Opinion ID: 2325323
Heading Depth: 1
Heading Rank: 3

Heading: contracting and subcontracting

Text: The proposed contract provision at issue in State Supervisory Employees Ass'n states: The State shall meet with the Association to negotiate all incidents of contracting or subcontracting whenever it becomes apparent that a layoff or job displacement might result. [Article XXXII (emphasis added)] The contract provision in Local 195 states: The State agrees to meet with the Union to discuss all incidences of contracting or subcontracting whenever it becomes apparent that a layoff or job displacement will result. [Article XXXIV (emphasis added)] These provisions would require negotiation or discussion only if subcontracting might result in layoffs or displacement. Nothing more directly and intimately affects a worker than the fact of whether or not he [or she] has a job. State v. State Supervisory Employees Ass'n, 78 N.J. at 84. The clause clearly meets the requirements of the first part of the test for negotiability. We next decide whether negotiation about subcontracting has been preempted by statute. One possible source of preemption is the Civil Service statutes, by which the Legislature established a merit system for the selection, appointment, classification and discharge of public employees. N.J.S.A. 11:4-1 to -9; see N.J.Const. (1947), Art. VII, § 1, par. 2. Local 195 argues that subcontracting is inconsistent with the merit and fitness requirement of N.J.S.A. 11:4-2 and therefore should not be permitted. Although the Civil Service laws constrain the discretion of the State in selecting employees, they do not prevent the State from subcontracting where appropriate. Indeed, several New Jersey statutes specifically empower certain agencies to engage in subcontracting. [11] Neither the Constitution nor the Civil Service laws require that all State functions be carried out by civil service employees. See New Jersey Sports & Exposition Authority v. McCrane, 119 N.J. Super. 457, 546-48 (Law Div. 1971), modified on other grounds, 61 N.J. 1 (1972), appeal dis., 409 U.S. 943, 93 S.Ct. 270, 34 L.Ed. 2d 215 (1972), after remand, 62 N.J. 248 (1973), cert. den., 414 U.S. 989, 94 S.Ct. 291, 38 L.Ed. 2d 228 (1973); State Troopers Fraternal Association v. State, 115 N.J. Super. 503, 507 (Ch.Div. 1971), aff'd, 119 N.J. Super. 375 (App.Div. 1972), aff'd, 62 N.J. 302 (1973) (both holding that the constitutional merit and fitness requirement did not prevent the Legislature from excluding certain public employees from the Civil Service law). We express no opinion on whether subcontracting in a particular instance might violate the constitutional and statutory merit requirements. We simply reiterate that the ability to contract out work, as such, does not contravene the merit and fitness requirements. The Civil Service statutes do not create a blanket prohibition against subcontracting. A second possible source of preemption is N.J.A.C. 4:1-16.1, which states that the appointing authority may lay off an employee in the classified service for purposes of efficiency or economy or other valid reason requiring a reduction of the number of employees in a given class. However, this provision grants considerable discretion to the appointing authority. It neither speaks in the imperative nor sets specific maximum or minimum terms or conditions. See State v. State Supervisory Employees Ass'n, 78 N.J. at 80-82. Thus, the regulation does not preempt subcontracting as a negotiable subject. Finally, we consider whether negotiation on the substantive decision to contract or subcontract would significantly interfere with the determination of governmental policy. [12] The issue of subcontracting does not merely concern the proper technical means for implementing social and political goals. The choice of how policies are implemented, and by whom, can be as important a feature of governmental choice as the selection of ultimate goals. See North Bergen Bd. of Ed. v. No. Bergen Fed'n of Teachers, 141 N.J. Super. 97, 103 (App.Div. 1976) (the board's right to select [the best qualified] candidates from within or without the system involves major educational policy and as such must be considered a managerial prerogative). It is a matter of general public concern whether governmental services are provided by government employees or by contractual arrangements with private organizations. This type of policy determination does not necessarily concern solely fiscal considerations. It requires basic judgments about how the work or services should be provided to best satisfy the concerns and responsibilities of government. Deciding whether or not to contract out a given government service may implicate important tradeoffs. Allowing such decisions to be subject to mandatory negotiation would significantly impair the ability of public employers to resort to subcontracting. We have previously held that decisions to reduce the work force for economy or efficiency are non-negotiable subjects. State v. State Supervisory Employees Ass'n, 78 N.J. at 88. See In the Matter of Maywood Bd. of Ed. and Maywood Ed. Ass'n, 168 N.J. Super. 45, 55 (App.Div. 1979), certif. den., 81 N.J. 292 (1979). The decision to contract out work or to subcontract is similarly an area where managerial interests are dominant. This is highlighted by the fact that allowing subcontracting to be negotiable may open the road to grievance arbitration. Imposing a legal duty on the state to negotiate all proposed instances of subcontracting would transfer the locus of the decision from the political process to the negotiating table, to arbitrators, and ultimately to the courts. The result of such a course would significantly interfere with the determination of governmental policy and would be inimical to the democratic process. See Bd. of Ed. of Bernards Tp. v. Bernards Tp. Ed. Ass'n, 79 N.J. 311, 321-22 (1979); Kearny PBA Local # 21 v. Kearny, 81 N.J. 208, 215 (1979). We therefore hold that to the extent the contractual provision at issue in State Supervisory Employees' Ass'n includes negotiation on the ultimate substantive decision to subcontract, it is a non-negotiable matter of managerial prerogative. We recognize that our ruling on subcontracting is at odds with decisions in other jurisdictions. Unified School Dist. No. 1 of Racine County v. Wisconsin, 81 Wis. 2d 89, 259 N.W. 2d 724 (1977); In re Saratoga Springs City School Dist. v. New York State Public Employment Relations Bd., 68 A.D. 2d 202, 416 N.Y.S. 2d 415 (App.Div. 1979); Van Buren Public School Dist. v. Wayne Cty. Circuit Judge, 61 Mich. App. 6, 232 N.W. 2d 278 (Ct.App. 1975). These decisions rest on the assumption that subcontracting does not represent a choice among alternative social or political goals or values. Unified School Dist., etc., 259 N.W. 2d at 732; In re Saratoga Springs, etc., 416 N.Y.S. 2d at 419. As we have stated, we do not agree that the decision to contract out work necessarily concerns merely the technical means of implementing policy. The decision can be an important policy choice in its own right. These out-of-state decisions also emphasize the wisdom of pursuing discussion between public employers and employees. See, e.g., Van Buren Public School, etc., 232 N.W. 2d at 288. We fully agree that such discussions are valuable and should be fostered. They would undoubtedly promote labor peace and harmony, a major goal of the New Jersey Employer-Employee Relations Act. N.J.S.A. 34:13A-2. Moreover, they may even result in greater efficiency or economy. If a public employer is considering subcontracting as a means to achieve these goals, employees may be motivated to suggest changes in working conditions that could accomplish the same or better results. For these reasons, we fully expect that discussion between public employers and employees will be undertaken by the State. It is clearly in the interest of the State to do so. At oral argument, the representatives of the State voiced a commitment to pursue discussion with public employees before resorting to subcontracting. This is altogether appropriate. We do not mean to stifle discussion. We encourage it. State officials would be derelict in their public responsibilities if they did not pursue such discussions. To this end, we hold that a public employment contract may include a provision reciting an agreement by the State to discuss decisions to contract or subcontract whenever it becomes apparent that a layoff or job displacement will result, if the proposed subcontracting is based on solely fiscal considerations. In such situations, the public would clearly benefit from suggestions by public employees directed toward improving economy or efficiency. While the public employees have no right to negotiate on the ultimate decision to subcontract, they may have a procedural right to present their position on the economic issue. Thus, for example, they could seek to show the employer that the employees are willing to perform the same job at a price competitive with the private replacements. Discussion of subcontracting which is contemplated for purely fiscal reasons does not implicate governmental policy to the extent that it would if the decision were based on non-fiscal reasons. Replacing public employees with private employees solely to save money does entail a choice about the level of government spending, a matter of great public concern. However, discussion about such a replacement would not significantly interfere with the determination of public goals. In fact, as we have explained, such discussions would be in the public interest, since employees could demonstrate that they would do the same work more efficiently than a private contractor. In Local 195, the contract provision would be acceptable if it limited discussion to occasions of subcontracting or contracting likely to result in job layoffs only when the subcontracting is done solely for fiscal or economic reasons. However, as written, the provision is overly broad. Placing a legal duty on the State to discuss subcontracting when proposed for broader policy purposes would place too great a burden on the determination of governmental policy. Only when the contracting out is proposed for purely economic reasons does the employee interest in discussion of alternative solutions become dominant. Both contract provisions appear to allow negotiation or discussion not only on the ultimate issue of subcontracting but on the effects of subcontracting on public employees. To the extent the provisions impose a duty on the State to negotiate procedural aspects of the subcontracting decision as they affect employees, the clauses are negotiable. For example, negotiation could occur on the issue of adequate notice to employees that they are going to be laid off. We have held that, although substantive policy decisions may be non-negotiable matters, procedural aspects of the decision are negotiable. State v. State Supervisory Employees Ass'n, 78 N.J. at 90-91. Negotiation about the procedures for laying off employees will not significantly interfere with the underlying policy determination. They are therefore negotiable terms and conditions of employment. We emphasize that our holding today does not grant the public employer limitless freedom to subcontract for any reason. The State could not subcontract in bad faith for the sole purpose of laying off public employees or substituting private workers for public workers. State action must be rationally related to a legitimate governmental purpose. Our decision today does not leave public employees vulnerable to arbitrary or capricious substitutions of private workers for public employees. We conclude that, as written, both proposed contractual provisions relating to contracting and subcontracting are non-negotiable matters of managerial prerogative.