
Secondly, the Agency maintains that even if the proposals concern conditions of employment, they interfere with management's right to determine its budget under section 7106(a)(1) of the Statute. The Agency contends that the Authority's budget analysis, as prescribed in its decision in American Federation of Government Employees, AFL-CIO and Air Force Logistics Command, Wright-Patterson Air Force Base, Ohio, 2 FLRA 603 (1980) (Wright-Patterson), aff'd as to other matters Department of Defense, Department of the Air Force, Air Force Logistics Command, Wright-Patterson Air Force Base, Ohio v. FLRA, 659 F.2d 1140 (D.C. Cir. 1981), cert. denied AFGE v. FLRA, 455 U.S. 945 (1982), should be applied to the facts of this case. In describing the budget tests established in Wright-Patterson, the Agency states that a proposal interferes with management's right if it prescribes a particular program or operation an agency would include in its budget, or prescribes a specific amount to be included in the budget for such programs. In addition, the Agency notes that a proposal will also be outside the duty to bargain if it results in a cost to the agency that is significant, unavoidable, and not offset by compensating benefits.
The Agency's argument referencing the Authority's budget analysis addresses three main points. First, the Agency contends that the proposals require it to include a particular program in its budget. The Agency maintains that to implement the proposals the Agency would need to create a new insurance program for employees represented by the Union. The Agency relies on affidavits submitted with its Statement of Position to argue that studies in the insurance field indicate that employees who pay less in premiums generate more claims than those who pay higher premiums. Consequently, the Agency claims that in order to ensure fairness in the program, employees who pay less for premiums must be separated from those employees who receive the same benefits but pay higher premiums. The Agency argues that because separating its employees would require additional administrative costs, the Union's proposals prescribe the establishment of a particular program within the meaning of the budget test established in Wright-Patterson.
Second, the Agency argues that the proposals directly establish a specific amount that it must allocate in its budget to implement the insurance program. The Agency argues that although the proposals establish only a percentage and not a specific dollar amount, that amount can be obtained by simply putting numbers in a calculator. The Agency contends that the proposals must be dealt with as a planned or expected expenditure in the budget, even if some of the factors needed to determine a final cost are outside the Agency's immediate control. The Agency maintains that as the percentages can easily be translated into a specific dollar amount, and that amount would be included as a specific item in the budget, the budget test established in Wright-Patterson is met.
Third, the Agency maintains that the proposals would result in increased costs that are significant, unavoidable, and cannot be offset by compensating benefits. Therefore, the Agency maintains that, based on Wright-Patterson, the proposals are outside the duty to bargain. The Agency argues in this regard that the right to determine a budget includes factors both within and outside an agency's control.
In discussing the major points of its budget argument, the Agency stresses the differences between the facts of this case and the Authority's decision in American Federation of Government Employees, Local 1897 and Department of the Air Force, Eglin Air Force Base, Florida, 24 FLRA 377 (1986) (Eglin). The Agency maintains that although the Authority found that the union's proposal in Eglin, which is similar to the current proposals, did not interfere with the agency's right to determine its budget, the facts of this case warrant a different outcome.
In addition, the Agency maintains that the proposals are outside the duty to bargain because they directly affect nonbargaining unit employees. The Agency acknowledges that the Authority established a "vitally affects" test in American Federation of Government Employees, Local 32, AFL-CIO and Office of Personnel Management, 33 FLRA 335 (1988) (Office of Personnel Management), enforced sub nom. United States Office of Personnel Management v. FLRA, 905 F.2d 430 (D.C. Cir. 1990), which it applies in situations where a proposal affects non-bargaining unit employees as well as unit employees. However, the Agency contends that the "vitally affects" test should not be applied to the facts of this case. The Agency contends that the Authority "jettisoned" its previous test too soon, and should reinstate it. Agency Statement of Position at 39. The Agency contends that if the Authority's prior "direct impact" test was applied to the facts at hand, the proposals would be outside the duty to bargain. Id.
The Union contends that, in its decision in Eglin, the Authority found that a proposal regarding the apportionment of insurance premiums for non-appropriated fund employees is a negotiable condition of employment. The Union argues that as the current case involves the same issue, it should be resolved in the same manner. With respect to the negotiability of fringe benefits, the Union argues that the Second and Eleventh Circuits have affirmed the Authority's holding that money and fringe-related benefits are negotiable if they are not specifically provided for by law. Fort Stewart Schools v. FLRA, 860 F.2d 396 (11th Cir. 1988), aff'd, 110 S. Ct. 2043 (1990); West Point Elementary School Teachers Association v. FLRA, 855 F.2d 936 (2d Cir. 1988). The Union contends that these holdings are based on an appropriate reading of the language and legislative history of the Statute. Consequently, the Union argues that the current proposals concern conditions of employment within the meaning of the Statute.
The Union maintains that the proposals do not interfere with the Agency's right to determine its budget. The Union asserts that in its decision in Federal Employees Metal Trades Union Council of Charleston and Department of the Navy, Charleston Naval Shipyard Charleston, South Carolina, 32 FLRA 102, 113-14 (1988), enforcement denied Navy Charleston Naval Shipyard, Charleston, South Carolina v. FLRA, 885 F.2d 188 (D.C. Cir. 1989), the Authority reiterated the criteria for determining whether a proposal interferes with management's right to determine its budget. The Union contends that a proposal interferes with this right "if the proposal, by its terms, prescribes a particular program or amount of funds to be included in an agency's budget." Union's Response at 7 (emphasis in original). The Union acknowledges that a proposal would also be nonnegotiable if an agency shows it would result in a significant and unavoidable cost that cannot be offset by compensating benefits.
The Union contends that the current proposals do not prescribe a particular program or amount of funds to be included in its budget. Rather, "as a matter of settled law," the fact that the percentages can be easily converted into specific dollar amounts does not change the negotiability of the proposals. Id. at 8. The Union argues that, based on Authority caselaw, percentages that "'become'" specific dollar amounts through computation by the Agency do not render a proposal nonnegotiable. Id. at 10. The Union also argues that, in any event, the percentages in this case would not become specified budget amounts because it is impossible to determine the number of employees affected due to the fluctuating nature of staffing at the facilities.
With respect to the Agency's argument concerning a new program, the Union asserts that if the Agency implements a new insurance program, it would be by choice and not based on any requirement contained in the Union proposals. The Union further argues that if the Agency determines that paying 70 percent of the premiums for the AFGE-represented employees is inequitable, there is nothing preventing it from implementing that percentage for all employees. Consequently, the Union contends the proposals do not require the Agency to implement a new program.
In addition, the Union argues that the Agency has not "even considered, much less established, whether any increased costs would be significant in terms of its overall operation. . . or whether such increased costs could not be offset by other benefits to AAFES." Union's Response at 12-13. The Union contends that even if the proposals would cause an increase in costs for insurance, the Agency did not demonstrate how that increase would significantly affect the overall budget. The Union also maintains that any increase in costs would be offset by compensating benefits such as "greater productivity and motivation, improved employee morale, reduced turnover, improved internal and external public relations, and greater comparability with appropriated employees' health insurance premium apportionment." Id. at 13-14. Therefore, the Union maintains that under the Authority's budget analysis, the proposals would not interfere with management's right to determine its budget.
Finally, the Union contends that the proposals vitally affect the conditions of employment of bargaining unit employees. The Union maintains that in Office of Personnel Management, the Authority established that the effect of a proposal on non-unit employees is irrelevant in establishing whether a proposal concerns a condition of employment for bargaining unit employees. The Union argues that under the new standard a proposal will be negotiable if it vitally affects the conditions of employment of bargaining unit employees and is not otherwise inconsistent with law or regulation. The Union asserts that the current proposals would vitally affect the employees' conditions of employment because they concern the cost the employees would incur for purchasing group health insurance. Consequently, the Union maintains that, under the new standard, the proposals would involve a condition of employment. Finally, the Union contends that the proposals do not interfere with any applicable law or regulation. Therefore, the Union maintains that the proposals are negotiable.
Under the Statute, parties are required to bargain over proposals concerning conditions of employment, provided the proposals do not violate law, Government-wide regulation, or an agency regulation for which a compelling need exists. 5 U.S.C. º 7117(a). Conditions of employment are defined as personnel policies, practices and matters affecting working conditions. 5 U.S.C. º 7103(a)(14). Matters that are specifically provided for by Federal statute are excluded from the definition of conditions of employment. 5 U.S.C. º 7103(a)(14)(C).
With respect to proposals that involve pay and fringe benefits and are otherwise negotiable, the Authority has consistently found that these matters concern conditions of employment in circumstances where they are not specifically provided for by statute. See, for example, Service Employees' International Union, Local 556, AFL-CIO and Department of the Army, U.S. Army Support Command, Hawaii, Fort Shafter, Hawaii, 26 FLRA 380 (1987), affirmed sub nom. Department of the Army, United States Army Support Command, Hawaii, Fort Shafter, Hawaii v. FLRA, Nos. 88-7004/88-7158 (9th Cir. Sept. 18, 1990); Eglin, supra. Subsequent to the parties' filings in this case, the Supreme Court affirmed the Authority's position regarding pay and fringe benefits. See Fort Stewart Schools v. FLRA, 110 S. Ct. 2043 (1990) (Fort Stewart Schools).
The proposals in this case involve insurance premiums for NAFI employees working at the Army and Air Force military exchanges. The Authority has recently addressed this issue in American Federation of Government Employees, Local 1857 and U.S. Department of the Air Force, Air Force Logistics Center, Sacramento, California, 36 FLRA 894 (1990) (Local 1857). The proposals in that case similarly involved an adjustment in the agency's portion of employee health insurance premiums. The Authority found that the health insurance premiums were fringe benefits that are not specifically provided for by statute and therefore contributions to those premiums were matters within the discretion of the Agency. Based on the Supreme Court's decision in Fort Stewart Schools and its own precedent, the Authority concluded that the proposals concerned conditions of employment within the meaning of the Statute. Id. at 899-901. Similarly, as a NAFI, the Agency's health insurance benefits are not provided for by Federal statute. See Eglin, 24 FLRA at 378. Therefore, for the reasons more fully discussed in Local 1857, we find that the current proposals involve conditions of employment for those employees represented by the Union.
In applying the first test to the facts of this case, we find that the proposals do not interfere with the Agency's right to determine its budget. The proposals would require the Agency to pay 70 percent of employee's current and future health insurance premiums. There is nothing in the proposals that requires the Agency to establish a particular program or operation. As the Agency currently pays for 50 percent of the insurance premiums, the proposals would merely increase the percentage paid in the existing program. The proposals do not dictate how to implement the percentage increase, but rather, leave that to the discretion of the Agency. Further, there is nothing in the language of the proposals that precludes the Agency from implementing the percentage increase within the confines of the existing insurance program. Therefore, based on the specific language in the proposals, the Agency would not be required to establish a specific program or operation.
The Agency maintains that although the language of the proposals does not expressly prescribe a program, the Agency would be required to implement a new program because the employees represented by the Union would have to be separated from the remaining employees in the program. The Agency claims that it would have to separate the employees because, statistically, employees who pay lower premiums generate more claims. Based on this assertion, the Agency contends that in order to ensure fairness for all participants, the employees represented by the Union must be placed in their own insurance group and that this constitutes a new program within the confines of the Authority's budget test.
Under the Agency's theory, a proposal would meet the first budget test even if it only indirectly influenced the Agency's decision to implement a program based on some requirement of the proposal. This theory does not comport with the Authority's application of the budget test established in Wright-Patterson. The Authority has found that the first budget test is narrow. The only proposals affected by this test are those that address the budget per se, and not those that may have an indirect effect on the budget. See Local 1857, 36 FLRA at 904. Thus, to fall within the first budget test, a proposal must specifically mandate a particular program or operation. Id. As stated above, there is nothing in the proposals that would mandate a new insurance program. If the Agency would establish a separate insurance group for the employees covered under the proposals, it would be solely by Agency choice, and not based on the requirements of the proposals. Consequently, we find that the proposals do not prescribe a particular program or operation to be included in the Agency's budget.
The Agency also argues that the percentages contained in the proposals can easily be converted into a specific dollar amount that must be inserted into the budget. The Authority has previously found that a proposal stated in terms of percentages does not specify a particular amount to be included in the Agency's budget. See Eglin, 24 FLRA at 386. As the proposals here do not prescribe a specific program or specific dollar amount to be included in the Agency's budget, they do not meet the first budget test.
As stated above, a proposal can also be found nonnegotiable if it results in an increase in costs that is significant, unavoidable, and those costs are not offset by compensating benefits. The Agency asserts that the proposals would result in significantly higher costs in its insurance program, and that those costs are unavoidable and not offset by compensating benefits. However, the Agency fails to introduce evidence that is sufficient to support its claim.
The Agency claims that the cost of paying 70 percent of the premiums for the employees represented by the Union would be approximately 7.1 million dollars. Statement of Position at 33. However, the Agency does not address this amount in terms of the overall cost of its health insurance program, employee compensation expenses, or its entire budget. The mere fact that a proposal may increase costs is not sufficient to establish that it is a significant amount for purposes of the budget test. See Fort Stewart Schools, 110 S. Ct. at 2050. The Agency must show what impact those costs will have on the overall operating budget of AAFES. See Department of the Army, United States Army Support Command, Hawaii, Fort Shafter, Hawaii v. FLRA, Nos. 88-7004/88-7158, slip op. at 3 (9th Cir. Sept. 18, 1990). The Agency failed to present sufficient evidence to establish that any increased costs would be significant.
The Agency did present evidence that AAFES sales for l987 totalled approximately 5.9 billion dollars, however, and that a portion of those sales was being earmarked for new construction, upgrading of equipment and dividends to the Morale, Welfare, and Recreation fund. Statement of Position at 7, 12. Further, the annual report submitted by the Agency indicates that employee compensation costs are approximately 900 million dollars. Agency Statement of Position, Attachment 18. Thus, the estimated increase in costs due to the apportionment change is insignificant in comparison to the current compensation expenses and overall sales figures. Therefore, not only did the Agency fail to establish that the increase in costs would be significant, but the available evidence suggests the opposite conclusion.
Moreover, the Agency has failed to establish that the increased costs would be unavoidable. The Agency has provided little information to support its projected increase in administrative and funding costs. The Agency gives no projected dollar amounts for the increased administrative costs. With respect to the increased funding costs, the Agency produced evidence from experts suggesting that employees who pay lower insurance premiums generate more in claims. Although the evidence presented to us suggests this correlation, the evidence is not conclusive.(3) In any event, even if there is an increase in costs due to higher claims and administrative expenses, the Agency has not shown that the projected increases could not be offset by modifying other aspects of the insurance program, or increasing the efficiency of the administrative aspects of the program. These factors would be important in showing that any projected budget increases are unavoidable. See Local 1857, 26 FLRA at 905.
Finally, the Agency has failed to show that any possible increase in costs would not be offset by compensating benefits. The Agency put forth no argument on this point except to deny that the increases would be offset by compensating benefits. Statement of Position at 37. The Union maintains that any increase in costs will be offset by "greater productivity and motivation, improved employee morale, reduced turnover, improved internal and external public relations, and greater comparability with appropriated employees' health insurance premium apportionment." Response at 13-14. The Authority has recognized that factors such as these can contribute to an effective and efficient workforce. Local 1857, 36 FLRA at 906. The Agency has offered no evidence to refute such a finding in this case. Consequently, we find that the Agency has failed to show that any possible increase in costs would not be offset by compensating benefits.
The Agency has failed to show that the proposals would prescribe a particular program, operation, or specific dollar amounts to be included in its budget; or that any increase in costs to the Agency would be significant, unavoidable, and not offset by compensating benefits. We find that the Agency has failed to meet its burden. See Local 1857, 26 FLRA at 906-07. Therefore, based on the test established in Wright-Patterson, we find that the proposals do not interfere with the Agency's right to determine its budget under section 7106(a) of the Statute.
The Agency concedes that the Authority has recently established a new standard for determining whether proposals that affect non-bargaining unit employees are negotiable. In Office of Personnel Management, supra, the Authority made clear that a proposal's effect on non-unit employees is irrelevant in determining whether a proposal concerning conditions of employment is negotiable. The Authority found instead that a proposal is within the duty to bargain if it vitally affects the working conditions of unit employees. Id. at 338. The Agency maintains that the Authority should reinstate its previous standard on this issue. We decline to do so. For the reasons discussed in Office of Personnel Management, we have established the current standard and will apply it to the facts of this case.
As the Agency notes, health insurance premiums are considered a money related fringe benefit for employees. Statement of Position at 17. The amount an employee will pay for health insurance premiums, as a part of his/her overall compensation package, is of important concern, it affects the cost of providing adequate health care for the employee and his/her family and ultimately affects the employee's total take-home pay. As we noted in Local 1857, health insurance benefits have also become a key factor in recruiting and retaining employees. 36 FLRA at 906. The proposals in this case affect the portion of premiums paid by each employee. Based on the importance of health insurance premiums to employees, we find that the proposals vitally affect their conditions of employment.
We find that the proposals concern conditions of employment and do not interfere with the Agency's right to determine its budget under section 7106(a)(1). In addition we find that although the proposals potentially affect nonbargaining unit employees, they also vitally affect the conditions of employment of unit employees. Consequently, we find that the proposals are negotiable.
1. AAFES maintains a group health insurance plan that covers employees at various Agency locations. The employees in the group insurance plan are represented by 15 different unions. Agency Statement of Position at 5 n.4.
2. We express no view on the continued viability of the second of these tests. See Fort Stewart Schools, 110 S.Ct. at 2052-53 (Marshall, J., concurring). However, as we find below, the Agency has failed to satisfy either of the tests set forth in Wright-Patterson.
3. The Agency produced a letter from John A. Menefee, Ph.D. which suggests that a decrease in the premiums paid by an employee results in higher claims. This statement was based on a study performed by Mr. Menefee. This is the sole evidence produced by the Agency to support its assertion that the funding costs will increase due to the change in premium apportionment. In our view, this evidence is not sufficient to conclusively show that costs will unavoidably increase. In order to meet the second budget test, the evidence would have to establish that the claims for these particular employees would necessarily increase due to lower premium payments. We find that the evidence produced is not sufficient to make that required showing.
4. In finding that these proposals are negotiable, we make no judgment as to their merits.

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