Let Me Out.. Contingency Clauses and Collective Bargaining with In-Home Supportive Services Workers Introduction Background IHSS History

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1 Let Me Out.. Contingency Clauses and Collective Bargaining with In-Home Supportive Services Workers by Jeffrey M. Lambaren, Executive Director Link2Care the In-Home Supportive Services Public Authority of Stanislaus County Introduction This paper provides an overview of the In-Home Supportive Services (IHSS) Program, Public Authorities and explore the use of the contingency clause in labor contracts between counties and IHSS providers (workers) via their designated labor organizations. Contingency clauses are useful tools to incorporate into labor contracts where funding is or has the possibility to be uncertain. The contingency clause can be used to protect one or both of the contracting entities. There are multiple types of contingency clauses; they should be studied for their desired results and applied where appropriate. Background As of the writing of this paper (mid 2009), the State of California is in a dire financial predicament. The state is projecting a $26 billion dollar budget short-fall 1. By mid-may the state has exhausted its borrowing capability and Propositions A-E designed to raise taxes were defeated by a wide margin. The state is considering draconian cuts to all types of programs and services; everything from early release of prisoners to elimination of social programs is being proposed to balance the budget. The governor has publicly proclaimed that he will let the state go broke rather than consider another tax increase. IHSS History Funded by a combination of federal, state and local funds, the IHSS program provides various domestic and personal care services to eligible aged, blind and disabled persons who are unable to remain safely in their homes without such assistance. In home care has a long history in California: 1950 s - the Old Age Assistance program was created to assist the aged, blind and disabled s - Attendant care program established as disabled UC Berkeley students use Medi- Cal funding to hire personal attendants to assist with their care s - the federal government assumes funding of the aged, bind and disabled programs.

2 Assembly Bill 134 established a homemaker program in California, creating the modern IHSS Program the State Legislature authorizes the Personal Care Services Program (PCSP), to receive enhanced federal funding for IHSS Assembly Bill 1682 creates the Public Authority model by required each county to designate an employer of record by January 1, Supreme Court s Olmstead Decision; strengthens independent living movement. Public Authorities Since the passage of Assembly Bill (AB) 1682 in 1999, most counties have established Public Authorities. Public Authorities have a number of functions, one of which is to negotiate with designated labor unions on wages and benefits. Public Authorities differ from traditional employers in a number of ways: The role of the employer is distributed, There is no central office, Working conditions vary greatly. First, the role of the employer is distributed. The Public Authority is the Employer of Record for labor relations; it negotiates with represented employees for wages and benefits. The IHSS program determines the number of hours that can be worked for each IHSS consumer; the State of California pays wages, payroll taxes and workers compensation for IHSS providers; and the IHSS consumer is the employer for the purpose of hiring and firing the IHSS provider. Second, there is no central office. Providers work in the consumer s home; there is no central location to report to. This distributed arrangement causes communication difficulties and providers are frequently operating in the dark, with little or no formal training and often without proper equipment. Finally, working conditions vary greatly from consumer to consumer. Unlike traditional employment, in the IHSS program, services are provided in the consumer s home. For example, a provider works for two consumers; the first consumer owns her own home, has a car, cleaning supplies, a vacuum, washer and dryer at the home. The second consumer lives in a small, dirty trailer, has no car, no vacuum, little if any cleaning supplies, and laundry must be done at a Laundromat that is a mile away. Both consumers are entitled to the same services, but providing care in the first consumer s home is much easier as the necessary tools and supplies are readily available. Labor Unions have been strong supporters of the Public Authority model, specifically because AB 1682 authorized the funding of additional wages and health benefits if counties formed Public Authorities

3 Public Authorities specifically have the charge to negotiate wages and benefits with the unions that represent IHSS providers. To date there are two main unions, Service Employees International Union () and the United Domestic Workers of America (UDWA). A listing of unions by county is provided under Supplemental Information section. Funding and Program Growth Funding for the IHSS program and Public Authorities comes from a combination of federal, state and local monies. For Fiscal Year (FY) the total budget, federal, state and local costs for the IHSS Program, was $5.57 billion dollars 2. With the exception of FY , Governor Schwarzenegger has proposed to cut funding to the IHSS program every year since his election in The IHSS program is an entitlement program; all those who qualify are eligible regardless of the state s ability to pay. The governor has sought to cut state participation for IHSS provider wages as a way to reduce the escalating costs of the program. In the Governor s Budget Highlights it is noted that the IHSS program General Fund costs have grown 194 percent from FY to FY while the caseload growth for the same period is 81 percent 3. Much of this can be attributed to increased wages and health benefits. In their March 24, 2009, report the Legislative Analyst s Office indicates that approximately 50% of the program cost growth is due to IHSS provider wage increases 4. As one of the budget balancing strategies for FY 09-10, the governor recommended reducing the state s contribution to IHSS provider wages to $8.00 per hour 5. The legislature rejected the governor s recommendation but did agree to lower the contribution to wages from $11.50 per hour to $9.50 per hour 6. Without contingency language in labor contracts with IHSS providers, counties could be on the hook for millions of dollars. It is in this backdrop that I am writing about the importance of contingency clauses in labor contracts with IHSS providers and their designated unions. Contingency Clauses Contingency clauses protect the contracting parties against factors beyond their control. A contingency clause in a contract is used when unknown factors are likely to occur which could influence the performance of the contract. Contingencies fall into two categories: those that may arise from presently known and existing conditions and those that arise from unknown conditions. One of the more familiar uses of a contingency clause is for known and existing conditions, such as a real estate transaction. The buyer wants to buy and the seller wants to sell a property. In order to complete the sale, the buyer must obtain a mortgage. The real estate contract would include a contingency clause stating that the sale is contingent upon the buyer obtaining a mortgage within 60 days. A similar example would be the sale of the house being contingent upon the property passing a pest inspection. If the contingency is not fulfilled then the sale is null and void

4 The second type of contingency is force majeure, which literally means greater force. Force majeure clauses exempt performance failures which are outside the control of the contracting parties and commonly cover natural disasters, such as floods, fires and earthquakes, as well as human events such as wars, riots, or other major upheavals. Using our real estate analogy, the buyer and seller agree to terms of sale; the contract is signed, but prior to the specified date the house burns down due to a wild fire caused by a lighting strike. The transaction cannot be completed because the home no longer exists; therefore, the parties are exempted from fulfillment of the contract. The Value of Contingency Clauses Because of the volatility of state funding, contingency clauses in IHSS labor contracts are important. As California entered FY the state, as was much of the nation, was financially optimistic. The mortgage crisis, banking crisis, and credit crisis would soon end any optimism. California, known in recent years for not passing a budget by the constitutional deadline of June 30 th, broke all of its own records by not passing a budget until September 23, Almost as soon as the budget was passed, legislators were called back in special session to deal with a budget shortfall of $ 11.2 billion dollars. As the months dragged on the budget deficit soared to a record $24.3 billion dollars. In order to stem the tide of red ink the legislators passed a budget with their own contingency clause. If the state did not receive $ 10 billion dollars in General Fund revenue from the federal government, the state would reduce its participation in IHSS provider wages from $11.50 per hour to $9.50 per hour for wages. In April 2009, it was determined that insufficient revenue was received and the state ordered a reduction in its contributions effective July 1, For counties that have a mechanism to reduce wages there was a pathway to protect the county from economic disaster that might otherwise bankrupt them. In an interesting twist, the Service Employees International Union sought to block this wage reduction by influencing the Obama Administration s decision on Federal Medical Assistance Percentage (FMAP) funding for California. Officials in the Governor s office say a politically powerful union may have had inappropriate influence over the Obama administration s decision to withhold billions of dollars in Federal stimulus money from California if the State does not reverse a scheduled wage cut for the labor group s workers. 7 For a brief period it appeared that California might be in jeopardy of losing billions of dollars. On May 6, 2009, the governor petitioned the Secretary of Health and Human Services, Kathleen Sebelius, requesting a second opinion on California s actions. The governor s efforts paid off. On May 20, 2009, California received a letter from the Secretary of Health and Human Services allowing California to cut wages of IHSS providers without fear of loss of Federal American Recovery and Reinvestment Act (ARRA) Stimulus dollars.. And thus that the State s eligibility for the increased FMAP under ARRA is not affected by the newly enacted State contribution cap

5 On May 26, 2009, the Service Employees International Union () which represents the majority of IHSS providers, filed suit in United States District Court for declaratory and injunctive relief to prevent the State of California from imposing the wage reduction that the legislature had approved. 9 On June 26, 2009, the United States District Court for the Northern District of California enjoined the state from lowering wages for IHSS providers pending further analysis. 10 In its response of June 26, 2009, the court specifically addressed the issue of the contingency clause. The court noted that any wage reduction related to the state s actions was specifically prohibited; however, the court stated that Fresno County s rate change request was more complicated. 11 Fresno County had contingency language in its Memorandum of Understanding (MOU) indicating that if realignment revenue decreased it could decrease wages. 12 The court noted that its ruling did not prohibit Fresno County from reducing wages related to its MOU only from reducing wages related to the state s action. Types of Contingency Clauses There are three broad types of contingency clauses used in labor negotiations by Public Authorities. There are one-way contingency clauses, with or without notification requirements; two-way contingency clauses, with or with notification requirements; and fixed contribution contingency clauses, where some factor is an absolute limit, with or without a notification requirement. One-way contingency clauses are those which only apply only in one direction. For example, a one-way contingency clause would be triggered if there is a loss of state or federal dollars. Orange County s contingency clause (below) is one such example: If the State approves an amount less than the full funding, the County s financial contribution is capped at a level determined by the State/Federal/County shares of IHSS provider wages and benefits as described within a pursuant to Section of the Welfare and Institutions Code, as that Section existed on the effective date of this agreement. This clause speaks to reductions in state or federal participation levels; it does not address the issue if the state or federal governments increase their level of participation. It also does not require renegotiation with the other party and does not require a notification to the other party prior to going into effect. One-way contingency clauses are protective. They are not meant to address all changes, only changes that negatively impact one party. An example of a one-way contingency clause with a notification requirement is illustrated by the contingency clause used by El Dorado County (below):. The Public Authority shall provide to the Union a detailed written description of any adjustments to be made pursuant to this section at least thirty (30) days prior to the effective date of such adjustments

6 In this example, notification is required but negotiations or approval by the other party is not. The contingency takes effect after the proper notification. In effect, the contingency is prenegotiated. The second type of contingency clause is the two-way clause. Two-way clauses address changes in either direction whether they have a positive or negative impact to the parties. Marin County s contingency clause (below) is an example of a two-way contingency clause. If State or Federal participation decreases, PA can re-open; 2) If State or Federal participation increases, union can re-open;. In this example if the state or federal contribution increases and there is a decreased cost to the county, negotiations can be re-opened by the union. If state or federal contributions are reduced and there is an increased cost to the county, the county can re-open negotiations. The contingency addresses either the advantageous or adverse action. Both parties have options under this type of contingency clause; if more money is made available, then one of the parties (labor) would request reopening labor negotiations. The two-way contingency clause would also help management by limiting costs should state or federal dollars be lost. The third type of contingency clause is a fixed contribution contingency clause with a formula limitation, either a dollar limit or a formula limit. In this type of contingency clause there is an agreed upon formula or dollar limit. Los Angeles County uses this type of contingency clause (below) in their labor agreement. For Fiscal Year , the COUNTY's appropriation for the PASC negotiated wage, above minimum wage, shall not exceed the total of $59,500,000. This amount is an absolute limit on the COUNTY's cost and the COUNTY is not obligated by this Agreement in any way to pay or subsidize beyond this appropriation amount any portion of any PASC negotiated wage increase beyond the minimum wage. The maximum contribution or contingency is fixed, the county is not contractually required to spend one penny more than the limit, even if there is the ability to leverage greater dollar amounts. Another example of the fixed contribution contingency clause, which includes notification requirements, is illustrated by Stanislaus contingency language (below). WAGE AND BENEFIT CONTINGENCY - If, during the term of this Agreement either State or Federal participation levels are reduced, State realignment funding is reduced, the State caps their funding participation in a Provider wage lower than wages paid under this agreement, or, either the State or Federal sharing formula is modified in any manner that would result in an increased cost to the County to maintain the wage and/or benefit level described in this Agreement, the affected benefit and/or wages, will be reduced by an amount necessary to keep the total cost to the County the same as such supported by the new Federal and/or State share or funding participation cap. The Public Authority shall provide to the Union a written description of any adjustments to be made pursuant to this section and at least thirty (30) days prior to the effective date of such adjustments. Upon receipt of a written request from the Union to do so, the Public Authority will meet and confer regarding the impact of the above-described loss of - 6 -

7 funding or funding participation wage cap. In no case will the County be required to increase its contribution towards the affected benefit and/or wages, as applicable. With this contingency language there is a formula which determines whether the contingency is invoked. In this particular example it addresses the loss of funding but does not describe if additional funding is made available, so it is a one-way clause with a formula. My Experience at the Bargaining Table The advantageous aspect about labor negotiations in the IHSS program is that many of the traditional issues are off the table because the traditional employee-employer relationship does not exist. The issues of paid vacations, paid sick time and overtime are not viable options in IHSS contract negotiations, as there is no federal or state funding for anything other than authorized hours (time actually worked). The lack of funding makes it much easier to say no, and while the union may not like the response, they understand it. That means most of the time is spent bargaining for wages and benefits. In the two contract cycles I have had the opportunity to participate in, the first contract was completely new. The workers had never had representation before, and therefore, some of the issues were decided rather quickly. The contingency clause (below) in the first cycle of negotiations was much more definitive and was definitively a one-way clause favoring the County. Should the State or Federal government reduce its matching funds for IHSS wages or benefits during the term of the agreement, UDW will not require, request or demand that the County fund the difference. The parties agree to re-open negotiations to make reductions in the cost of the wage package. The first agreement was for twenty-seven months. During that period, the United Domestic Workers, the union representing IHSS providers in Stanislaus County, imploded. The president and other officers were accused of misconduct and UDWA s parent union, the American Federation of State, County and Municipal Employees, AFL-CIO (AFSCME) assumed control of the Union. The second set of negotiations was much easier in some respects as many issues were agreed to quickly; however, the contingency clause became an issue for the union. The second contingency clause, as described in the Types of Contingency Clauses section, represents a more formula driven approach and includes another funding stream, realignment revenue. Realignment funding was a mechanism the state adopted in the early 1990 s to help fund social programs that had lost traditional funding sources, specifically property tax revenues. Realignment funding contains a complex formula and has multiple funding streams. Its inclusion in the contingency clause brings an added element of uncertainty. Where Stanislaus first contingency clause was clean and simple, the second contingency clause contains some element of uncertainty. Upon reflection, this has become a reminder to me: be wary of strangers bearing gifts or those just trying to help clarify matters

8 Conclusions Contingency clauses are useful tools to incorporate into labor contracts where funding is or has the possibility to be uncertain. The contingency clause can be used to protect one or both of the contracting entities. Contingency clauses are widely used among Public Authorities and as recent events have shown; those who do not include them in their labor contract do so at their own peril. There are multiple types of contingency clauses; they should be studied for their desired results and applied where appropriate. While it may be difficult to get a contingency clause in a contract, the effort could save the contracting entities millions of dollars. Jeffrey M. Lambaren Executive Director Link2Care, the In-Home Supportive Services Public Authority of Stanislaus County 305 Downey Avenue Modesto, CA (209)

9 Supplemental Information Organized Labor in the IHSS Program Public Authority (as of 2/10/09) Alameda ULTCW 6434 UHW /434B 4034 CUHW jurisdiction AFSCME UDW elected No election yet Non- Member Counties Amador Butte Calaveras Colusa Contra Costa Del Norte El Dorado Fresno Glenn Humboldt Imperial Inyo Kern Kings Lake Lassen Los Angeles Madera Marin Mariposa Mendocino Merced Modoc Mono and Monterey Napa Nevada, Plumas, Sierra Regional - 9 -

10 Public Authority (as of 2/10/09) Orange ULTCW 6434 UHW /434B 4034 CUHW jurisdiction AFSCME UDW elected Non- Member Counties No election yet Placer Riverside Sacramento San Benito San Bernardino San Diego San Francisco San Joaquin San Obispo Luis Santa Barbara Santa Clara Santa Cruz Shasta Siskiyou Solano Sonoma Stanislaus Sutter Tehama Trinity Tulare Ventura Yolo Yuba Non- Member Counties Alpine San Mateo Tuolumne Source the California Association of Public Authorities

11 End Notes 1 Governors Remarks, July 3, 2009, Governor Holds Press Conference in San Francisco to Discuss State Budget Crisis. 2 Legislative Analyst s Office Budget Analysis Series - The Fiscal Outlook Under the February Budget Package March 13, 2009, p. 4 3 Governor s Budget Highlights , Health and Human Services p Legislative Analyst s Office Budget Analysis Series - The Fiscal Outlook Under the February Budget Package March 13, 2009, p Governor s Budget General Fund Proposal p Legislative Analyst s Office Budget Analysis Series - The Fiscal Outlook Under the February Budget Package March 13, 2009, p Los Angeles Times, may be linked to ultimatum on withholding stimulus funds; Evan Halper, May 11, Department of Health and Human Services, Charlene Frizzera Acting Administrator Memo to Governor Schwarzenegger, May 20, United States District Court For the Northern District of California, No. C CW Mikesha Martinez, et al., Plaintiffs, v. Arnold Schwarzenegger, et al., Defendants 5/26/09 10 United States District Court For the Northern District of California, No. C CW Mikesha Martinez, et al., Plaintiffs, v. Arnold Schwarzenegger, et al., Defendants. 7/24/09 11 United States District Court For the Northern District of California, No. C CW Mikesha Martinez, et al., Plaintiffs, v. Arnold Schwarzenegger, et al., Defendants 7/24/09 p4 12 Fresno County Memorandum of Understand with the Service Employees International Union United Health Care Workers West, September 26, September 30,

> 801 to 1600 OJT Hours. 1st Semester. Addt'l Wage or Approved ERISA Plan. 1 Alameda $30.08 $19.55 $2.00 $8.53 $33.69 $21.90 $2.00 $9.

> 801 to 1600 OJT Hours. 1st Semester. Addt'l Wage or Approved ERISA Plan. 1 Alameda $30.08 $19.55 $2.00 $8.53 $33.69 $21.90 $2.00 $9. > 0 to 800 OJT Hours > 801 to 1600 OJT Hours 50% Approved ERISA 56% 1 Alameda $30.08 $19.55 $2.00 $8.53 $33.69 $21.90 $2.00 $9.79 2 Alpine $24.17 $15.71 $2.00 $6.46 $27.07 $17.60 $2.00 $7.47 3 Amador $24.17