Opinion ID: 2599971
Heading Depth: 4
Heading Rank: 2

Heading: infringement on the right to collectively bargain over wages

Text: 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.