v Vorys, Sater, Seymour and Pease LLP Legal Counsel

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1 Vorys, Sater, Seymour and Pease LLP M E M O R A N D U M TO: FROM: Jonathan D. Iten DATE: RE: Applicability of Non-Collective Bargaining Provisions of SB 5 to Ohio Public Libraries Senate Bill 5, as passed by the 129 th General Assembly and signed by the Governor on March 31, 2011 (hereafter, SB 5 ), effected significant changes in Ohio law as it relates to public employee compensation and the public employee collective bargaining law. The changes to public employee collective bargaining law, found in Chapter 4117 of the Ohio Revised Code, apply equally to all public employees in Ohio including the employees of Ohio s public libraries organized and existing under Chapter 3375 of the Revised Code. 1 This memorandum focuses on those portions of SB 5 that do not relate to the public employee collective bargaining law which are, or may be, applicable to Ohio s public libraries. In general, these changes do not apply to Association Libraries. The provisions that do apply to Association Libraries will be specifically flagged as such. At 304 total pages, SB 5 contains a daunting assortment of provisions. In many cases, the legislature drafted without great clarity, thus complicating analysis. However, the vast majority of SB 5 s non-collective bargaining provisions are irrelevant to public libraries. Certain provisions clearly do apply, as discussed below, and certain provisions very likely apply to public libraries. For the remainder of this memorandum, reference to SB 5 refer only to the non-collective bargaining-related provisions, unless otherwise express stated. 1. The Framework Applicable to Public Libraries In reviewing SB 5, it is important to remember certain first principles regarding Ohio s public libraries. 1 Chapter 4117 does not apply to Association Libraries, and SB 5 makes no change in that regard.

2 Page 2 A. Public Libraries in Ohio are Separate and Independent Entities Pursuant to Revised Code Section , each of the governmental public libraries organized and existing under Chapter 3375 of the Revised Code is a body corporate and politic, capable of suing and being sued, contracting, acquiring, holding, possessing, and disposing of real and personal property. Ohio public libraries organized and existing under Revised Code Chapter 3375 are thus separate and distinct entities apart from the municipality, county, school board, or township which may be their appointing authority, and are not agents or instrumentalities of those appointing authorities. See, Miller v. Akron Public Library, 60 Ohio L. Abs. 364, 96 N.E. 2d 795 (C.P. Summit County 1951). B. Employees of Ohio s Public Libraries are not in the Civil Service Revised Code Section provides in pertinent part: "The civil service of the state and the several counties, cities, civil service townships, city health districts, general health districts, and city school districts thereof shall be divided into the unclassified service and the classified service." Thus, before a position can be in the classified or unclassified service, it must first be in the civil service of the state, a county, a city, a civil service township, a city health district, a general health district, or a city school district. See, e.g., 1995 Op. Att'y Gen. No ; 1989 Op. Att'y Gen. No As noted above, Ohio public libraries are entities separate from all of these listed political subdivisions. Therefore, their employees are not in the civil service and, as a result, are in neither the classified nor the unclassified service Op. Att y Gen. No See, also, 1927 Op. Att y Gen. No. 593 (employee of county library district not within the civil service; decided under pre-1947 library law). C. Statutory Provisions Mandating Minimum Vacation and Sick Leave are not applicable to Ohio s Public Libraries The Revised Code contains a number of provisions, which were revised by SB 5, that mandate minimum vacation and sick leave. These provisions do not apply to Ohio s public libraries. First, Revised Code Sections et seq., which require that employees of the State and certain political subdivisions of the State be given sick leave according to the formula set forth in those statutes, have been held not to apply to employees of public

3 Page 3 libraries. The Ohio Attorney General, in 1985 Op. Att y Gen. No , discussed the applicability of Revised Code Sections to to public libraries: It is clear.that employees of the various boards of library trustees set forth in R.C. Chapter 3375 are not employees in the offices of the county, municipal, or civil service township service, and not employees of any state college or university for the purposes of R.C Further, it is clear that such employees are not employees whose salary or wage is paid directly by warrant of the auditor of state for purposes of R.C Rather, such persons are employees of the boards of library trustees and the corresponding library districts. As such, the employees do not accumulate sick leave under either R.C or R.C [citations and footnote omitted] By footnote, the Attorney General noted that a library board was free, under Revised Code (G), to provide sick leave benefits to its employees, if it so desired, under its general power to compensate its employees. Similarly, employees of public libraries are not full-time permanent state employee[s] paid in accordance with section of the Revised Code and those employees listed in divisions (B)(2) and (4) of section of the Revised Code, for the purposes of vacation entitlements under Revised Code Section See, 1996 Op. Att y Gen. No (analyzing Sections and (B)(2) and (4) in the context of applicability of the State s parental leave act). Since none of the mandatory minimum vacation or sick leave provisions apply to Ohio s Public Libraries, SB 5 s changes to those provisions are inapplicable. 2. SB 5 and Ohio Public Libraries As noted above, those provisions of SB 5 which affect vacation and sick leave do not implicate Ohio public libraries. However, there are provisions in SB 5 which clearly affect public libraries, and some provisions which likely affect public libraries. These are discussed below. In addition, because of a lack of clarity in portions of SB 5, I have outlined a number of provisions which, on their face, could encompass public libraries, but which I believe do not apply.

4 Page 4 A. SB 5 Provisions Clearly Applicable to Public Libraries 1. PERS Pick Up The Change: SB 5 amends Revised Code Section to prohibit employer pickup of the employee portion of PERS contributions. The amendment states: The contributions required under this section [relating to the eight percent employee portion of PERS] shall not be paid by an employer on an employee's behalf, but may be treated as employer contributions for purposes of state and federal income tax deferred income provisions. [emphasis added] Thus, employer pickups of PERS contributions are no longer allowed. The italicized portion of the bill appears to be an attempt by the legislature to provide that, even though the employees will now have to pay the contributions that were previously being picked up by the employer, they will still be treated as employer contributions, so that the employees would not pay federal income or employment taxes on these amounts. While this is the intent, our analysis is that it may not necessarily be a winning argument for income tax purposes. Section 414(h)(2) of the Internal Revenue Code provides that employee contributions that are picked up by a governmental employer are excluded from taxable income. The IRS has ruled that, in order for such a contribution to the excluded, the contribution must: (1) be designated as an employee contribution; and (2) the governmental employer must state that it is being picked up. The problem with the SB 5 provision is that, while the contribution is designated as an employee contribution, the bill prevents the government from picking it up. This will likely be an issue that will have to be addressed. We are further investigating this point. Section 3121(v) of the Internal Revenue Code provides that employee contributions that are picked up by a governmental employer are excluded from wages for employment tax purposes, unless made pursuant to a salary reduction arrangement. This should not be a problem because the

5 Page 5 contribution is mandatory (i.e., the employee is not entitled to cash in lieu of the contribution). This provision is applicable to those Association Libraries whose employees are covered under PERS Factors Applicable to Decisions Regarding Reductions in Force The Change: SB 5 adds a new Section , which prohibits the use of certain criteria in determining employees to lay off as part of a reduction in force. The applicable language states: When determining whether to lay off an employee as part of a reduction in force, a public employer shall not consider the race, color, religion, sex, military status, national origin, disability, age, or ancestry of the employee in violation of Chapter of the Revised Code or any applicable federal law. New Revised Code Section (C). This does not add anything to the existing obligations of public libraries under applicable law. B. Provisions Applicable in Part to Ohio Public Libraries 1. Health Care Benefits The Change: SB 5 makes a large number of changes to provisions relating to health care benefits. Only a subset of those provisions apply to Ohio public libraries. What applies: a. SB 5 defines health care benefits as including hospitalization, surgical, major medical, dental, vision, and medical care, disability, hearing aids, prescription drugs, or a combination of these benefits. 2 And, this is the only provision of SB 5 that I have found that would apply to Association Libraries.

6 Page 6 b. If a library enters into a collective bargaining agreement that calls for health care benefits to be provided through a mutually agreed upon contribution to a jointly administered trust fund, then i. any health care benefits provided through the jointly administered trust fund shall be the same as those health care benefits provided under a contract entered into between the library and the insurance company providing those benefits (in other words, the collective bargaining agreement cannot provide for different health care benefits than those offered by the library to its non-bargaining unit employees); Revised Code Section (G); ii. the library is required to make available its health insurance contract for non-bargaining unit employees to the board of trustees of the jointly administered trust fund; Revised Code Section (G); iii. the health care benefits provided to a management level employee, as defined in section of the Revised Code, under a contract entered into under Section shall be the same as any health care benefits provided to other employees of the same public employer. In other words, any management level employee within the bargaining unit cannot get different health care benefits; Revised Code Section (H); and iv. the library may not pay more than eighty-five per cent of the cost of the provision of health care benefits under the collective bargaining agreement; Revised Code Section (I). Note that my conclusion is that the limitations of Revised Code Section (G), (H) and (I) apply only in the event the library has entered into a collective bargaining agreement that calls for health care benefits to be provided through a mutually agreed upon contribution to a jointly administered trust fund. So, by implication, public libraries that are not in a collective bargaining relationship would continue to be free to pay any amount, including all, of the health care benefit costs for their employees. Analysis: The health care benefits revisions are found in SB 5 s amendment to Section of the Revised Code. To fully understand

7 Page 7 the effect of the SB 5 s amendments to that section, a brief run-through of Section is useful. Section , as amended, consists of divisions (A) through (J). Here s a brief summary of each division: (i) Under division (A), the state department of administrative services ( DAS ) is required to negotiate and obtain contracts of insurance for, among other things, health care benefits, for all state employees who are paid directly by warrant of the state auditor and for some or all of the employees paid in accordance with section of the Revised Code and for some or all of the employees listed in divisions (B)(2) and (4) of section of the Revised Code, and their immediate dependents. As discussed in Section 1.C above in this memorandum, library employees are not employees paid in accordance with section of the Revised Code or employees listed in divisions (B)(2) and (4) of section of the Revised Code. It is also clear that library employees are not paid directly by warrant of the auditor state. Thus, division (A) is irrelevant to public libraries. (ii) Under division (B), the DAS is required to negotiate and obtain contracts of insurance for group life insurance covering municipal and county court judges. (iii) (iv) Divisions (C) and (D) relate to certain state employee benefits. Division (E) relates to conversion rights under group insurance. (v) Division (F) allows the DAS to self insure for the division (A) benefits, or, to comply with a collectively bargained contract, enter into an agreement with a jointly administered trust fund which receives contributions pursuant to a collective bargaining agreement entered into between this state, or any of its political subdivisions, and any collective bargaining representative of the employees of this state or any political subdivision for the purpose of providing for self-insurance of all risk in the provision of fringe benefits similar to those that may be paid pursuant to division (A) of Section Since public libraries do not obtain insurance through the DAS, this division is irrelevant to public libraries.

8 Page 8 (vi) Division (G), which was summarized in b.i and b.ii under The Change above, allows any political subdivision, including public libraries, to agree in a collective bargaining agreement that any mutually agreed fringe benefit, including health care benefits, be provided through a mutually agreed upon contribution to a jointly administered trust fund. The amount, type, and structure of fringe benefits provided under this division is subject to the determination of the board of trustees of the jointly administered trust fund, except that any health care benefits provided through the fund shall be the same as those health care benefits provided under a contract entered into between the public employer and the insurance company providing those benefits. So, division (G) does apply to libraries, but this division only implicates collective bargaining agreement obligations to provide health care through a jointly administered trust fund. (vii) Division (H) then provides The health care benefits provided to a management level employee, as defined in section of the Revised Code, under a contract entered into under this section shall be the same as any health care benefits provided to other employees of the same public employer. [emphasis added] I believe that the emphasized language under this section clearly means that only contracts authorized by Section are implicated by division (H) s mandate. As noted in the review in sections (i) to (vi) above, division (G) is the only provision that addresses public libraries. And, the only contract authorized by division (G) is a collective bargaining agreement to provide health care benefits pursuant to a mutually agreed upon contribution to a jointly administered trust fund. (viii) Division (I) continues by providing A public employer, including the state and any of its political subdivisions, shall not pay more than eightyfive per cent of the cost of the provision of health care benefits pursuant to this section. [emphasis added] I believe that the highlighted language is critical to interpreting this provision. I ll start with what division (I) does not say. It does not state that a public employee shall not pay more than eighty-five per cent of the cost of the provision of health care benefits. Instead, added to that language is the phrase pursuant to this section.

9 Page 9 Using the standard rule of statutory interpretation that significance and effect should if possible be accorded every word, phrase, sentence and part of an act, Wachendorf v. Shaver, 149 Ohio St. 231 (1948), the assumption has to be that the General Assembly intended to give meaning to the phrase pursuant to this section. The most logical and only sensible meaning is that pursuant to this section picks up contracts that are authorized by Section As outlined above, that means any contract entered into by DAS, and the collective bargaining contracts implicated in division (G). 3 The only contracts applicable to libraries in division (G) are collective bargaining agreements to provide health care benefits pursuant to a mutually agreed upon contribution to a jointly administered trust fund. C. Provisions which likely apply to Public Libraries 1. Performance Based Pay The Change: SB 5 amends Revised Code Section to provide that appointing authorities authorized by the Revised Code to fix wages or salaries of public employees without reference to Chapter 124 or other parameters shall fix the public employee's wage or salary based on performance in accordance with the rules the director of the DAS adopts. So, library salary schedules must now be performance-based in accordance with rules to be adopted by the director of the DAS. Public Libraries fall within the definition of appointing authorities found in Section (A) of the Revised Code: Appointing authority means the officer, commission, board, or body having the power of appointment to, or removal from, positions in any office, department, commission, board, or institution. 3 I reject any suggestion that pursuant to this section simply emphasizes that this is the section that prohibits payment generally those words would not be necessary to have that effect, and the legislature is presumed to have added words only because they are necessary.

10 Page 10 I believe that a library could fairly be considered to be an institution, and clearly the board of library trustees would be a board under that definition. And, clearly, boards of public library trustees have heretofore been authorized to fix compensation for library employees without reference to Chapter 124 or other parameters, as Section (G) of the Revised Code empowers public library boards to appoint and fix the compensation of all of the employees of the free public library under its jurisdiction So, subject to the comments below in the Analysis, I believe that the most prudent course of action for public libraries is to assume that this provision applies. Thus, public libraries will need to wait for DAS guidance in this area. Analysis: I have qualified my advice on Section as a prudent course of action mainly because the revisions to Section seem out of place. Prior to SB 5 s amendments, Section dealt entirely with employees of state boards and commissions, and seemed clearly to apply only to the civil service of the state. As noted in 1.B above in this memo, library employees are not in the civil service. So, there is a plausible argument that Section , given its placement within Chapter 124, might only apply to employees in the civil service. That said, read literally, the language of Revised Code Section (A) does pick up public libraries. Until the attorney general or a court determines that it applies only to the civil service, I believe that the safest course of conduct would be assume it applies to libraries. 4 D. SB 5 Provisions which likely do not apply to Public Libraries Prior to SB 5 s amendments, Sections (A) and of the Revised Code contained very detailed salary schedules. So, for example, under prior law Section (A) contained a salary schedule C, and Section contained a salary 4 If it doesn t apply, libraries would still have the power under Revised Code Section (G) to implement performance based compensation schedules.

11 Page 11 schedule E-2, which provided for the highest rate of salaries in the civil service. 5 SB 5 eliminated all of those schedules in favor of schedules to be prepared by the DAS. Eliminating those schedules meant that the General Assembly needed to update every provision of the Revised Code which referenced those schedules. Most of these changes were to provisions where eliminating the reference to the schedule did not make a substantive change. In two instances, however, the broadest reading of the change might mean that provisions which until the enactment of SB 5 did not apply to public libraries do now apply. I believe the broadest reading is incorrect, as outlined below. 1. Ohio s Ethics Law and Disclosure Forms The Change: SB 5 amends Section (A) of the Revised Code, relating to annual ethics disclosure statements, so that it now reads on every public official or employee who is paid a salary or wage in accordance with section or section of the Revised Code. 6 Read literally, since I interpret Section (A) as applying essentially to almost all public employees, this would mean that almost every public employee in the state would now need to file the annual ethics disclosure statement with the Ohio Ethics Commission. I do not believe the General Assembly intended such a result. Looking as the remainder of Section (A), it is clear that all of the other public officials and public employees with the annual disclosure statement requirement are key or highly placed officials or employees. In addition, one can argue that in order to be paid a salary or wage in accordance with section means that the provisions of Section other than (A) are implicated i.e., divisions (B) through (M). My recommendation is that libraries should assume that this change does not affect them until a contrary ruling is issued by the Ohio Ethics Commission, the Attorney General, a court or their statutory legal counsel. 5 Under prior law, Schedule E-2 covered certain civil service employees with salaries from $33,000 up to almost $158, It previously read only on every public official or employee who is paid a salary or wage in accordance with schedule C of section or schedule E-2 of section of the Revised Code in other words, the most highly compensated civil servants.

12 Page Other Provisions of Chapter Summary The Change: The same remove references to schedule C of Section also arguably implicated Sections (G) (relating to new employees) and (relating to pay supplements). Since these sections clearly relate to the civil service, and since library employees are not in the civil service, my advice is to assume they do not apply to public library employees unless a contrary ruling is issued by the Attorney General, a court or statutory legal counsel. In summary, with respect to public libraries, SB 5: - Prohibits employer pickups of employee PERS contributions; - Prohibits any consideration of race, color, religion, sex, military status, national origin, disability, age, or ancestry in determining layoffs; - Prohibits a library from agreeing, in a collective bargaining agreement that calls for health care benefits to be provided through a mutually agreed upon contribution to a jointly administered trust fund, to pay more than 85% of the cost of the health care benefits; 7 - Requires the health care benefits provided to a management level employee, as defined in section of the Revised Code, under a collectively bargaining contract that calls for health care benefits to be provided through a mutually agreed upon contribution to a jointly administered trust fund entered into under Section shall be the same as any health care benefits provided to other employees of the same public employer; - Prohibits a library from offering any health care benefits provided through a jointly administered trust fund called for under a collective bargaining that are different than those offered by the library to its non-bargaining unit employees; and 7 Although outside the scope of this memorandum, note that the changes to the public employee collective bargaining law exclude from the scope of collective bargaining the provision of health care benefits for which the employer is required to pay more than eighty-five per cent of the cost..

13 Page 13 - likely requires that library salary schedules now be performance-based in accordance with rules to be adopted by the director of the DAS. SB 5 rearranges the landscape for compensation of public employees in Ohio. Because public libraries have distinctive features and are separate legal entities from their appointing authorities, however, only the subset of the non-collective bargaining changes made by SB 5 referenced above apply to Ohio s public libraries. Please let me know if I can provide further information.