Before Judges Pressler, Kimmelman and Ciancia.
The opinion of the court was delivered by: Pressler, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
On appeal from the New Jersey State Board of Education.
This controversy arises out of the July 12, 1995, State takeover of the Newark public school system pursuant to N.J.S.A. 18A:7A-34 to -52, the consequent removal of the Newark Board of Education (Board), and the creation of the State Operated School District of the City of Newark (District).
Petitioners are former senior staff members whose positions were abolished as a result of the takeover, one by reason of N.J.S.A. 18A:7A-42a(3) and the other four by reason of N.J.S.A. 18A:7A-44a. All five had served the Board in their respective abolished administrative positions as at-will, non-union employees, although some were tenured in other positions they had previously held. All were terminated by letter dated and effective in July 1995. They filed a joint appeal with the Commissioner of Education, all asserting that they had an implied contract for the 1995-1996 school year that could not be abrogated without compensation. They also asserted that they were entitled on termination to payment for their respective accumulated vacation days, sick days and personal days. Finally, those terminated pursuant to N.J.S.A. 18A:7A-44a asserted that the sixty-day termination pay provided thereby should have been calculated on the basis of sixty working days, not on the basis of sixty calendar days. The matter was referred to the Office of Administrative Law as a contested case and tried before an administrative law judge (ALJ). The ALJ rejected all petitioners' assertions in her initial decision, which was generally concurred in by the Commissioner of Education, whose decision was affirmed by the State Board of Education. Petitioners appeal. We reverse in part, holding that petitioners' contractual right to payment on termination for accumulated vacation and sick days was not abrogated by N.J.S.A. 18A:7A- 44a, and we remand to the Commissioner for calculation, consistent with this opinion, of the sums to which each petitioner is entitled. In all other respects we affirm.
In large measure the facts are undisputed. We consider them in the context of the relevant legislation. To begin with, there is no challenge to the determination of the Commissioner of Education of the necessity for the takeover by reason of the Board's failure to have assured the children of Newark "a thorough and efficient system of education...." N.J.S.A. 18A:7A-34. Nor is there any challenge on this appeal to the scope of the District's restructuring authority as provided for by the statute. The issues before us involve only the amount of compensation to which petitioners were entitled upon their respective terminations.
Petitioner Howard Johnson, whose at-will job title at the time of his termination was Chief Auditor, was terminated pursuant to N.J.S.A. 18A:7A-42a(3), which provides in relevant part that "the services of the district auditor or auditors and attorney or attorneys shall be immediately terminated by creation of a State-operated school district...." *fn1 The remaining petitioners, Concetta B. Caponegro, Virginia Devane, Norman Jeffries, and Bessie White, were terminated pursuant to N.J.S.A. 18A:7A-44a (Section a), applicable to "the district's chief school administrator and those executive administrators responsible for curriculum, business and finance, and personnel." There is no dispute that these four petitioners were properly categorized as executive administrators subject to Section a. Caponegro's job title, at the time of the takeover, was Acting Executive Director of Human Resources. Devane's was Executive Director for the Office of Board Affairs. White's was Executive Director of Management and Budget. Jeffries's was Executive Controller. Section a provides in relevant part that these positions are to be abolished upon the creation of the State-operated District and that upon abolition:
[t]he affected individuals shall be given 60 days' notice of termination or 60 days' pay. The notice or payment shall be in lieu of any other claim or recourse against the employing board or the school district based on law or contract.
All petitioners but Devane, whose letter from the District was dated July 21, 1995, were advised on July 12, 1995, of the abolition of their respective at-will senior staff positions and their immediate termination therefrom.
As we understand this somewhat truncated record, whose material omissions we refer to hereafter, Johnson was deemed unentitled to the sixty-day severance pay because N.J.S.A. 18A:7A-42a(3) does not provide for it. The four petitioners terminated under Section a, however, all received it. *fn2 For reasons that are unexplained in this record, petitioner Jeffries also received, at the time of his termination, all the accumulated vacation, sick and personal day payment to which he claimed entitlement, and petitioner Johnson received a portion thereof. The other three received none of it. The Commissioner's decision, in affirming the ALJ's conclusion that petitioners were not entitled to be paid for these accumulated days, also directed Johnson and Jeffries to reimburse the District for the payments they had received.
We address first petitioners' claim that they had implied contracts of employment for the 1995-1996 school year by reason of the letter sent to each of them by the then Executive Superintendent, Eugene C. Campbell, on June 29, 1995, just prior to the takeover. The letter offered each of them reemployment for the upcoming school year. The record does not tell us whether there had been written contracts for the prior years of their employment. There is, however, no indication that any of the petitioners executed a written contract for 1995-1996. Nor does the record permit determination of whether such annual employment was subject to Board approval or whether the Superintendent himself had the authority to act alone. The Superintendent recollected that he had placed the issue of petitioners' 1995-1996 reemployment before the Board but was unable to remember whether he had done so simply to inform it of his action or to seek its approval by way of a vote. In any event, petitioners do not assert that they each actually had a binding and enforceable written and executed contract for 1995-1996 but only that each had an implied contract.
We need not consider whether the Superintendent's offer of employment led to any contractual status--implied or otherwise-- because, as the Commissioner correctly pointed out, "even assuming, arguendo, petitioners can establish that a contract for their employment for the 1995-1996 school year, in fact, existed, the language in ... [the takeover statute] renders it abundantly clear that, upon creation of the State-operated School District of the City of Newark on July 12, 1995, any employment 'contract' was extinguished." We are in complete agreement. There can be no question that the takeover statute expressly requires immediate abolition of the positions here in question, contract or not. Nor do we have any doubt that there was no constitutional impediment to the effective prospective nullification of any such contracts. We recognize that both the federal and the State constitutions prohibit the adoption of law impairing the obligation of contract. U.S. Const. art I, § 10, cl. 1; N.J. Const. art. IV, § 7, ¶ 3. The courts have prescribed a three-pronged test for determining whether a statute offends the constitutional proscription, namely, the law "1) must substantially impair a contractual relationship, 2) must lack a significant and legitimate public purpose; and 3) must be based upon unreasonable conditions and be unrelated to appropriate governmental objectives." State Farm Auto Ins. Co. v. State, 124 N.J. 32, 64 (1991). Even if there were here a contractual right to continued employment which the takeover statute substantially impaired, we think it clear beyond cavil that the second and third prongs of the test cannot be met. The takeover rested upon the State's determination that the Newark Board had woefully failed to perform its essential function of providing the City's children with a thorough and efficient education. It is obvious that responsibility for this failure was appropriately laid by the Legislature, in the first instance, upon the Board's senior management and that the only hope for remediation by the State Operated School District lay in its freedom to restructure the supervisory and teaching staff. The immediate abolition of the positions of top managers and termination of their continued employment, contract or not, was, therefore virtually mandated by "a significant and legitimate public purpose" and based upon reasonable conditions related to an appropriate governmental objective.
Although we are therefore persuaded that there was no constitutional prohibition against the abolition of petitioners' positions and their immediate termination, whether or not they had contracts, we are also satisfied that this holding does not resolve the issue of the conditions necessarily attendant upon their termination. There is indeed a distinction that must be drawn between a prospectively effective contract nullification on the one hand and, on the other, the abrogation of previously vested property rights. We are of the view that petitioners were entitled to the same deferred compensation--that is, their accumulated vacation and sick days--that they would have received had ...