13(c) Issues in Contracting and Reduction of Transit Services. Jane Sutter Starke Thompson Coburn LLP February 23, 2010
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1 13(c) Issues in Contracting and Reduction of Transit Services Jane Sutter Starke Thompson Coburn LLP February 23, 2010
2 Contracted Services (a) outsourcing new services or publicly operated services to be contracted out -- maintenance -- operations -- new rail services 2
3 (b) reprocurement of existing services already contracted out -- potential change in contractors as a result of procurement 3
4 How do 13(c) issues arise? 1. Unions become involved in the procurement process 2. Claims -- filing of 13(c) claims against transit agency seeking 13(c) protection 4
5 3. Objection filed at Department of Labor -- seeking modifications to 13(c) protections during referral of FTA grant 4. Injunction/litigation -- allege contracting action should not go forward -- allege breach of 13(c) protections 5
6 13(c) Claims Claims can seek 13(c) benefits, job rights, and continuation of current collective bargaining agreement. Under 13(c) protections, arbitration clause provides for binding arbitration of claims. Process specified selection of arbitrator; timing for arbitration proceeding; procedures for subpoenas and document production; and scope of authority of arbitrator 6
7 Objection at DOL Under DOL s 13(c) Guidelines (29 CFR Part 215), once a grant is referred either party can object to the existing 13(c) protections Requirement for showing of sufficiency. Basis of objection can be either: (a) material issues exist that may require alternative employee protections, or (b) change in legal or factual circumstances that may materially affect the rights or interests of employees. 7
8 DOL rules on sufficiency of the objection -- If sufficiency finding made, negotiations are required, and briefing of any remaining disputed issues -- DOL determines unresolved issues in certification of grant and imposes new 13(c) terms -- If objection is found insufficient, the grant is certified 8
9 Litigation -- Unions can seek to enjoin contracting action until 13(c) issues resolved --Litigate whether contracting is a violation of 13(c) agreement 9
10 Substantive 13(c) Issues 1. 13(c) Carryover Rights (a) do current employees performing the work have a right to a job assurance with new contractor? (b) does current collective bargaining agreement carryover to new employer? (c) does union have continued representation rights of the workforce? 10
11 13(c) Carryover Rights -- 13(c) only provides job assurances in event of a federally funded acquisition of a transit system (13(c)(4); 49 USC 5333(b)(2)(D)) -- some 13(c) protections will include this right as a matter of contract (past acquisitions; Memphis Plans ) 11
12 -- Unions have argued that 13(c)(1) and (2) provides this right and that contractors are bound by 13(c) agreements under the successor clause. -- Absent an acquisition no carryover right exists (a) Las Vegas decision no job right exists unless a federally assisted acquisition occurring (b) SAFETEA-LU codification of Las Vegas decision 12
13 2. CBA Issue Does contracting action violate current collective bargaining agreement? -- is there a restriction on contracting out work? -- a violation of a collective bargaining agreement is also a violation of 13(c) 13
14 3. 13(c) Protective Benefits -- Dismissal and displacement allowances for worsenings in employment -- To prevail, cause of harm in employment must be shown to be a Federal grant/project 14
15 -- Use of Federally funded assets not enough -- Burden of proof in 13(c) claims cases -- Usually sought in alternative in event no carryover right found 15
16 4. Scope of 13(c) Protection -- Covers both unionized and non-unionized employees -- Covers all but top level management employees in policy making role -- Covers service area mass transit employees, regardless of employer -- 13(c) certification language/claims adjudicated either in arbitration or by DOL 16
17 5. Implementing Agreements Scope of implementing agreements: applying 13(c) protections to the proposed change and assignment of employees in restructured services 17
18 -- Written notice required prior to proposed change in organization, operations, or rearrangement of working forces being implemented -- Must be a change occurring as a result of a Federal project 18
19 -- Can contracting action proceed before an implementing agreement is developed? -- Preconsummation issue if anticipated employee harm is significant, cannot proceed and implementing agreement must be developed 19
20 6. Sole Provider Clause -- In Model 13(c) Agreement. Clause provides that the grant recipient is sole provider of transit services, and services are to be provided exclusively by employees of the Recipient, in accordance with the applicable CBA. -- Some arbitrators read this to prohibit contracting. 20
21 Procurement Terms -- Can address 13(c) issues in outsourcing procurement documents -- As a matter of policy, agency can require contractor to: (a) give a preference in hiring to existing workforce; 21
22 (b) (c) (d) (e) set number of positions; create floor in wages and key terms of employment; require recognition of existing union as bargaining agent; in rail cases, require contractor to be a carrier, and thus subject to RR Retirement, FELA, and Railway Labor Act. 22
23 -- Sets labor terms and costs, but mitigates 13(c) issues and disputes -- 13(c) liability contractor or public agency? require contractor to cooperate in claims disputes and at termination (and transition to new operator) 23
24 -- Bind contractor to 13(c) terms; agency remains guarantor and liable -- Apportion liability and responsibility for 13(c) between contractor and public agency 24
25 13(c) Issues Associated with Reduction of Transit Services Three categories of protected harm in employment under 13(c): 1. dismissals or layoffs; 2. displacement or reduction in employment terms wages or benefits, such as loss of overtime, or changes to benefits 25
26 3. Worsenings any perceived harm in employment such as reassignment; different hours; loss of fringe benefits -- 13(c) protection provides for payment of monetary allowances to compensate for the loss of earnings or benefits -- Changes in benefits and wages can always occur through bargaining. Unless economic floor on bargaining in 13(c) protections, negotiated changes should not be a compensable claim. 26
27 Harm must be shown to be caused by Federal project -- in service reduction cases, the cause is often reductions in revenue, economic considerations and resulting service restructuring -- check definition of as a result of project in 13(c) protections 27
28 -- Remember burden of proof problem -- Document economic reasons and justification for reduction and changes in service to help defend claims. 28
29 MBTA Case -- State legislation passed in 2009 to change early retirement pension benefit and move MBTA employees health benefits to State insurance system. -- Legislative initiative was driven by high costs negotiated in MBTA collective bargaining agreements (life time health benefits at no cost; early retirement full benefits after 23 years of service). -- Legislation estimated to save MBTA $30m/year. 29
30 Unions sued MBTA, Commonwealth, and State Group Insurance Commission alleging (1) violation of 13(c) agreement -- State law violates 13(c)(1) requirement to preserve and continue rights under collective bargaining agreement; alters pension and health benefits without bargaining in violation of 13(c)(2) which preserves the collective bargaining process. 30
31 (2) taking under Constitution -- free health care benefits and right to bargain over health and pension are rights and property being taken without compensation or due process; and (3) violation of Contract Clause of Constitution -- State law impairing 13(c) agreement and labor contracts. 31
32 -- State legislation provided that transition in health plans would take place at end of collective bargaining agreement terms. Non-represented employees were to transition January 1, Upon transition, health benefits no longer subject to collective bargaining but determined by State entity. -- Pension changes would only apply to new hires (with no pre-existing collective bargaining agreement). -- Union sought an injunction for first transition over to State health plan by unrepresented management employees (with no collective bargaining agreement). 32
33 Arguments 13(c) Issues (1) 13(c)(1) obligation is to preserve rights and benefits under existing collective bargaining agreements. State law provides for transition after collective bargaining agreement expires. As to unrepresented employees, no collective bargaining agreement protected by 13(c)(1). (2) 13(c)(1) does not protect rights under collective bargaining agreement in perpetuity. 33
34 (3) 13(c) agreements are subject to State law (Jackson Transit) and in event of conflict State law prevails. State law governs the scope of bargaining and 13(c)(2) does not prohibit States from changing the framework of bargaining. 34
35 Impairment of Contract (1) Contract clause only applies to laws with retroactive effect. Here, State statute prospective and applies only to rights after collective bargaining agreement expired. Retirees and non-represented personnel have no contract in effect. (2) Even if impairment exists, is lawful if reasonable and necessary to serve important public purpose, including economic needs. 35
36 -- Decision denying injunction issued Dec. 24, Held: No likelihood of prevailing on the merits -- No contractual obligation exists (no cba exists) -- Under 13(c) no right to free life time health plans and subsequent State law enactments control over conflicting 13(c) terms -- No irreparable harm since financial losses can be accounted for and remediated -- Next transition July 1 (affecting represented employees). 36
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