On appeal from the Superior Court, Appellate Division, whose opinion is reported at 176 N.J. Super. 85 (1980). (A-9 In the Matter of Local 195, IFPTE, AFL-CIO and State of New Jersey). On certification to the Superior Court, Appellate Division. (A-52/108 In the Matter of State of New Jersey and State Supervisory Employees Association, etc.)
For affirmance in part and reversal in part -- Chief Justice Wilentz and Justices Pashman, Clifford, Schreiber and Pollock. Concurring in part and dissenting in part -- Justices Handler and O'Hern. The opinion of the Court was delivered by Pashman, J. Handler, J., concurring and dissenting. O'Hern, J., concurring in part and dissenting in part.
The New Jersey Employer-Employee Relations Act, N.J.S.A. 34:13A-1 to -21, provides for collective bargaining between the State of New Jersey and public employee unions. During contract negotiations between the State and Local 195 of the International Federation of Professional and Technical Engineers, AFL-CIO (Local 195)*fn1 and between the State and State Supervisory Employees Association (Association),*fn2 disputes arose over the negotiability of several provisions. Once again we must determine the scope of collective bargaining for public employees.
FACTS AND PROCEDURAL HISTORY
A. In the Matter of Local 195
From late 1978 to early 1979, the State and Local 195 were engaged in collective negotiations on a contract to run from July 1979 to June 1981. During the course of the negotiations, the negotiability of several contractual provisions came into question. The disputed clauses concerned (1) limitations on contracting and subcontracting, (2) the establishment of a workweek, and (3) transfer and reassignment determinations. Unable to reach agreement, the parties filed a joint petition for a scope of negotiations determination with the Public Employment Relations Commission (PERC) on May 31, 1979.*fn3 N.J.S.A. 34:13A-5.4(d).
On January 4, 1980, PERC held that the disputed contracting/subcontracting and workweek provisions, and portions of the transfer and reassignment provisions, were mandatorily negotiable. In re Local 195, IFPTE, AFL-CIO, PERC No. 80-85, 6 NJPER 32 (1980). In deciding that subcontracting was a negotiable issue, PERC relied on its earlier cases,*fn4 arguing that subcontracting must be mandatorily subject to negotiation since
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. . . ." [Slip op. at 6]
On October 6, 1980, the Appellate Division substantially affirmed PERC's determinations regarding the workweek and the transfer and reassignment provisions. 176 N.J. Super. 85 (1980).*fn5 The court divided on the negotiability of subcontracting. The majority reversed PERC and held that the determination to subcontract work is an inherent managerial prerogative. Judge Morgan dissented, arguing that the majority had failed to consider the interests of public employees in reaching its decision. Applying a balancing test, Judge Morgan would have found subcontracting to be a mandatorily negotiable issue.
Because of the dissent below, this case comes before the Court on appeal as of right. R. 2:2-1(a)(2).
B. In the Matter of State Supervisory Employees Association
The State of New Jersey and the New Jersey State Supervisory Employees Association, New Jersey Civil Service Association and the New Jersey State Employees Association began negotiations in late 1978 for a contract to run from July 1979 to June 1981. During the negotiations, dispute arose over the negotiability of the same three topics at issue in Local 195.
The State filed three petitions for scope of negotiations determinations with PERC on May 25, 1979.*fn6 On August 28, 1979, PERC held that the subcontracting and workweek provisions were mandatorily negotiable. It further held some of the reassignment provisions negotiable because they reflected procedural concerns of the employees rather than substantive policy determinations by the employer. In the Matter of State and State Supervisory Employees Association, PERC No. 80-19, 5 NJPER 381 (1979). Those provisions that were substantive in nature were held to be non-negotiable.
Relying on the majority opinion in Local 195, supra, the Appellate Division again held subcontracting to be a non-negotiable subject. As in Local 195, Judge Morgan dissented on the issue of subcontracting. The Appellate Division also substantially affirmed PERC's determinations regarding the workweek and reassignment provisions. Unlike PERC, however, the Appellate Division held that provisions regarding (1) the applicability of seniority in transfer determinations, and (2) the transfer of Association officers and stewards, were non-negotiable subjects.
An appeal as of right was taken by the Association on the subcontracting provision, under R. 2:2-1(a)(2). In addition, the Supreme Court granted certification on the transfer and reassignment provisions, upon petition by the Association, and on the workweek provision, upon petition by the State.
Public employees in New Jersey have a constitutional right to organize and present "grievances and proposals" to public employers through representatives of their own choosing. N.J.Const. (1947), Art. I, par. 19. The parameters of collective negotiations about such proposals were established in 1968 by the New Jersey Employer-Employee Relations Act, N.J.S.A. 34:13A-1 to -21, and later by judicial decisions.
The central issue in a scope of negotiations determination is whether or not a particular subject matter is negotiable. This depends on careful consideration of the legitimate interests of the public employer and the public employees. The process of balancing those competing interests is constrained by the policy goals underlying relevant statutes and by the Constitution.
The Legislature has recognized that, like private employees, public employees have a legitimate interest in engaging in collective negotiations about issues that affect "terms and conditions of employment." N.J.S.A. 34:13A-5.3. However, the scope of negotiations in the public sector is more limited than in the private sector.*fn7 This is so because the employer in the public sector is government, which has special responsibilities to the public not shared by private employers.*fn8 What distinguishes
the State from private employers is the unique responsibility to make and implement public policy. In the Matter of Paterson Police PBA Local No. 1 v. Paterson, 87 N.J. 78, 86 (1981); State v. State Supervisory Employees Ass'n, 78 N.J. 54, 67 (1978).
Matters of public policy are properly decided, not by negotiation and arbitration, but by the political process. This involves the panoply of democratic institutions and practices, including public debate, lobbying, voting, legislation and administration. We have stated that
the very foundation of representative democracy would be endangered if decisions on significant matters of governmental policy were left to the process of collective negotiations . . . Our democratic system demands that governmental bodies retain their accountability to the citizenry. [ Ridgefield Park Ed. Ass'n v. Ridgefield Park Bd. of Ed., 78 N.J. 144, 163 (1978)]
We have therefore divided subjects of public employment negotiation into two categories: "mandatorily negotiable terms and conditions of employment and non-negotiable matters of governmental policy." Id. at 162.
The role of the courts in a scope of negotiations case is to determine, in light of the competing interests of the State and its employees, whether an issue is appropriately decided by the political process or by collective negotiations. In making this sensitive determination, the mere invocation of abstract categories like "terms and conditions of employment" and "managerial prerogatives" is not helpful.*fn9 To determine whether a subject is negotiable, the Court must balance the competing interests by considering the extent to which collective negotiations will impair the determination of governmental policy.
Our opinions on public employment have established a three-part test for scope of negotiations determinations.*fn10 First, a subject is negotiable only if it "intimately and directly affect[s] the work and welfare of public employees. . . ." In re Paterson Police PBA, 87 N.J. at 86; Bd. of Ed. of Woodstown-Pilesgrove v. Woodstown-Pilesgrove Ed. Ass'n, 81 N.J. at 591; State v. State Supervisory Employees Ass'n, 78 N.J. at 67. The prime examples of subjects that fall within this category are rates of pay and working hours. Bd. of Ed. of Woodstown-Pilesgrove v. Woodstown-Pilesgrove Ed. Ass'n, 81 N.J. at 589. Any subject which does not satisfy this part of the test is not negotiable.
Second, an item is not negotiable if it has been preempted by statute or regulation. If the Legislature establishes a specific term or condition of employment that leaves no room for discretionary action, then negotiation on that term is fully preempted. If the statute sets a minimum or maximum term or condition, then negotiation may be confined within the parameters established by these limits. State v. State Supervisory Employees Ass'n, 78 N.J. at 80-82; N.J.S.A. 34:13A-8.1. However, the mere existence of a statute or regulation relating to a given term or condition of employment does not automatically preclude negotiations. Negotiation is preempted only if the "statutory or regulatory provisions . . . speak in the imperative
and leave nothing to the discretion of the public employer." State v. State Supervisory Employees Ass'n, 78 N.J. at 80.
Third, a topic that affects the work and welfare of public employees is negotiable only if it is a matter "on which negotiated agreement would not significantly interfere with the exercise of inherent management prerogatives pertaining to the determination of governmental policy." In re Paterson Police PBA, 87 N.J. at 86; Woodstown-Pilesgrove, 81 N.J. at 591; State v. State Supervisory Employees Ass'n, 78 N.J. at 67 (emphasis added in Woodstown-Pilesgrove). This principle rests on the assumption that most decisions of the public employer affect the work and welfare of public employees to some extent and that negotiation will always impinge to some extent on the determination of governmental policy. In re Paterson Police PBA, 87 N.J. at 91-92. The requirement that the interference be "significant" is designed to effect a balance between the interests of public employees and the requirements of democratic decision making. As Justice Schreiber wrote in Woodstown-Pilesgrove,
The nature of the terms and conditions of employment must be considered in relation to the extent of their interference with managerial prerogatives. A weighing or balancing must be made. When the dominant issue is [a governmental] goal, there is no obligation to negotiate and subject the matter, including its impact, to binding arbitration. Thus these matters may not be included in the negotiations and in the binding arbitration process even though they may affect or impact upon the employees' terms and conditions of employment. [81 N.J. at 591]
Thus negotiation will be allowed on a subject that intimately and directly affects the work and welfare of public employees unless such negotiated agreement would significantly interfere with the determination of governmental policy.
To summarize, a subject is negotiable between public employers and employees when (1) the item intimately and directly affects the work and welfare of public employees; (2) the subject has not been fully or partially preempted by statute or regulation; and (3) a negotiated agreement would not significantly interfere with the determination of governmental policy. To decide whether a negotiated agreement would significantly
interfere with the determination of governmental policy, it is necessary to balance the interests of the public employees and the public employer. When the dominant concern is the government's managerial prerogative to determine policy, a subject may not be included in collective negotiations even though it may intimately affect employees' working conditions.
CONTRACTING AND SUBCONTRACTING
The proposed contract provision at issue in State Supervisory Employees Ass'n states:
The State shall meet with the Association to negotiate all incidents of contracting or subcontracting whenever it becomes apparent that a layoff or job displacement might result. [Article XXXII (emphasis added)]
The contract provision in Local 195 states:
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. [Article XXXIV (emphasis added)]
These provisions would require negotiation or discussion only if subcontracting might result in layoffs or displacement. "Nothing more directly and intimately affects a worker than the fact of whether or not he [or she] has a job." State v. State Supervisory Employees Ass'n, 78 N.J. at 84. The clause clearly meets the requirements of the first part of the test for negotiability.
We next decide whether negotiation about subcontracting has been preempted by statute. One possible source of preemption is the Civil Service statutes, by which the Legislature established a merit system for the selection, appointment, classification and discharge of public employees. N.J.S.A. 11:4-1 to -9; see N.J.Const. (1947), Art. VII, § 1, par. 2. Local 195 argues that subcontracting is inconsistent with the merit and fitness requirement of N.J.S.A. 11:4-2 and therefore should not be permitted. Although the Civil Service laws constrain the discretion of the State in selecting employees, they do not prevent the State from subcontracting where appropriate. Indeed,
several New Jersey statutes specifically empower certain agencies to engage in subcontracting.*fn11
Neither the Constitution nor the Civil Service laws require that all State functions be carried out by civil service employees. See New Jersey Sports & Exposition Authority v. McCrane, 119 N.J. Super. 457, 546-48 (Law Div.1971), modified on other grounds, 61 N.J. 1 (1972), appeal dis., 409 U.S. 943, 93 S. Ct. 270, 34 L. Ed. 2d 215 (1972), after remand, 62 N.J. 248 (1973), cert. den., 414 U.S. 989, 94 S. Ct. 291, 38 L. Ed. 2d 228 (1973); State Troopers Fraternal Association v. State, 115 N.J. Super. 503, 507 (Ch.Div.1971), aff'd, 119 N.J. Super. 375 (App.Div.1972), aff'd, 62 N.J. 302 (1973) (both holding that the constitutional "merit and fitness" requirement did not prevent the Legislature from excluding certain public employees from the Civil Service law). We express no opinion on whether subcontracting in a particular instance might violate the constitutional and statutory merit requirements. We simply reiterate that the ability to contract out work, as such, does not contravene the merit and fitness requirements. The Civil Service statutes do not create a blanket prohibition against subcontracting.
A second possible source of preemption is N.J.A.C. 4:1-16.1, which states that the "appointing authority may lay off an employee in the classified service for purposes of efficiency or economy or other valid reason requiring a reduction of the number of employees in a given class." However, this provision grants considerable discretion to the appointing authority. It neither speaks in the imperative nor sets specific maximum or minimum terms or conditions. See State v. State Supervisory Employees Ass'n, 78 N.J. at 80-82. Thus, the regulation does not preempt subcontracting as a negotiable subject. [88 NJ Page 407] Finally, we consider whether negotiation on the substantive decision to contract or subcontract would significantly interfere with the determination of governmental policy.*fn12 The issue of subcontracting does not merely concern the proper technical means for implementing social and political goals. The choice of how policies are implemented, and by whom, can be as important a feature of governmental choice as the selection of ultimate goals. See North Bergen Bd. of Ed. v. No. Bergen Fed'n of Teachers, 141 N.J. Super. 97, 103 (App.Div.1976) ("the board's right to select [the best qualified] candidates from within or without the system involves major educational policy and as such must be considered a managerial prerogative"). It is a matter of general public concern whether governmental services are provided by government employees or by contractual arrangements with private organizations. This type of policy determination does not necessarily concern solely fiscal considerations. It requires basic judgments about how the work or services should be provided to best satisfy the concerns and responsibilities of government. Deciding whether or not to contract out a given government service may implicate important tradeoffs.
Allowing such decisions to be subject to mandatory negotiation would significantly impair the ability of public employers to resort to subcontracting. We have previously held that decisions to reduce the work force for economy or efficiency are non-negotiable subjects. State v. State Supervisory Employees Ass'n, 78 N.J. at 88. See In the Matter of Maywood Bd. of Ed. and Maywood Ed. Ass'n, 168 N.J. Super. 45, 55 (App.Div.1979), certif. den., 81 N.J. 292 (1979). The decision to contract out work or to subcontract is similarly an area where managerial interests are dominant. This is highlighted by the fact that allowing subcontracting to be negotiable may open the road to grievance arbitration. Imposing a legal duty on the state to negotiate all proposed instances of subcontracting would transfer the locus of the decision from the political process to the negotiating table, to arbitrators, and ultimately to the courts. The result of such a course would significantly interfere with the determination of governmental policy and would be inimical to the democratic process. See Bd. of Ed. of Bernards Tp. v. Bernards Tp. Ed. Ass'n, 79 N.J. 311, 321-22 (1979); Kearny PBA Local # 21 v. Kearny, 81 N.J. 208, 215 (1979).
We therefore hold that to the extent the contractual provision at issue in State Supervisory Employees' Ass'n includes negotiation on the ultimate substantive decision to subcontract, it is a non-negotiable matter of managerial prerogative. We recognize that our ruling on subcontracting is at odds with decisions in other jurisdictions. Unified School Dist. No. 1 of Racine County v. Wisconsin, 81 Wis. 2d 89, 259 N.W. 2d 724 (1977); In re Saratoga Springs City School Dist. v. New York State Public Employment Relations Bd., 68 A.D. 2d 202, 416 N.Y.S. 2d 415 (App.Div.1979); Van Buren Public School Dist. v. Wayne Cty. Circuit Judge, 61 Mich.App. 6, 232 N.W. 2d 278 (Ct.App.1975). These decisions rest on the assumption that subcontracting "does not represent a choice among alternative social or ...