IMPASSE

OFFICE OF COLLECTIVE BARGAINING -------------------------------X In the Matter of ARBITRATION/IMPASSE PANEL The Coalition Unions OPINION AND AWARDS -and- Docket No. A-743-78 I-141-78 The City of New York -------------------------------X APPEARANCES: For the Coalition: Beverly Gross, Esq., Attorney for the Coalition Unions Robert Perez-Wilson, Esq., Associate General Counsel, District Council 37, AFSCME Irving H. Glasgow, Esq., Assistant General Counsel, District Council 37, AFSCME For the City: Allen G. Schwartz, Esq., Corporation Counsel James G. Greilsheimer, Esq., First Assistant Corporation Counsel Bruce S. Kaplan, Esq., Chief Assistant Corporation Counsel Norma Kerlin, Esq., Assistant Corporation Counsel Alan Friess, Esq., General Counsel, office of Municipal Labor Relations Before the Arbitration/Impasse Panel Arvid Anderson Walter L. Eisenberg Eric J. Schnertz

OFFICE OF COLLECTIVE BARGAINING -------------------------------X In the Matter of The Coalition Unions -and- The City of New York -------------------------------X

THE ISSUE The City of New York (herein after “City”) and the Coalition Unions (herein after “Coalition”) entered into a stipulation on June 2, 1978, submitting to binding “arbitration/impasse” proceedings before the undersigned Panel, Arvid Anderson, Walter L. Eisenberg and Eric J. Schmrtz, the Public Members of the New York City Board of Collective Bargaining, the following issue: Does the wage deferral agreement between the City and Unions, presently in effect, impose upon the City the obligation to make payment for deferred wages and salaries to a date beyond June 30, 1978? Hearings on the issue were held before the Panel on June 8, 8, and 12, 1978 at the World Trade Center and on June 21, 1978 at 250 Broadway, both in New York City. A transcript of the proceedings was made. A pre-hearing memorandum of law was filed by the City with reference to its views on the application of the patrol evidence rule, and the Coalition filed a pre-hearing memorandum on various aspects of he matter in issue. Post-hearing briefs were

ARBITRATION/IMPASSE PANEL OPINION AND AWARDS Docket No. A-743-78 I-141-78

2. filed by both parties, and the City filed a reply brief, received by the Panel on July 7, 1978. The City also submitted on July 7th an affidavit sworn to by Special Deputy State Comptroller Sidney Schwartz which has been considered by the Panel over the objections of the Coalition. The parties in their written submission of June 2, 1978 requested the Panel to issue its decision within 10 days of the conclusion of the proceedings. The parties on June 20, 1978 executed a Coalition Economic Agreement for a two-year period. That Agreement provided$, in part, at paragraph 8 on page 10: The continuation or extension of any prior wage deferral agreement referred to in the attached stipulation dated June 2, 1978 shall be subject to arbitration/ impasse pursuant to the terms of that stipulation. The stipulation entered into by the parties also provides that they would not commence or participate in any judicial proceeding relating to the matters before the arbitration/impasse Panel and that the determination of the Panel shall be final and binding and not subject to court review. BACKGROUND This dispute arose in the 1978 contract negotiations between the Coalition and the City. (The participating unions in the Coalition are listed in the attached Appendix "A".)

3. The first of the contract demands made by the Coalition on February 27, 1978 was for "the repayment of wages deferred pursuant to the Americana Agreement." The aggregate sum of the wages deferred have been estimated by witnesses for the Coalition to be approximately $160 million. The relevant provisions of the 1975 Wage Deferral Agreement in dispute between the parties are Article II, Sections 1 and 2, and Article III, Sections 1,2,3,4,5 and 6. Also relevant is the parties' supplementary letter agreement of March 24, 1976, the so-called "Burnell Agreement". A Resolution adopted by the Emergency Financial Control Board (EFCB) on June 4, 1976 is also cited as bearing on the issue before the Panel. The texts of each of the cited provisions of the Wage Deferral Agreement, of the Burnell Agreement and of the EFCB Resolution are reproduced below: ARTICLE II - SALARIES AND WAGES Section I. The payment of the general increase in salary or wages provided for in any Con­tract which increase has an effective date between June 30, 1975, and June 30, 1976, identified in Appendix "B" to this Agreement shall be deferred for a period of one year in accordance with the follow­ing schedule or with any other schedule yielding an equivalent total deferral as set forth in such Appendix "B":

4. (a) For all employees whose salaries or wages prior to July 1, 1975, exceeded $15000, a deferral of six percent (6%) of such prior annual salary or wages; (b) For all employees whose salaries or wages prior to July 1, 1975, exceeded $10,000 but did not exceed $15,000, a deferral in the amount of four percent (4%) of such prior annual salary or wages; (c) For all employees whose salaries or wages prior to July 1. 1975, did not exceed $10,000, a deferral in the amount of two percent (2%) of such prior annual salary or wages. The foregoing shall not be applicable to contracts that have an initial effective date of July 1, 1975 or thereafter. How-ever, the parties agree that they will take into account in collective bargaining for such contracts the purpose of this agreement, it being understood that, if any deferral provisions are agreed upon in such collective bargaining, they shall be incorporated in the respective collective bargaining contracts. ARTICLE II Section 2. The deferred increases in salary or wages shall be paid at the time provided for in Article III of this Agreement and in accord­ance with Sections 4,5 and 6 of that Article. Notwithstanding any provision of law or agreement, no interest shall be due or paid upon the deferred salaries or wages. ARTICLE III - REPAYMENT OF THE DEFERRED INCREASES Section 1. By June 30, 1978, the employer will seek to repay the deferred increases referred to in Article II from an Employer Deferral Liability Account subject to Sections 2,3 and 4 following:

Section 2. 5. An Employer Deferral Liability Account shall be set up and shall consist of savings gener­ated by or resulting from: i) joint labor-management productivity improvements and other achievements in efficiency and economy in the operation of local government which are reached through the cooperative efforts of the parties of this Agreement. ii) the value of employee attrition each year in Mayoral agencies above a normal level of 7,200 for the base year 1974-75 for such agencies plus the value of employee attrition of employees in titles covered by this agreement who are employed by public employers other than Mayoral agencies above the normal level as established by mutual agreement between the Employer and the Municipal Labor Committee (created pursuant to Chapter 54 of the Admin­istrative Code of the City of New York). Section 3. Any planning, supervision, and auditing procedures including the method of deter­mining the amounts saved pursuant to Sec­tion 2 of this Article of the Employer Deferral Liability Account shall be estab­lished by mutual agreement between the Employer and the Municipal Labor Committee.

Section 4. By June 30, 1978, the amount of funds so credited to the Employer Deferral Liability Account, shall be used to pay the deferred increases provided the following conditions exist: i) the expense budget of the City of New York for fiscal year 1977-1978 is balanced, pursuant to then appli­cable law; and

6. ii) the market for the sale of obligations of the City of New York is such that the City will be able to sell its obligations under the market terms and conditions then prevailing. Section 5. The total payments of deferred salary or wage increases shall not exceed the amount accrued to the credit of the Employers Deferral Liabil­ity Account on June 30, 1978. If the amount so accrued is insufficient to pay all deferred salary and wages, the payments to each employee shall be the percentage of his or her deferred salary or wages that is equal to the percentage which the amount accrued to the credit of the Employer Deferral Liability Account bears to the total amount of deferred salaries and wages. Section 6. Payment shall be made to employees covered by the provisions of Article II of this Agree­ment who were incumbents of the positions affected by such Article whether or not such employees were incumbents of the positions so affected for ail or part of the deferral period, and whether or not such employees are in employer service at the time of payment. * * * The Burnell Agreement of March 24, 1976 states: It is hereby understood and agreed that, in the agreement to a deferment of salary or wage increase signed by the undersigned union, the provisions with regard to the Employer Deferral Liability Account in Article III were and are intended to mean, despite any language to the contrary, that that Account is to be deemed a contingent liability and

7. a record of the amount of savings to be the basis of payments, pursuant to and sub­ject to the conditions of Section A and 5 of that Article, by June 30, 1978, and that it was not and is not intended to require the segregation establishment, or maintenance of a fund comprised of monies or to constitute a charge against the City's operating expenses ior any fiscal year prior to the 1977-78 fiscal year. Nothing herein contained shall impair or diminish any liability of the City to repay any salary or wage increase deferred under this agreement. * * * The pertinent provisions of the Resolution adopted by the EFCB on June 4, 1976 state: WHEREAS, the City by a letter dated March 19, 1976 submitted forty-nine wage-deferral agree­ments for review and consideration by the Board pursuant to the Financial Emergency Act, and by a letter dated may 21, 1976 informed the Board that Local 1199, R.W.D.S.U., had been inadvertently omitted form said submission; WHEREAS, Section 10 of the Act imposes a wage freeze, applicable to employees of the City, which has been extended, by action of the Board taken on March 26, 1976, until the end of the emergency period or until such earlier time as the Board may determine; WHEREAS, the wage deferral agreements provide for a voluntary deferral of a part of certain wage increases and for additional agreements between the City and various unions regarding overtime practices and work rules, in con­sideration for payment of the remainder of such increases and certain other benefits as set forth in the wage-deferral agreements; WHEREAS, the City will be liable for pay­ment of the deferred wage increases only if there is a public market for the sale of its obligations and only if and to the extent that there is an operating surplus for the fiscal year ended June 30, 1978;

8. WHEREAS, the City has certified that it can pay the remainder of such increases and provide those other benefits contem­plated by the agreement in accordance with the financial plan; WHEREAS, under Section 10 of the Act the Board may, for appropriate reason, direct that the wage freeze imposed by the Act and extended by action of the Board shall, in whole or in part, be terminated; RESOLVED, therefore, that upon recommenda­tion of the City the wage freeze imposed by the Act and extended by action of the Board is hereby terminated, for the term of the wage deferral agreements, to the extent necessary to permit payment of wage increases which are not deferred, as spec­ified in said agreements; and further RESOLVED, that upon recommendation of the City the wage freeze imposed by the Act and extended by the Board is hereby further terminated to the extent necessary to permit payment of a contingent liability of the City for deferred wages pursuant to said agreements, provided that said contingent liability shall be payable only if and to the extent that for the fiscal year ended June 30, 1978 the combined operating revenues of the New York City General Fund, Debt Service Fund, Intragovernmental Services Fund, and such Enterprise Funds as may be established exceed the operating expenses of these funds, all determined in accordance with the State Comptroller's Uniform System of Accounts for Municipalities (as the same may be modified by the State Comptroller in consultation with the City Comptroller for application to New York City), such liability to be payable only after the close of such fiscal year upon determina­tion of the amount of any such excess of revenues over expenses. RESOLVED, upon the recommendation of the City of New York, the wage freeze is hereby terminated to the extent necessary to per­mit payments to be made by the City during the current fiscal year pursuant to the wage deferral agreement between the City and Local 1199, R.W.D.S.U.

9. It is the basic position of the Coalition that the wages deferred under the terms of the Wage Deferral Agreement, i.e., at the rates of 2%,4% and 6%, for a period of one year were ultimately to be paid by the City whenever the following conditions for payment were met: that the City's budget was balanced; that the City was back again in the public credit market; and that funds for the payment were available in the Employer Deferral Liability Account. It is the Coalition's contention that the earliest possible date for payment of that liability was set at June 30, 1978, but that if the conditions were not met on that date, the contingent liability would continue until such date as the conditions for payment were met. It is the basic position of the City that the contingent liability of the City for the deferred wage increases was limited by the written terms of the Wage Deferral Agreement and by the Resolution adopted on June 4, 1976 by the Emergency Financial Control Board approving the Wage Deferral Agreement. Specifically, the City here contends that if the conditions for payment were not met on June 30, 1978, any and all liability after that date would be extinguished and that the liability was therefore extinguished as of that date.

10. There is no dispute between the parties that the three explicitly stated pre-conditions for payment were not met as of June 30, 1978. POSITION OF THE CITY The City first argues that any proof or evidence of an alleged "oral understanding" between the parties with respect to the repayment of the deferred wage increases is barred by the parol evidence rule in the absence of ambiguity in the relevant terms of the written agreement. The City makes reference to certain court and arbitration decisions in support of its argument for the exclusion of parol evidence. The City-argues that Article III, Section 2, of the Wage Deferral Agreement says, "The deferred increases and salaries and wages shall be paid at the time provided in Article and the only time mentioned in Article III is June 30, 1978, so that payment was conditioned upon the City's Having a balanced budget, having re­entered the credit market and having sufficient funds available at that date. The City maintains that these provisions are clear, complete and unambiguous and that the Panel should not consider what the City characterizes as parol evidence which would vary those terms. The City

11. further asserts that to continue the large contingent liability here involved would constitute approval of "a secret agreement," which would be inconsistent with public policy and the explicit requirement of the New York City Collective Bargaining Law for written agreements. The City also attaches great importance to the written Wage Deferral Agreement in that it has an impact upon decisions made by political and financial leaders throughout the country upon whom New York City finances depend and urges that only the written deferral agreement should be considered by the Panel. The City asserts that it was the understanding of members and staff of the Emergency Financial Control Board, whose Resolution of June 4, 1976 approved the payment of certain non-deferred wages; that such Resolution confirmed the understanding as to the conditions for payment set forth in the Wage Deferral Agreement; that such EFCB approval of that Agreement had the effect of extinguishing the City's contingent liability if the conditions for payment were not met as of June 30, 1978, and that the EFCB would not have approved the Wage Deferral Agreement and permitted certain wages to be unfrozen if there was any possibility that the contingent liability would continue past June 30, 1978.

12. The City, in effect, asks the Panel to consider itself "bound" by the actions of the Emergency Financial Control Board in this matter and by the limitations of the Financial Emergency Act, and argues that the Panel's Award cannot be inconsistent with those determinations. The City also argues that Jack Bigel, a principal Coalition contract, draftsman and the MLC observer at the EPCB, conceded in his testimony that he accepted the language of the June 4, 1976 EFCB Resolution as adequately expressing the intentions of the parties as to the Wage Deferral Agreement. The City contends that the Union representatives, having found the Resolution acceptable, per force accepted the conditions therein, including the reference to June 30, 1978 which it regards as a termination date for the repayment obligation. The City stresses the point that the EFCB Resolution did not modify the Wage Deferral Agreement but that the EFCB certification of approval of that Agreement under Section 10 (2) of the Financial Emergency Act spelled out the EFCB’s understanding of the Agreement, namely the conditions and timing for payment o f the contingent liability. The City concludes that Bigel's failure to object to the wording of the Resolution in June 1976, estops the Coalition from asserting its claim that the liability continues beyond June 30, 1978.

13. With reference to the question of "forfeiture", the City points out that the Financial Emergency Act suspended wage increases and, while the Act permitted wage deferrals by an instrument in writing certified by the EFCB as an acceptable and appropriate contribution towards alleviating the fiscal crisis of the City, such certification does not mean that wages which have been deferred must be paid. The City argues that payment could only be made in this instance if the stated conditions were met, that the required conditions were not satisfied by June 30, 1978 and that the obligation is, therefore, extinguished. The City directs the Panel's attention to the brief filed by Murray Gordon, Esq., Counsel to the Committee of Interns and Residents, with the New York Supreme Court on March 31, 1976, challenging the constitutionality of the Wage Deferral Agreements. The City points out that Gordon's brief concluded: The deferral increases are payable, if at all, by June 30, 1978." The City argues that Gordon had participated in the wage deferral negotiations and had insisted on adding the last sentence which appears in the Burnell Agreement, i.e., "Nothing herein contained shall impair or diminish any liability of the

14. City to repay any salary or wage increase deferred under this agreement." The City describes Gordon's statement as an interpretation of the effect of the June 30,1978 date on the duration of the contingent liability and asserts that this was an undeniable acknowledgment of what was meant by the Wage Deferral Agreement. The City also refers to a letter dated November 18, 1977, from Deputy Mayor Donald Kummerfeld to the EFCB, wherein he stated. When the Unions signed the original wage deferral agreement, they fully understood these conditions, to the extent that a subsequent clarifying agreement was signed. This letter (see attachment), an addition to the Americana Agreement, stated that the Unions did not expect the City to establish and maintain a funded account. The deferrals were to be considered as a contingent liability only for the period ending June 30, 1978. The City adds that Union representatives to the EFCB did not protest the Kummerfeld letter or challenge his interpretation. The City requests that the Panel answer the stipulated issue in the negative. POSITION OF THE COALITION The Coalition describes the dispute as arising from the unusual and extraordinary circumstances of the fiscal crisis facing the City in the summer of 1975 at

15. which time there were massive layoffs of City employees, the specter of bankruptcy and the then recent enactment of the Financial Emergency Act. The Coalition describes in detail various actions taken at that time jointly by the City, by the Unions and by the financial community to avoid the catastrophe of City bankruptcy, including the agreement to defer wages and the investment by the City and Union pension trustees in City securities. The Coalition argues that the Wage Deferral Agreement was but one of a series of major cooperative steps taken by the City and the Unions as a contribution to ensure the fiscal survival of the City. The Coalition characterizes the dispute here involved as "a labor case" rather than a dispute over "a commercial contract". The Coalition urges the Panel in interpreting the Wage Deferral Agreement and for purposes of impasse determination to give great weight to the testimony of the principal negotiators of the Wage Deferral Agreement, specifically that it was their intention that the deferral obligation continue past June 30, 1978 if conditions for payment had not been met and until such time as the conditions were achieved. The Coalition argues that the testimony not only of Union representatives, but that of former Mayor Abraham D. Beame, former First Deputy Mayor James

16. Cavanagh, Chairman Felix Rohatyn of the Municipal Assistance Corporation (hereinafter "MAC"), and former MAC Executive Director Herbert Elish -- all unmistakably established the agreement of the principal negotiators to continue the City's obligation to pay the deferred wage increases until such time as the conditions for payment could be met. The Coalition denies that the date of June 30, 1978 was considered by the negotiators as the singular or final date by which the stated conditions for payment would have to be met. The Coalition points out that there is no provision in the Wage Deferral Agreement for "forfeiture", stating that June 30, 1978 was selected only as a vehicle -- and not as a condition for payment. The Coalition asserts that the parties entered into the supplemental Burnell Agreement in order to avoid further layoffs and to accommodate the City's fiscal difficulties by establishing a liability account from which savings could be credited against the possibility of future payment rather than requiring the City to set aside money for repayment in the budgets current during the term of the Wage Deferral Agreement. The Coalition emphasizes the contract phrase “the employer shall seek to repay" by June 30, 1978 as indicating the

17. continuing intention to pay even if the City would be unable to pay by that date, and that this was the earliest date by which the obligation was to be met -- but not the only nor the final date on which any payment was due. The Coalition calls attention to the statements of Felix Rohatyn and Herbert Elish. They testified that in the negotiations at the Americana Hotel they told the Union negotiators the conditions for payment might not be met by 1978, 1980, 1995 or the year 2000, or that they might never be met. As evidence of agreement on the continued liability beyond June 30, 1978, the Coalition asserts that at no time was there an express agreement on an automatic forfeiture of the deferred wage obligation. The Coalition rejects the City's suggestion that there was any intention to withhold from the public or from Union members the conditions of the contingent liability, and points to exhibits showing publication to Union members in Union newspapers of the expected future repayment of the deferred increases, when and if the necessary conditions were met. The Coalition also refers to the testimony of Deputy Mayors Basil Paterson and Philip Toia concerning the 1978 negotiations in which there was discussion of the possibility of using the deferred increases as a Union

18. "giveback". The Coalition argues that these discussions Show that the City currently recognized the continuation of the contingent liability for the deferred increases beyond the June 30, 1978 contract expiration date, including possibly, a continuation of the liability beyond the City's current Four-Year Fiscal Plan. The Coalition argues that the enactment of the Financial Emergency Act did not extinguish the statutory obligation of the parties to bargain. The Coalition stresses the point that the Financial Emergency Act authorizes the suspension of the wage freeze and the entering into of deferral agreements as an acceptable and appropriate contribution towards alleviating the fiscal crisis of the City. The Coalition argues that the Wage Deferral Agreement was an appropriate contribution to alleviating the fiscal crisis as was the EFCB's Resolution allowing the payment of certain non-deferred wage increases and approving payment of the deferred amounts if the stated conditions were met. The Coalition asserts that the EFCB had no authority over the 1975 Agreement here involved; that, in any event, the EFCB had no authority to change the duration of the wage deferral obligation of the City; and, in any event, that the Resolution of June 4, 1976 did not have that effect. The Coalition acknowledges that the testimony of former EFCB member David Margolis, EFCB staff member John Bender, General Counsel to the EFCB, and Bernard Kabak,

19. Counsel to the Special Deputy State Comptroller, concerning their understanding of the Wage Deferral Agreement, was that the contingent liability ended if the conditions were not met by June 30, 1978. Nevertheless, the Coalition argues that the understanding of those witnesses is not binding upon the parties or upon this Panel, since the EFCB does not have the power to modify City contracts. The Coalition recognizes that without EFCB approval, labor contracts negotiated after October 15, 1975 cannot go into effect. The Coalition also argues that as a matter of equity the obligation of the City. to pay the contingent liability represented by the deferral agreements has been established by the Agreement between the parties. Specifically, the Coalition asks, as remedy, that the Panel direct: (a) if the conditions of a balanced budget and marketability of City obligations are met during the life of the current collective bargaining agreement between the City and the Coalition Unions, the debt shall become immediately payable and the parties shall immediately meet and negotiate the time and method of the payment of the deferred wages and salaries; (b) if the conditions are not met during the life of the current collective bargaining agreement between-the City and the Coali­tion Unions, then the obligation to pay the deferred wages shall continue beyond the expiration of the current agreement, then when met the debt-becomes immediate­ly payable, and the parties shall there­after meet and negotiate the time and method of payment as such time when the conditions occur.