Miami Allowed To Reduce Wages, Eliminate Benefits, And Modify Pensions

Lodge 20 of the Fraternal Order of Police (FOP) represents Miami’s rank-and-file police officers. On July 28, 2010, while the parties were engaged in negotiations for a successor agreement, the City declared a “financial urgency” and invoked a process set forth in an unusual Florida statute.

The statute provides that in the event “of a financial urgency requiring modification of a collective bargaining agreement, the chief executive officer or his or her representative and the bargaining agent or its representative shall meet as soon as possible to negotiate the impact of the financial urgency.” In the end, Florida law gives the employer the right to unilaterally implement its last best offer after the conclusion of the bargaining process.

The City informed the FOP that it intended to implement changes to wages, pension benefits, and other economic terms of employment and that it was willing to meet with the FOP and negotiate the impact of these measures. The FOP did not request bargaining over the impact of the City’s decision to declare a financial urgency, but the parties continued to meet and bargain for a successor agreement. During these negotiations, the FOP maintained its position that it would not agree to any modifications concerning wages and pension benefits.

While negotiations for a successor agreement were pending, the City implemented a wide variety of reductions in the benefits called for by the current contract. The changes adopted by the City imposed a tiered reduction of wages, elimination of education pay supplements, conversion of supplemental pay, a freeze in step and longevity pay, modification of the normal retirement date, modification of the pension benefit formula, a cap on the average final compensation for pension benefit calculations, alteration of the normal retirement benefit, and modification of average final compensation. Some of the changes went into effect on September 30, 2010, while others went into effect on October 1, 2010, which was the first day of the City’s 2010/2011 fiscal year.

The FOP filed an unfair labor practice complaint, contending that the City did not face the requisite “financial urgency” to modify its collective bargaining agreement. The evidence established that the City’s budget was approximately $500 million and that it faced a deficit of approximately $140 million for the 2010/2011 fiscal year; that the City had already implemented hiring freezes, completed all previously contemplated layoffs, ceased procurement, and instituted elimination of jobs as employees left; that labor costs comprised 80% of the City’s expenses; that, if additional action was not taken to reduce expenditures, the City’s labor costs would exceed its available funds, which would leave the City unable to pay for utilities, gas, and other necessities and render it unable to provide essential services to its residents; and that the City’s unemployment rate was 13.5% and property values were in decline, with 49% of homes in the City having a negative equity.

The FOP acknowledged that the City faced a difficult financial situation, but took the position that the City’s financial problems did not require modification of the CBA. The FOP’s witnesses suggested that the City could overcome its budgetary shortfall without modifying the CBA by raising the millage tax rate, installing red light cameras, imposing non-union employee layoffs and furloughs, freezing the current cost of living adjustment, and changing the pension funding methodology.

Florida’s Court of Appeals sided with the City, and concluded that it acted properly under the “financial urgency” statute. The Court found that “the Legislature’s use of the word ‘urgency’ implies a financial condition requiring immediate action. The fact that there are other statutes that apply when a local government is facing a financial emergency or bankruptcy implies that a financial urgency is something less dire than those conditions. Thus, we conclude that a financial urgency is a dire financial condition requiring immediate attention and demanding prompt and decisive action, but not necessarily a financial emergency or bankruptcy.

“The existence of such a financial condition is a compelling state interest that can justify a unilateral modification of a contract, but the statute may only be invoked if the financial condition requires modification of the agreement. Thus, if the financial condition can be adequately addressed by other reasonable means, then a modification of the agreement is not required. If, however, the other reasonable alternatives available to the local government are not adequate to address the financial condition facing the local government, then the statute permits the local government to unilaterally modify the CBA.

“We conclude that in a proceeding under the Statute, the local government is not required to demonstrate that funds are not available from any other possible source to preserve the agreement; instead, the local government must only show that other potential cost-saving measures and alternative funding sources are unreasonable or inadequate to address the dire financial condition facing the local government.

“Here, the recommended and final orders reflect that the hearing officer and PERC considered all of these factors in determining that the City was facing a dire financial situation that required modification of the CBA, and there is competent substantial evidence in the record to support the factual findings made by the hearing officer and adopted by PERC. Accordingly, we affirm PERC’s determination that the City properly invoked the procedures in the statute and, thus, did not commit a ULP when it unilaterally modified the CBA.”

Headley v. City of Miami, 118 So.3d 885 (Fla. App. 2013).