Step Increases After A Contract Expires

A question about step increases arises with some frequency. Need an employer continue to pay step increases after a contract has expired but before a new contract is negotiated? A recent decision of an appeals court in New Jersey illustrates how issues such as this fall under what is known as the “status quo” doctrine.

The status quo rule requires an employer to maintain existing levels of wages, hours, and working conditions while negotiations for a new contract are in process, even after the contract itself expires. There are two possible ways to view the status quo with respect to pay step increases. One way, known as the “static status quo” rule, views the status quo as established by the actual wages employees are receiving. With this view, granting post-contract step increases, which would change the wages of employees, would violate the status quo rule.

The other view is known as the “dynamic status quo” rule. With this approach, the status quo is not seen as the actual wages employees receive, but rather as routine step increases granted on an employee’s anniversary date. With this view, it would be an unfair labor practice for an employer to not grant employees wage increases. A significant majority of states follow the dynamic status quo approach.

The New Jersey Court’s decision came in a consolidated case involving police unions at the Township of Bridgewater and Atlantic County. In each case, the employer stopped paying step increases after the contract expired. In each case, the unions challenged the employer’s decision by filing grievances that the employer refused to arbitrate. When New Jersey’s Public Employment Relations Commission (PERC) ruled in favor of the employers, the unions appealed. The case attracted over a dozen lawyers and numerous “friend of the court” briefs.

The Appeals Court began with an explanation of PERC’s shifting positions on the issue over the years. PERC adopted the dynamic status quo rule in 1975, finding that “it is the generally accepted view in both the public and private sectors that an employer is normally precluded from altering the status quo while engaged in collective negotiations.” PERC then defined the term “status quo” to include scheduled pay step increases. A year later, PERC observed that a level playing field for labor negotiations between a government employer and the employee bargaining unit requires that “the status quo is predictable and constitutes the terms and conditions under which the parties have been operating.”

The 1976 PERC decision was upheld by New Jersey’s Supreme Court. Citing a decision of the United States Supreme Court to the effect that “unilateral change in the status quo frustrates the statutory objective of establishing working conditions through bargaining,” the New Jersey Court found that “new rules or modifications of existing rules governing working conditions” should only be implemented when they are the product of negotiations.

All of that changed in 2015 in a politically-charged environment, with a majority of the members of PERC now being appointed by Governor Chris Christie. In the Atlantic County case, PERC abandoned the dynamic status quo rule, deciding instead that “a post expiration requirement that employers continue to pay and fund a prior increment system creates myriad instabilities in the negotiations process.” PERC next referred to changing economic conditions, and asserted that governmental budgetary constraints trump labor considerations. PERC’s opinion closed with the statement that “the dynamic status quo no longer fulfills the needs of the parties in that it serves as a disincentive to the prompt settlement of labor disputes, and disserves rather than promotes the prompt resolution of labor disputes. While public employers will continue to be bound by the strictures of maintenance of the status quo, that will be defined as a ‘static’ rather than a dynamic status quo.”

The Appeals Court overturned PERC’s decision, criticizing PERC for essentially acting as a legislative body: “PERC’s decision, undertaken in an area in which the Legislature did not act, was driven by the tax levy cap, concerns regarding government budgets, and not the collective bargaining law. A tax levy cap is beyond PERC’s agency mandate. Concerns regarding budgets are not a primary consideration when the agency safeguards the rights of public employees. PERC’s interpretation of the law outside of its charge is entitled to no special deference.

“PERC is charged with administering the collective bargaining law and its interpretations are entitled to substantial deference. Its interpretation and implementation of laws, and primary consideration of goals outside its charge, however, is not. Contrary to PERC’s conclusion, there is no absolute inconsistency between the tax levy cap statute and the dynamic status quo doctrine because the employer is free to adjust and balance its budget, if necessary, from other expenditures.

“Essentially, PERC found that the cost-saving impetus behind the tax levy cap and the dynamic status quo doctrine conflicted, and on the balance gave greater weight to the tax cap statute. By doing so, it undermined its legislative mandate as embodied in the Act.

“Furthermore, the parties relied on the doctrine in negotiating their contracts. By altering its course, PERC undermined the parties’ legitimate expectations based on their negotiations. Finally, PERC wrongly assumed that government employers cannot negotiate to avoid paying salary increments after the lapse of contracts. The employer also has the option, when engaged in new negotiations, to recoup salary increments in a new contract.”

County of Atlantic, 2016 WL 931269 (N.J. Super. 2016).