On appeal from a determination of Public Employment Relations Commission.
Matthews, Morgan and Morton I. Greenberg. The opinion of the court was delivered by Morton I. Greenberg, J.A.D. Morgan, J.A.D. (dissenting).
[176 NJSuper Page 88] The State of New Jersey (State) appeals from a decision of the Public Employment Relations Commission (PERC) in a scope-of-negotiations proceeding between the State and Local 195, International Federation of Professional and Technical Engineers (Local 195), the majority representative of certain employees of the State. The disputed contractual provisions relate to three subjects: (1) contracting or subcontracting out work; (2) workweek provisions; (3) transfer and reassignment clauses. The disputed provisions had been contained in the contract between the State and Local 195 for the two-year period from July 1977 through June 1979. The State, however, in negotiating
the contract for the two years commencing July 1979, contended that the contract could not contain these provisions because they were either matters of managerial prerogative or were preempted from the bargaining process by specific laws or regulations. See Ridgefield Park Ed. Ass'n v. Ridgefield Park Bd. of Ed. , 78 N.J. 144 (1978); State v. State Supervisory Employees Ass'n , 78 N.J. 54 (1978). Local 195 rejected this position. As a result, a scope-of-negotiations proceeding was commenced before PERC. PERC rendered a written decision and order on January 4, 1979, in part sustaining the State with respect to the transfer and reassignment clauses. The balance of the State's contentions were overruled. The State has appealed from this decision. Local 195 has not cross-appealed.
A discussion of the issues in this case requires a review of the pertinent law. Under the New Jersey Employer-Employee Relations Act, L. 1968, c. 303, N.J.S.A. 34:13A-1 et seq. , a procedure is established pursuant to which public employers and employees may negotiate with respect to grievances and terms and conditions of employment. The act as originally written was interpreted by the Supreme Court in Dunellen Bd. of Ed. v. Dunellen Ed. Ass'n , 64 N.J. 17 (1973), to provide that items sought to be negotiated were either subjects of managerial discretion and thus nonnegotiable or matters of terms and conditions of employment and thus negotiable. 64 N.J. at 25. However, in 1974 after the amendment to the act by L. 1974, c. 123, PERC developed a tripartite classification to determine whether matters were negotiable. Items sought to be negotiated were either mandatorily negotiable terms and conditions of employment, not lawfully negotiable matters of managerial prerogative, or permissive subjects for negotiation. A permissive subject was one which the parties could choose to negotiate but were not required to do so. See Bridgewater-Raritan Regional Bd. of Ed. , 3 N.J.P.E.R. 23 (1976).
Not surprisingly, the Supreme Court again considered the classification of matters sought to be negotiated. See Ridgefield Park Ed. Ass'n v. Ridgefield Park Bd. of Ed., supra; State
v. State Supervisory Employees Ass'n, supra. The court reiterated that there are but two categories into which a matter sought to be negotiated may fall, a mandatorily negotiable term and condition of employment or a nonnegotiable matter of managerial prerogative. But even an item that is a term and condition of employment will not be negotiable if preempted by specific statute or regulation.
The Legislature has not defined the phrase "terms and conditions of employment" nor has it comprehensively determined what are subjects of managerial prerogative. Accordingly, the courts have dealt with the subject on a case by case basis. In Dunellen Bd. of Ed. v. Dunellen Ed. Ass'n , 64 N.J. 17 (1973), the Supreme Court (at 25) indicated that "lines between the negotiable and the nonnegotiable will often be shadowy." The Supreme Court in State v. State Supervisory Employees Ass'n , 78 N.J. 54 (1978) said:
Accordingly, it becomes our duty to determine against this background whether the disputed items are matters of managerial prerogative or of terms and conditions of employment, and if the latter, whether there is a preemption by specific statute precluding their negotiation. In making these assessments we place upon the State the burden of showing that the decision of PERC was incorrect. Id. at 83-84.
The disputed clause with respect to contracting or subcontracting provides as follows:
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.
PERC found on the basis of its prior decisions that this provision was subject to negotiation. See, e.g., In re Little Egg Harbor Tp. , 2 N.J.P.E.R. 5 (1976). It indicated that "a decision to subcontract would effectively terminate the employment relationship
vis-a-vis the employees in a negotiations unit and would have a 'cataclysmic effect on wages, hours, and working conditions' and thus should be subject to the salutory influence of collective negotiations."
Though we do not doubt that subcontracting out work could result in termination of employment of certain employees, we think that PERC was clearly wrong in its decision that the clause is negotiable. The mere fact that the impact of a decision which is otherwise a matter of managerial prerogative is substantial on some employees makes the decision no less a matter of managerial prerogative. Woodstown-Pilesgrove, etc., Bd. of Ed. v. Woodstown-Pilesgrove Reg'l Ed. Ass'n , 81 N.J. 582, 588-591 (1980); In re Maywood Bd. of Ed. , 168 N.J. Super. 45, 56-58 (App. Div. 1979), certif. den. 81 N.J. 292 (1979). The initial inquiry is thus a determination of the nature of the decision of the employer which is sought to be subjected to negotiation rather than its impact on the employee, for "If the public employer has acted pursuant to a managerial prerogative, the inquiry may end at this point." Woodstown-Pilesgrove, etc., Bd. of Ed., supra , 81 N.J. at 588.
We think it perfectly plain that a determination to contract or subcontract out work is a matter of managerial prerogative. Clearly inherent in such a decision could be cost criteria, efficiency and quality considerations, determinations as to the time that the service may be needed, necessity to transfer employees, reduction in supervision needed, and indeed any number of factors that from a management point of view may make contracting out work a sound decision. It is difficult to conceive of a more fundamental management decision than the determination of who will perform a particular function. Though the case comes to us in a rather abstract way since a decision to subcontract a particular task is not before us, it is appropriate to consider a hypothetical situation. The State may well find that because outside contractors have specialized equipment, contracting out work may save the State the cost of
a large capital expenditure and by permitting more efficient performance reduce labor costs. In such circumstances a decision in favor of subcontracting could be a sound managerial decision. Thus, while we certainly do not suggest that the State should contract out work, we think it clear that a decision to do so is plainly managerial in nature.
Our conclusion that a determination to subcontract work is a managerial prerogative is supported by case law in New Jersey. The Supreme Court in State v. State Supervisory Employees Ass'n , 78 N.J. 54 (1978) stated (at 88): "While a decision to cut the work force to a certain number unquestionably is a predominantly managerial function, the provision of adequate notice to affected employees is certainly a term and condition of employment." The proposal of Local 195 is for discussions of contracting or subcontracting when a layoff or job displacement will result. Layoffs may be the result of the termination of or a reduction in a service, or may be caused from subcontracting work. But regardless of the reason, if the decision of whether a matter is negotiable as a term and condition of employment is made on an impact basis on the employee, there could be no distinction as to the cause of the layoff. Thus, the fact that layoffs may result from subcontracting work cannot make subcontracting a negotiable term and condition of employment since layoffs from other causes are not negotiable. Viewing layoffs from the management perspective, there is no distinction between the character of a decision to shrink a work force by reason of the phasing out or reduction of a service, and a similar reduction because work is subcontracted. Both decisions plainly are fundamental management matters.
In North Bergen Bd. of Ed. v. North Bergen Fed'n of Teachers , 141 N.J. Super. 97 (App. Div. 1976), a school case involving the filling of a promotional position, this court held as follows:
We conclude that the issue of the board's right to select candidates from either within or without the system involves major educational policy and as such must be considered a managerial prerogative. The board, in seeking the best qualified candidates for ...