On appeal from the Superior Court, Appellate Division, whose opinion is reported at 215 N.J. Super. 361 (1987).
For reversal and reinstatement -- Chief Justice Wilentz, and Justices Handler, Pollock, O'Hern and Garibaldi. For affirmance -- Justices Clifford and Stein. The opinion of the Court was delivered by Handler, J. Clifford, J., dissenting. Justice Stein joins in this dissent.
In this case, the narrow controversy involves the continuing enforceability of a fixed-term employment contract covering the position of Executive Director of a municipal utilities authority. The Court is asked to determine whether such an employment contract, entered into by a local utilities authority, remains valid and enforceable following the dissolution of that authority and another local utilities authority and the establishment of a new municipal utilities authority created to perform the combined functions of the dissolved authorities. In these circumstances, we conclude that under the statutory provisions by which the contracting authority was dissolved, the successor authority was not required to assume the employment contract of the predecessor authority and that the decision to terminate such an employment contract was not an abuse of discretion. Accordingly, we reverse the judgment of the Appellate Division, which allows a result inconsistent with our determination.
George Stone, who brings this appeal, had been the Executive Director of the Old Bridge Municipal Utilities Authority ("Water Authority"). On September 9, 1982, Stone's employment contract was renewed for a five-year term. This contract specifically provided that Stone could be removed from office only for misconduct, failure to carry out his duties, or disability. Furthermore, it stated that if he were terminated for one of these three reasons, he would be entitled to compensation for any accumulated vacation time and sick leave.
On November 1, 1985, the Township of Old Bridge ("Township") enacted Ordinance 40-85 pursuant to the Municipal and County Utilities Authorities Law, N.J.S.A. 40:14B-1 to -69 (the
"Utilities Law"), and the Local Authorities Fiscal Control Law, N.J.S.A. 40A:5A-1 to -27 (the "Fiscal Law"). This ordinance dissolved the Water Authority as well as the Old Bridge Sewerage Authority ("Sewer Authority"). The dissolved authorities had respectively and separately provided water and sewerage services for the residents of the Township. The specific statutory provision invoked to effect the dissolution of these municipal authorities was N.J.S.A. 40A:5A-20, which is part of the Fiscal Law.*fn1 This provides that "[n]otwithstanding the provisions of any other law to the contrary, the governing body of a local unit which has established an authority shall have the power and is authorized by ordinance in the case of a municipality . . . to dissolve the authority. . . ." It also mandates the appropriate procedure for such a dissolution.
The Township's ordinance also created a new agency to perform the combined functions of the dissolved Authorities and to provide both water and sewerage services. The creation of this new governmental entity, which used the same "Old Bridge Municipal Utilities Authority" ("OBMUA") designation as the former Water Authority, was undertaken pursuant to section four of the Utilities Law, N.J.S.A. 40:14B-4. This empowers municipalities to create utility authorities for the provision of services including water and sewerage. See N.J.S.A. 40:14B-19, -20 (purpose and powers of authorities). The establishment of the new authority was also approved by the Local Finance Board of the Division of Local Government Services, Department of Community Affairs, as required by section four of the Fiscal Law. N.J.S.A. 40:14B-4; see N.J.S.A. 40A:5A-5 (providing standard for action by Local Finance Board).
The OBMUA appointed Edward McLane, who had been Executive Director of the former Sewer Authority, as its Executive Director. Shortly thereafter OBMUA terminated Stone's employment, without granting severance pay or other benefits, notwithstanding the guarantees of his contract. Stone was, however, offered a lesser position for a substantially lower salary.
Stone then brought suit against OBMUA, McLane, the former Water Authority, and the Township, contending that the termination of his employment as Executive Director was unlawful and that OBMUA was statutorily required to continue the employment. He sought damages for the breach of his employment contract with the Water Authority. After initially entering an order to show cause and temporarily restraining OBMUA from removing Stone from its payroll, on February 27, 1986, Judge Skillman, then of the Chancery Division, granted defendants' motion to dismiss Stone's complaint for failure to state a claim on which relief could be granted. In so doing the court ruled that the statutory scheme under which the Water Authority had been dissolved and OBMUA created did not mandate the continuation of any employment contract. Instead, the court found that this scheme guaranteed the payment only of "creditors and obligees," which did not include employees with fixed term contracts such as Stone's. The court also understood that the implementing ordinance essentially reflected the requirements of the relevant statutory requirements.
Following this decision, OBMUA immediately terminated Stone from its payroll. He then appealed. In a reported opinion the Appellate Division reversed the trial court judgment. 215 N.J. Super. 361 (1987). There being a dissent in the Appellate Division, Stone appealed to this Court pursuant to Rule 2:2-1(a)(2) seeking a judgment in accordance with that dissent.
Both the majority and dissenting Appellate Division opinions reflect the view that the enforceability of Stone's employment contract is not mandated by statutory law but is instead a matter governed by common-law principles. Applying these principles, the majority opinion was that the contract would be binding on OBMUA unless it could be shown on remand that the employment was eliminated for reasons of economy. 215 N.J. Super. at 367, 369. The dissent took the position that Stone's employment contract with the former Water Authority was binding on OBMUA and that no exception for reasons of economy existed. 215 N.J. Super. at 374. Clearly implicated in both opinions is the view that statutory law does not govern or mandate the enforceability of the contract. However, the narrow issue that separates the majority and dissent, namely, in what manner common-law principles apply, cannot be addressed without a fuller consideration of the validity of OBMUA's actions in terminating the employment contract in light of relevant statutory authority.*fn2 This analysis must
proceed within the statutory framework governing the Township's dissolution of the former Authorities and its contemporaneous creation of OBMUA as their successor.
The dissent expressed the view that the validity and enforceability of the employment contract is not determined by the provisions in any statute but is governed solely by the general common-law rule that requires a successor municipal corporation to assume contract liabilities, including employment contracts of its predecessor. Id. at 374. In expressing this view, the dissent acknowledged that civil service appointments could be terminated for reasons of economy. Ibid. It found that this exception was inapplicable to the contractual employment context, however, notwithstanding the fact that the separate directorships of the former sewerage and water authorities had been consolidated into a single position in the successor authority. Id. at 372-74.
As noted, the majority took a somewhat different but not wholly inconsistent approach. It reasoned that the question of whether the exception for reasons of economy applied in this case could not be resolved on the record, as it required further factual findings about the rationale behind Stone's termination. The Appellate Division majority thus determined that Stone's employment contract ...