Budgetary Pressures

Budgetary pressures have persuaded the legislatures of several states to implement “pay lags” or brief “furloughs” in which public employees either lose pay or sustain a delay in receiving their pay. With one exception, the courts have found these practices to conflict with the contracts clause if those employees’ pay rights are protected by collective bargaining agreements. A federal appellate court upheld a preliminary injunction issued against the State of Hawaii, ruling that the state’s “pay lag” law violated the contracts clause. The law provided that the employees would be paid several days later than provided for in their collective bargaining agreement (through consistent past practice over several decades), and also provided that the pay lag was not subject to negotiation. The court ruled that the “pay lag” law would impose a substantial hardship on employees. In its ruling, the court cited Massachusetts Community College Council v. Commonwealth of Massachusetts, 649 N.E.2d 708 a state court opinion nullifying a state law creating an “employee furlough,” which required employees to take unpaid days off in order to meet a budget crisis. Because the affected employees were covered by collective bar- gaining agreements, the court ruled that the furlough law violated the contracts clause. A contrary ruling by the U.S. Court of Appeals for the Fourth Circuit in Baltimore Teachers Union v. Mayor of Baltimore, was criticized by subsequent courts in similar cases, and in “Recent Case: Fourth Circuit Upholds City’s Payroll Reduction Plan as a Reasonable and Necessary Impairment of Public Contract,”

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