It has been quite a while since we have provided our readers with information related to the legal issues surrounding New Jersey  Public Safety Officers.  With that being said, we believe it is now very important to provide an overview or a “re-cap” of the New Jersey 2% Salary Cap under the Current Interest Arbitration Statute.  As all of you are keenly aware, having a solid understanding of this statute is vital when preparing for collective negotiations which may lead to interest arbitration.  Therefore, allow this publication to apprise you of the applicable law pertaining to the two percent (2%) salary cap.  In a future publication we will provide you with the mechanics of how to calculate the same under the current state of the law.

BACKGROUND

Suffice it to say, the imposition of the 2% cap has narrowed the focus of contract negotiations, interest arbitration proceedings, and what will be considered and ultimately awarded from an economic standpoint. Consequently, it is imperative that we are cognizant of this impact so that we may avail ourselves of the best course of action going forward and make the best arguments in support of our positions.

In order to place this overview of the law into an intelligible context, a review of the changes to the statute surrounding interest arbitration proceedings is warranted and/or appropriate.  In 2010, the New Jersey State Legislature enacted new laws regarding the interest arbitration process in the Garden State. The Legislature passed these laws on or around December 13, 2010 and the same became effective on January 1, 2011.  In simple terms, the legislation, which amended various provisions of N.J.S.A. 34:13A-16, et. seq., revised the procedure for police and fire contract disputes and imposed a cap on certain arbitration awards. According to the statement accompanying the bill, the legislation streamlines the procedure for resolving contractual impasses between public employers and their police and fire departments and imposes a 2% cap on arbitration awards under certain circumstances.

Recently, the legislation was again revised, on or about June 24, 2014. According to the statement accompanying the renewal bill, the legislation made several changes to the current law governing arbitration awards in disputes between public employers and their police and fire departments. Of particular importance, the legislation also renewed and extended the applicability of the two percent (2%) cap until December 31, 2017 and made the same retroactive to April 2, 2014.  it is important to note that the “original” two percent (2%) cap imposed by the 2010/2011 legislative changes expired on April 1, 2014. Significantly, however, the new legislation also made changes to the calculation of the two percent (2%) cap in interest arbitration proceedings going forward.

 Under the “old” two percent (2%) cap law, an arbitrator could not render an award which, on an annual basis, increases the base salary items by more than two percent (2%) of the aggregate amount expended by the public employer on base salary items for the members of the affected employee organization in the year immediately preceding the expiration of the agreement. Under the new legislation, however, after the first year of the agreement, the award cannot exceed two percent (2%) of the base salary items as annually compounded at the end of each year of the collective negotiations agreement. In simple terms, the two percent (2%) cap is now calculated on a compounded basis for each year of the agreement being arbitrated.

For our purposes, the legislation’s establishment, renewal, and revision of the two percent (2%) cap on interest arbitration awards is critical. The statute establishing the applicable version of the two percent (2%) cap reads as follows:

 An arbitrator shall not render any award pursuant to section 3 of P.L.1977, c. 85 (C.34:13A-16) which, in the first year of the collective negotiation agreement awarded by the arbitrator, increases base salary items by more than 2.0 percent of the aggregate amount expended by the public employer on base salary items for the members of the affected employee organization in the twelve months immediately preceding the expiration of the collective negotiation agreement subject to arbitration. In each subsequent year of the agreement awarded by the arbitrator, base salary items shall not be increased by more than 2.0 percent of the aggregate amount expended by the public employer on base salary items for the members of the affected employee organization in the immediately preceding year of the agreement awarded by the arbitrator.

The parties may agree, or the arbitrator may decide, to distribute the aggregate monetary value of the award over the term of the collective negotiation agreement in unequal annual percentage increases, which shall not be greater than the compounded value of a 2.0 percent increase per year over the corresponding length of the collective negotiation agreement. An award of an arbitrator shall not include base salary items and non-salary economic issues which were not included in the prior collective negotiations agreement.

 [N.J.S.A. 34:13A-16.7(b).]

Under the statute’s provisions, an arbitrator’s award on disputed “base salary” items is subject to a two percent (2%) cap, calculated on an annual, compounded basis over the term of the collective negotiations agreement governed by the award. The aggregate monetary value of the award, however, does not have to be distributed in equal annual percentages. Consequently, the monetary value of an award may exceed the two percent (2%) cap in a single contract year, however, the total monetary value of the award allocated in other contract years must be adjusted so that the aggregate value of the award over the term of the agreement does not exceed the maximum monetary award permitted under the new, compounded two percent (2%) salary cap.

An arbitrator’s award on economic issues not included in what the Legislature defined as “base salary” is not subject to the cap. Similarly, agreements arrived at through independent negotiation between the parties and agreements reached with the assistance of a mediator and/or fact finder are not subject to a contractual cap. According to N.J.S.A. 34:13A-16.7, “base salary” is defined as follows:

 …means the salary provided pursuant to a salary guide or table and any amount provided pursuant to a salary increment, including any amount provided for longevity or length of service. It also shall include any other item agreed to by the parties, or any other item that was included in the base salary as understood by the parties in the prior contract.  Base salary shall not include non-salary economic issues, pension and health and medical insurance costs.

 “Non-salary economic issues” means any economic issue that is not included in the definition of base salary.

[N.J.S.A. 34:13A-16.7(a).]

Of particular note, as highlighted above, the statutory definition of “base salary” includes the costs of the salary increments paid to members of the bargaining unit as they move through the steps on the salary guide. In other words, when a member of the bargaining unit moves to the next step of the salary guide in accordance with the collective negotiations agreement, that pay raise or “rise in cost” is considered an increase in “base salary” as contemplated by the two percent (2%) cap.

APPLICABILITY OF THE 2% CAP

Now that the two percent (2%) cap and what it includes has been adequately defined, the question then becomes which organizations are subject to the cap.  The logical starting point in addressing this inquiry is N.J.S.A. 34:13A-16.9, entitled “Effective Date.”  The statute provides:

This act shall take effect January 1, 2011; provided however, section 2 of P.L. 2010, c.105 (C.34:13A-16.7) shall apply only to collective negotiations between a public employer and the exclusive representative of a public police department or public fire department that relate to negotiated agreements expiring on that effective date or any date thereafter until or on December 31, 2017, whereupon, after December 31, 2017, the provisions of section 2 of P.L.2010, c.105 (C.34:13A-16.7) shall become inoperative for all parties except those whose collective negotiations agreements expired prior to or on December 31, 2017 but for whom a final settlement has not been reached.

[N.J.S.A. 34:13A-16.9 (emphasis added).]

According to the wording of N.J.S.A. 34:13A-16.9, the two percent (2%) cap shall only apply to: (1) collective negotiations between a public employer and the exclusive representative of a public police and/or fire department; and (2) those negotiations must relate to a negotiated agreement expiring on the effective date of the act, January 1, 2011, or any date thereafter until December 31, 2017.

In our next publication we will discuss in detail how the 2% salary cap is calculated under the current state of the law.