Arbitrators Not Prevented from Awarding Compensation Exceeding That Allowed under City’s Recovery Plan

For nearly 20 years, the City of Scranton, Pennsylvania has maintained the status of a “distressed municipality” under the Pennsylvania Municipalities Financial Recovery Act. Under the Act, the City’s financial affairs have been administered under various recovery plans with the assistance of a plan coordinator appointed by the Pennsylvania Department of Community Affairs.

The City’s 2002 recovery plan imposed substantial cost containment measures addressing the City’s deficit and debt, including various labor relations provisions applicable to employees. The recovery plan reflected an intention on the City’s part for a full enforcement of the terms and conditions of the plan, and contained a provision that “to the extent that the City is unable to reach agreement with any of its unions, resulting in interest arbitration or other legal proceedings, it is the express intention of the City that the implementation of these cost-containment provisions is mandatory.” The plan did allocate some funding toward upward adjustments in personnel-related costs, though there was an associated prohibition on retroactive changes.

Negotiations between the City and the firefighter and police unions failed to reach agreement in 2002. In arbitration, the City maintained that the arbitrators lacked legal authority to award relief impinging upon the recovery plan. In particular, the City cited a provision of the Financial Recovery Act that “a collective bargaining agreement or arbitration settlement executed after the adoption of the plan shall not in any manner violate, expand or diminish its provisions.”

In both arbitration awards, the panel members recognized the City’s financial distress and the remedial measures implemented by the recovery plan. The Arbitrators concluded, nonetheless, that compensation of City public safety employees was significantly lower than the wages and benefits afforded to others throughout the state. The panel majorities awarded lump-sum bonuses to police and fire personnel of $1,000 for 2003; $1,000 (firefighters) and $1,220 (police) for 2004; $1,250 (firefighters) and $1,500 (police) for 2005; salary increases of 5.5% as of the last day of 2005; 3.5% for 2006; and 4.0% for 2007, as well as adjustments of health insurance deductibles.

The City challenged the arbitration decisions in the Pennsylvania Supreme Court, taking the position that the arbitration decisions were void because they exceeded the compensation limits in the financial recovery plans. The Court sided with the police and fire unions.

The Court found that the phrase “arbitration settlement” in the Financial Recovery Act was ambiguous. The Court reasoned that, “on the one hand, the word ‘settlement’ is commonly used, in general parlance and in law, to signify a voluntary compromise of disputes. On the other hand, courts often speak of matters being ‘settled’ via adjudicative and/or quasi-adjudicative processes. In particular, in the arena of non-judicial dispute resolution, this Court has long spoken of the settlement of disputes by arbitration.

“There being no clear predominance of either of the strong and competing social policies in play, concomitantly, we find no overt policy-based answer to whether leverage for ailing municipalities or balanced labor relations in the local public safety arena should prevail. In the end, we agree with the unions that the policies underlying interest arbitration are too strong and engrained in public sector labor law to be displaced by extrapolation on account of an ambiguous reference. It is our considered judgment that, if it is the legislative will to displace them, this should be conveyed in explicit terms. Such clarity is particularly important in a labor relations environment in which, to all appearances, the result may be a perpetual upset of the historic balance achieved by the collective bargaining laws. We hold that the Financial Recovery Act does not impinge upon interest arbitration awards under the collective-bargaining law.”

City of Scranton v. Firefighters Local Union No. 60, of Intern. Ass’n of Fire Fighters, AFL-CIO, 29 A.3d 773 (Pa. 2011).

The article appears in our January 2012 issue.