Opinion ID: 2599971
Heading Depth: 3
Heading Rank: 3

Heading: The Effect of the Act 355 Amendment

Text: As stated in Yogi, the framers, in formulating and adopting article XII, section 2, acknowledged that the term collective bargaining had a well-recognized meaning: Collective bargaining means the performance of the mutual obligations of the public employer and the exclusive representative to meet at reasonable times, to confer and negotiate in good faith, and to execute a written agreement with respect to wages, hours, amounts of contributions by the State and counties to the Hawaii public employees health fund, and other terms and conditions of employment, except that by any such obligation neither party shall be compelled to agree to a proposal, or be required to make a concession. HRS § 89-2 (1993) (emphasis added); see also Yogi, 101 Hawai`i at 51, 62 P.3d at 194. Further, pursuant to HRS § 89-3 (1993), entitled Rights of employees: Employees shall have the right of self-organization and the right to form, join, or assist any employee organization for the purpose of bargaining collectively through representatives of their own choosing on questions of wages, hours, and other terms and conditions of employment[.]
It is undisputed that, historically, public employees, including UH faculty members, were paid on the fifteenth day and the last day of each month. The Act 355 amendment authorized the governor to convert the existing predicted payroll system to an after-the-fact payroll system by gradually delaying each paycheck until the pay dates fell on the fifth and the twentieth of the month. The Defendants note that, traditionally[,] pay days for public employees were determined by statute, not by collective bargaining. See HRS § 78-13 (1993). Consequently, a statute that changes pay days does not violate any specific term of the collective bargaining agreement, and since the parties have not negotiated pay days, the fact that pay days are changed by statute does not interfere with whatever constitutional right the faculty has to organize for the purpose of collective bargaining. The Plaintiffs disagree, contending that: Before the payroll lag law, pay days were not set by statute. [HRS] § 78-13 historically required twice-monthly pay days, but did not specify them. HLRB's Order ... affirmed that[,] even in the face of Act 80 (1996), pay dates were not set by statute. Only since the advent of the payroll lag and Act 355 (1997) (intended to remove pay dates from the scope of collective bargaining) has the State attempted to specify paydays by statute. Statutory specification of paydays was certainly not a traditional practice as of 1968, when [a]rticle XIII, [s]ection 2, was adopted. In response, the Defendants reiterate that: The number of paychecks state employees receive each month has historically been set by statute, HRS § 78-13, although the specific dates were not specified. That statute, § 78-13, reserved for the Legislature the right to modify any salary periods by law. Significantly, this reservation of the Legislature's right to modify salary periods pre-dates the adoption of the constitutional right to organize for the purpose of collective bargaining. Consequently, where the constitutional right to organize as provided by law and the subsequent collective bargaining agreements incorporated existing law by implication, the Legislature's reservation of the right to amend salary periods was necessarily incorporated as well. Therefore, a statute changing the salary periods does not violate . . . the Constitutional right to organize for the purpose of collective bargaining. (Emphasis, citation, and footnote omitted). Based on a plain reading of HRS § 78-13 (1993), public employees are to be paid twice a month, which the Plaintiffs concede. However, as the Plaintiffs correctly point out, nowhere in the statute does the legislature direct that the twice-monthly payment must fall on the fifteenth day and the last day of the month. But, at the same time, HRS chapter 89, regarding collective bargaining for public employees, does not expressly indicate that the specific pay days must be negotiated through collective bargaining. As previously noted, implicit within article XIII, section 2 is the right to collectively bargain over wages, hours, and other terms and conditions of employment. See HRS § 89-2 and HRS § 89-3. Nevertheless, the Plaintiffs have failed to demonstrate that bargaining over pay dates is one of the core subjects of collective bargaining that triggers a violation of article XIII, section 2. The Plaintiffs have also failed to provide this court with their collective bargaining agreement to support their contention that pay dates are bargainable and, in fact, admit that pay dates [were] not specifically incorporated into the contract. Accordingly, we reject the Plaintiffs' contention that, because pay dates have never been specified in any statute, the Act 355 amendment to unilaterally alter the traditional practice of being paid on the fifteenth day and the last day of the month violates their right to collectively bargain pay periods.
On appeal, the Defendants maintain that the Plaintiffs would suffer no actual diminution of salary because there would be no change in the salary, just a change in the method or timing of the payments. Specifically, the Defendants argue: The bottom line is each employee, following a payroll lag, will be paid the same amount of money for the same amount of work. The Legislature has merely changed the dates in which the employee is paid; the work remains the same and the salary remains the same. Therefore, the Defendants submit that the payroll lag is not a pay cut[,] ... cannot constitute a change in `wages,' and does not violate the employees' constitutional rights to collectively bargain. The Plaintiffs, on the other hand, assert that, under the payroll lag plan, more than a single check would be delayed; all checks, forever after, would be delayed. This has quite [a] different and permanent effect. At the end of July, 1998, the employee lagged under Act 355 is one check light. Instead of two checks for June and two for July, he has received only three checks. At the end of August, 1998, instead of two checks for June, two checks for July, and two checks for August, the employee has received only five checks.... No matter what month you pick, at the end of it, the employee is always one check light, compared to the pre-lag arrangement. (Emphasis in original.) The Plaintiffs, therefore, take the position that the payroll lag impinges on wages, bargaining of which is a core right, and thereby violates the Hawai`i Constitution, citing Yogi, supra . We cannot agree. As previously indicated, the payroll lag was implemented to convert from a predict payroll system to an after-the-fact payroll system and was deemed to be the least drastic measure to realize a savings of $47 million because it required no reduction in programs, no further reduction in personnel, and no increase in taxes. The implementation plan called for public employees' paychecks to be gradually delayed over several consecutive months (with each paycheck being delayed for one day to four days) until the pay dates fell on the fifth and twentieth day of the month. In other words, taking the time schedule set forth in HRS § 78-13(a) as an example, the Plaintiffs would have been paid: On July 1, 1998 (instead of June 30, 1998), for work performed between June 16 and June 30, 1998; On July 17, 1998 (instead of July 15, 1998), for work performed between July 1 and July 15, 1998; On August 3, 1998 (instead of July 31, 1998), for work performed between July 16 and July 31, 1998; On August 19, 1998 (instead of August 14, 1998 [20] ), for work performed between August 1 and August 15, 1998; On September 4, 1998 (instead of August 31, 1998), for work performed between August 16 and August 31, 1998; On September 18, 1998 (instead of September 15, 1998), for work performed between September 1 and September 15, 1998; On October 5, 1998 (instead of September 30, 1998), for work performed between September 16 and September 30, 1998; and On October 20, 1998 (instead of October 15, 1998), for work performed between October 1 and October 15, 1998. The Plaintiffs view the payroll lag as a pay cut, arguing that the employee is always one check light. The Plaintiffs, however, do notand, indeed, cannotpoint to any specific instance where the payroll lag resulted in an employee being paid less for the same amount of work, or being paid the same amount, but required to do more work. Neither has there been a serious suggestionlet alone any proofthat two-week's pay has been permanently withheld; it has only been delayed. Thus, it can hardly be said that the payroll delay evades one of the core subjects of collective bargaining, i.e., wages. [21] Indeed, aside from the Plaintiffs' attempt to characterize the payroll lag as a diminution in wages that, in turn, evokes the protection of article XIII, section 2 of the Hawai`i Constitution and the Yogi case, the plaintiffs cite no authority for the proposition that delayed payments are equivalent to reduced payments, which would constitute a change in wages. Although other jurisdictions have had an opportunity to review their state-delayed compensation plans, none of them addressed the issue presented here on appeal. Nevertheless, some of these cases are worthy of discussion to illustrate the distinction between payroll lag plans that resulted in employees' pay being delayed versus being withheld. For example, in Lincoln Fire Fighters Association, Local 644 v. City of Lincoln, 198 Neb. 174, 252 N.W.2d 607 (1977), the City of Lincoln instituted a pay lag system for all city employees: Under this system[,] the 2-week pay period begins on a Thursday. Pay checks are issued on the second Friday following the completion of the pay period. The net result is that the payroll department has 7 working days to prepare the pay checks. Rather than delaying pay checks for 7 work days, in order to convert to this new accounting system, the city withheld .7 of each city employee's biweekly pay checks, spread over eight pay periods. This money was placed in a pay lag fund to be paid out upon termination of employment. The employee receives no interest on the money placed in the fund. Id. at 609 (emphases added). The Supreme Court of Nebraska held that the pay lag system constituted a change in wages[] and cannot be established unilaterally during the term of an operative contract. Id. at 609-10. Similarly, Association of Surrogates and Supreme Court Reporters Within the City of New York v. State of New York, 940 F.2d 766 (2d Cir.1991), cert. denied, 502 U.S. 1058, 112 S.Ct. 936, 117 L.Ed.2d 107 (1992) ( Surrogates I ), concerned a May 1990 statute set forth in 1990 New York Laws (N.Y.Laws), chapter 190, § 375, which authorized the state of New York to pay the affected employees nine days' salary, rather than ten, in each of ten successive two-week pay periods, resulting in ten days or two weeks' pay being withheld. Id. at 769. The withheld-pay was to be repaid to the employees upon the termination of their employment with the state at their then-applicable rate of pay. Id. This measure was expected to save the state approximately $7 million. The employees, however, were parties to collective bargaining agreements with the state that included the provision that [b]i-weekly salaries will be computed on the basis of 10 working days. Id. at 770. In holding that the measure was a substantial contractual impairment, the United States Court of Appeals for the Second Circuit reasoned that withholding an amount equal to ten percent of an employee's pay over a ten-week period could prevent the employee from meeting short-term financial obligations like mortgages, loans, credit card payments and the like. Id. at 771-72. The court also pointed out that payment to an affected employee of the money withheld could be postponed perhaps as long as forty-five years, if the employee devoted an entire career to government service. Id. The court rejected the state's contention that the substantial impairment was reasonable and necessary for the state's goals because [t]he state could have shifted the seven million dollars from another governmental program, or it could have raised taxes. Id. at 773. The Second Circuit Court held that [t]he contract clause, if it is to mean anything, must prohibit New York from dishonoring its existing contractual obligations when other policy alternatives are available.... Were we to uphold this lag-payroll legislation, one wonders if the employees would ever receive their lagged wages, or whether another of the state's perennial fiscal crises ... would justify deferring again, or even cancelling, the lagged wages when they eventually become due. Id. at 774 (citation omitted). Subsequently, legislative amendments to New York's Finance Law, 1991 N.Y. Laws. chapter 166, § 382 and chapter 171, § 1, reprinted in N.Y. State Fin. Law. § 200(2-b) (McKinney Supp.1992), were promulgated in an effort to save $10.7 million and offset anticipated state budget shortfalls for the fiscal year 1991-92. The measure permitted the state to pay employees for nine rather than ten days in each bi-weekly salary check over five payroll periods. The New York Court of Appeals, in Association of Surrogates and Supreme Court Reporters Within the City of New York v. State of New York, 79 N.Y.2d 39, 580 N.Y.S.2d 153, 588 N.E.2d 51 (1992), struck down the legislation based upon the rationale set forth in Surrogates I, holding that the impairment of contract was substantial. Id. at 54; see also Condell v. Bress, 983 F.2d 415 (2d Cir.) (holding that the salary deferral program, under which affected executive branch employees received only nine tenths of salary for each of five biweekly periods, was unconstitutional), cert. denied, 507 U.S. 1032, 113 S.Ct. 1851, 123 L.Ed.2d 474 (1993); Quirk v. Regan, 148 Misc.2d 300, 565 N.Y.S.2d 422 (N.Y.Sup.Ct. 1991) (holding that a change in the payment of salaries from one paycheck for ten workings days to one paycheck for nine working days may be implemented only after good faith negotiation). Moreover, in Massachusetts Community College Council v. Commonwealth, 420 Mass. 126, 649 N.E.2d 708 (1995), the legislature enacted a furlough program, wherein every state employee earning an annual salary of $20,000 or more was required to elect one of three options to be carried out between April 14, 1991, and June 30, 1991:(1) to take unpaid days off, unless the Governor designated the employee as a critical and essential employee[;] (2) to work without pay and receive bonus paid vacation days to be available after the beginning of the next fiscal year[;] or (3) to work without pay and receive a lump sum payment when his or her State employment terminated. Id. at 711 (citation omitted). The Supreme Massachusetts Judicial Court struck down the furlough program, holding that the implementation of the program impaired the obligation of the state to pay compensation pursuant to the respective collective bargaining agreements. Id. at 716-17. Obviously, these cases involved actual wage changes; none involved delays in payment without reduction in earned wages for the period worked. As indicated above, the Plaintiffs would receive their full paycheck for the preceding two weeks worked, albeit later than the previous practice under the predicted payroll system. Thus, the Plaintiffs' attempt to equate delayed payment with reduced payment is unpersuasive. The Act 355 amendment, which essentially alters the dates when public employees are to be paid, does not violate article XIII, section 2 of the Hawai`i Constitution nor HRS chapter 89 inasmuch as they do not prohibit a state employer from changing the pay dates of its employees. See supra Section III.A.3.a. Accordingly, we hold that the Act 355 amendment is not unconstitutional. We now turn to address whether the circuit court erred in determining that the implementation of the payroll lag after the stated-time schedule, i.e., after 1998, is unauthorized and, thereby, in violation of the semimonthly payment requirement of HRS § 78-13.