Reforming Binding Arbitration

The City of San Jose was a pioneer in reforming their rules governing binding arbitration, rules that may seem obscure and complex to the uninitiated, but which have profound consequences. Until the San Jose city council put arbitration reform on the ballot in 2010, unelected arbitrators could end labor negotiations with decisions that were devastating the city’s finances.

In 2007, an outside arbitrator granted a pension increase to firefighters, extending a process of granting financially reckless concessions. Between 2000 and 2010, the city’s payments for retirement benefits tripled, while at the same time budget cuts forced a 20% reduction in overall city employees.

A 2009-2010 Santa Clara County Grand Jury report entitled “Cities Must Rein In Unsustainable Employee Costs,” concluded the arbitration process in San Jose “has resulted in wage and benefit decisions that have been greater than the growth in basic revenues sources.

For these reasons, in 2010 the San Jose City Council placed a measure onto the November ballot designed to reform the arbitration process. The measure, which voters approved by a margin of 66% to 34%, among other things, placed important limitations on what an arbitrator could do. Crucially, by reforming the arbitration process, it was no longer possible during negotiations for the unions representing city employees to coerce the city into accepting a bad deal because the arbitration process would likely result in an even worse deal. Here are highlights:

1 – If the two sides cannot agree on the neutral arbitrator, then either party may request the Santa Clara County Superior Court to appoint a retired Superior Court judge as the neutral arbitrator. Previously the third appointed arbitrator, the tie-breaker, would come from a from a list provided by the State of California Conciliation and Mediation Service.

2 – Arbitration hearings would be open to the public and documents submitted would be public records, unless provided otherwise by law.

3 – The city’s “ability to pay for employee compensation from on-going revenues without reducing City services” would become the primary factor that the Arbitration Board must consider when making a decision.

4 – Specific criteria was added to give weight to the obligation of an arbitration board to consider how their decision would impact the financial condition of the city. For example, the arbitration board could not approve a new deal that would:

• increase the projected cost of compensation at a rate that is more than the 5-year average increase for sales tax, property tax, utility tax, and telephone tax,
• retroactively increase or decrease compensation (other than base wages) for service already rendered,
• create a new unfunded liability for the City, or,
• interfere with the discretion of the Police or Fire chiefs to make operational or staffing decisions.

Critical to the success of San Jose’s arbitration reform was the support from a bipartisan coalition of city council members, lead by Mayor Chuck Reed, along with influential members of the community including the president of the San Jose Silicon Valley Chamber of Commerce, a local School District Superintendent, the president of the Santa Clara County Taxpayers Association, and small business owners.

ARBITRATION REFORM – SAMPLE LANGUAGE

EXHIBIT A TO RESOLUTION NO. ____

OF THE CITY OF SAN JOSE

That Section 1111 of the City Charter be amended to read as follows:

SECTION 1111. Compulsory Arbitration for Fire and Police Department Employee Disputes.

(a) It is hereby declared to be the policy of the City of San Jose that strikes by firefighting and peace officers are unlawful in the state of California and not in the public interest and should be prohibited, and that a method should be adopted for peacefully and equitably resolving disputes that might otherwise lead to such strikes.

If any firefighter or peace officer employed by the City of San Jose willfully engages in a strike against the City, said employee shall be dismissed from his or her employment and may not be reinstated or returned to City employment except as a new employee. No officer, board, council or commission shall have the power to grant amnesty to any employee charged with engaging in a strike against the City.

(b) The City, through its duly authorized representatives, shall negotiate in good faith with the recognized fire and police department employee organizations on all matters relating to the wages, hours, and other terms and conditions of City employment, including the establishment of procedures for the resolution of grievances submitted by either employee organization over the interpretation or application of any negotiated agreement including a provision for binding arbitration of those grievances. Unless and until agreement is reached through negotiations between the City and the recognized employee organization for the fire or police department or a determination is made through the arbitration procedure hereinafter provided, no existing benefit or condition of employment for the members of the fire department or police department bargaining unit shall be eliminated or changed.

(c) All disputes or controversies pertaining to wages, hours, or terms and conditions of employment which remain unresolved after good faith negotiations between the City and either the fire or police department employee organization shall be submitted to a three-member Board of Arbitrators upon the declaration of an impasse by the City or by the recognized employee organization involved in the dispute. All issues concerning the scope of the Arbitration Board’s authority, jurisdiction or powers shall, upon the request of either party, be resolved by petition to the Superior Court.

(d) Representatives designated by the City and representatives of the recognized employee organization involved in the dispute, controversy or grievance shall each select one arbitrator to the Board of Arbitrators within three (3) days after either party has notified the other, in writing, that it desires to proceed to arbitration. The third member of the Arbitration Board shall be selected by agreement between the two arbitrators selected by the City and the employee organization, and shall serve as the neutral arbitrator and Chairman of the Board. In the event that the arbitrators selected by the City and the employee organization cannot agree upon the selection of the third arbitrator within ten (10) days from the date that either party has notified the other that it has declared an impasse, then either party may request the Superior Court of the County of Santa Clara to appoint an arbitrator who shall be a retired judge of the Superior Court.

Any arbitration convened pursuant to this section shall be conducted in conformance with, subject to, and governed by Title 9 of Part 3 of the California Code of Civil Procedure to the extent that such procedures do not conflict with this Charter Section. Unless otherwise mandated by state or federal law, all arbitration hearings shall be open to the public and all documents submitted in arbitration shall be public records. Notwithstanding any other provision of this Charter to the contrary, the authority, jurisdiction and powers of the Board of Arbitrators are limited by the provisions of this Section.

(e) At the conclusion of the arbitration hearings, the Arbitration Board shall direct each of the parties to submit, within such time limit as the Board may establish, a last offer of settlement on each of the issues in dispute. The Arbitration Board shall decide each issue by majority vote by selecting whichever last offer of settlement on that issue it finds by the preponderance of the evidence submitted to the Arbitration Board satisfies section (f) below, is in the best interest and promotes the welfare of the public, and most nearly conforms with those factors traditionally taken into consideration in the determination of wages, hours, and other terms and conditions of public and private employment, including, but not limited to, changes in the average consumer price index for goods and services, the wages, hours, and other terms and conditions of employment of other employees performing similar services, and the financial condition of the City and its ability to meet the cost of the award.

(f) In all arbitration proceedings conducted pursuant to this section, the primary factors in decisions regarding compensation shall be the City’s financial condition and, in addition, its ability to pay for employee compensation from on-going revenues without reducing City services. No arbitration award may be issued unless a majority of the Arbitration Board determines, based upon a fair and thorough review of the City’s financial condition and a cost analysis of the parties’ last offers, that the City can meet the cost of the award from on-going revenues without reducing City services. The arbitrators shall also consider and give substantial weight to the rate of increase or decrease of compensation approved by the City Council for other bargaining units.

“Compensation” shall mean all costs to the City, whether new or ongoing, for salary paid and benefits provided to employees, including but not limited to wages, special pay, premium pay, incentive pay, pension, retiree medical coverage, employee medical and dental coverage, other insurance provided by the City, vacation, holidays, and other paid time off.

(g) Additionally, the Board of Arbitrators shall not render a decision, or issue an award, that:

1. increases the projected cost of compensation for the bargaining units at a rate that exceeds the rate of increase in revenues from the sales tax, property tax, utility tax and telephone tax averaged over the prior five fiscal years; or

2. retroactively increases or decreases compensation, including, but not limited to, enhancements to pension and retiree health benefit for service already rendered, but excluding base wages; or

3. creates a new or additional unfunded liability for which the City would be obligated to pay; or

4. deprives or interferes with the discretion of the Police Chief or Fire Chief to make managerial, operational or staffing decisions, rules, orders and policies in the interest of the effective and efficient provision of police and fire services to the public.

(h) Compliance with the provisions of this Section shall be mandatory and enforceable pursuant to section 1085 of the Code of Civil Procedure; failure to comply with these provisions shall also constitute an act in excess of jurisdiction.

(i) After reaching a decision, the Arbitration Board shall mail or otherwise deliver a true copy of its decision to the parties. The decision of the Arbitration Board shall not be publicly disclosed and shall not be binding until ten (10) days after it is delivered to the parties. During that ten-day period the parties may meet privately, attempt to resolve their differences, and by mutual agreement amend or modify any of the decisions of the Arbitration Board. At the conclusion of the ten-day period, which may be extended by mutual agreement between the parties, the decision of the Arbitration Board together with any amendments or modifications agreed to by the parties shall be publicly disclosed and shall be binding upon the parties. The City and the recognized employee organization shall take whatever action is necessary to carry out and effectuate the award.

(j) The expenses of any arbitration convened pursuant to this section, including the fee for the services of the Chairman of the Arbitration Board, shall be borne equally by the parties. All other expenses which the parties may incur individually are to be borne by the party incurring such expenses.

(k) This Section shall be effective immediately upon passage by the voters, and shall apply to any arbitration in which hearings commence after November 2, 2010.

Council Agenda: 8-3-10

(l) The voters declare that the provisions of this Section are not severable, and none would have been enacted without the others. Should any portion of this Section 1111 be enjoined or declared invalid, all provisions shall be deemed invalid and inoperative and there shall be no compulsory arbitration for fire and police department employee disputes.

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