INTERNATIONAL ASSOCIATION OF FIREFIGHTERS v. CITY OF HOBOKEN

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3302-12T4

INTERNATIONAL ASSOCIATION OF

FIREFIGHTERS, LOCAL 1076

AND LOCAL 1078,

Plaintiffs-Respondents,

v.

CITY OF HOBOKEN,

Defendant-Appellant.

_____________________________________

January 30, 2014

Argued December 9, 2013 Decided

Before Judges Yannotti and Leone.

On appeal from Superior Court of New Jersey, Chancery Division, Hudson County, Docket No. C-178-12.

Mark A. Tabakin argued the cause for appellant (Weiner Lesniak, L.L.P., attorneys; Margaret A. Miller and Bryant Gonzalez, on the briefs).

Raymond G. Heineman argued the cause for respondents (Kroll Heineman Carton, L.L.C., attorneys; Mr. Heineman, on the brief).

PER CURIAM

The City of Hoboken appeals from an order entered by the Chancery Division on February 5, 2013, confirming an arbitration award pertaining to the accrual of vacation time by the City's firefighters and fire officers. For the reasons that follow, we affirm.

I.

This appeal arises from the following facts. Local 1076 of the International Association of Firefighters (the Association) is the representative of all fire officers employed in the City of Hoboken. The term "fire officers" includes persons holding the ranks of Training Officer, Lieutenant, Captain, Batallion Chief and Deputy Chief. The City and Local 1076 entered into a Collective Negotiations Agreement (CNA) which covered the period from January 1, 2000, through December 31, 2002.

Section 10.1 of the CNA provides that, depending upon title and length of service, fire officers are entitled to up to 19 days of vacation time each year. Section 10.8 states that

Vacation time that has been accumulated toward retirement up to December 31, 1987 shall be compensated as nineteen (19) days for every four-(4) workdays accumulated vacation. From January 1, 1988 any vacation time saved towards retirement shall be considered as sixteen (16) calendar days for every four-(4) workdays of accumulated vacation.

In addition, Article 29 of the CNA pertains to retirement. Section 29.2 provides that a fire officer who retires shall be paid terminal leave of five calendar days for each year of service in the uniformed division of the Fire Department. In addition, Section 29.4 provides that

A Fire Officer shall have the option to accumulate vacation periods prior to [his] retirement. He may accumulate a maximum of three (3) years of vacation periods or less. The accumulated vacation time shall be paid in a 100% lump sum payment on retirement or, at the Fire Officer's request, he shall receive this accumulated vacation time on consecutive days just prior to his retirement date. The maximum amount of lump sum payment for terminal leave and accumulated vacation time shall not amount to more than a year's salary at the time of the fire Officer's retirement.

Local 1078 of the Association is the representative of the City's firefighters. The parties agree that the City and Local 1078 also entered into a CNA which covered the period from January 1, 2000, through December 31, 2002, and has the same provisions governing accumulated vacation time as the CNA with Local 1076. The parties also agree that the City and the unions extended the terms of the CNAs through December 31, 2007.

In August 2009, during the course of negotiations on new CNAs with the unions, the City filed a petition with the Public Employment Relations Commission (PERC), seeking a determination that Section 29.4 was pre-empted by N.J.S.A. 11A:6-3(e) and therefore not subject to mandatory negotiation. The statute provides in pertinent part that

Vacation not taken in a given year because of business demands shall accumulate and be granted during the next succeeding year only; except that vacation leave not taken in a given year because of duties directly related to a state of emergency declared by the Governor may accumulate at the discretion of the appointing authority until, pursuant to a plan established by the employee's appointing authority and approved by the [Civil Service] commission, the leave is used or the employee is compensated for that leave, which shall not be subject to collective negotiation or collective bargaining.

[Ibid.]

On March 25, 2010, PERC determined that Section 29.4 was preempted by N.J.S.A. 11A:6-3(e) because it allowed accrual of vacation time beyond that permitted by the statute. PERC therefore concluded that the provisions of the CNAs governing accumulation of vacation leave are not mandatorily negotiable to the extent they permit the firefighters and fire officials to accumulate more vacation leave than is permitted by N.J.S.A. 11A:6-3(e). Neither the City nor the unions appealed from PERC's decision.

After PERC's decision, a fire officer informed the City that he intended to retire and requested that the City calculate his accrued vacation time. Relying upon PERC's decision, the City refused to pay the fire officer any accumulated vacation time other than the accrued time permitted by N.J.S.A. 11A:6-3(e).

Local 1076 thereupon filed a grievance with the City on behalf of the fire officer and other similarly situated officers. The City denied the grievance and Local 1076 demanded arbitration. Local 1078 joined in the request and agreed that the arbitrator's decision would apply to its members.

II.

The arbitrator conducted a hearing in the matter and issued an opinion and award dated June 10, 2012, in which he concluded that PERC's decision was binding on the parties and prospectively eliminated the contractual provisions that allowed the accumulation of up to three years of vacation time. The arbitrator concluded, however, that prospective application of PERC's decision did not preclude compensation for vacation time earned and accumulated prior to that decision.

The arbitrator stated that the evidence presented at the hearing indicated that the vacation time which accrued up until PERC's decision was a benefit "that was governed by many consecutive labor agreements" and the benefit "could not be withdrawn simply because unit employees were barred from carrying over such time in the future." The arbitrator found that the employees had legitimately earned the vacation time and accrued the unused time in reliance upon the CNAs.

The arbitrator wrote that the evidence established that management "strongly encouraged" the employees to accumulate vacation time in accordance with the agreements. The City maintained that it never required the employees to defer vacation time to retirement, but the arbitrator found the evidence established that its City's "top managerial representatives" prevented employees from taking earned vacation time "due to operational considerations."

The arbitrator also stated that the record was "crystal clear" that the employees had relied on the CNAs and management's representations that the vacation time would be deferred and not lost. The arbitrator wrote, "The benefit that was eliminated for future negotiations by the PERC Order did not encompass the loss of negotiated time off that had been earned, accrued and accumulated prior thereto."

The arbitrator determined that he could not issue a remedy based solely on equitable concerns. He said, "Any remedy ordered must be consistent with the specific contract benefits that were negotiated and earned." The arbitrator deferred ruling on the remedy, and gave the parties sixty days to voluntarily fashion a remedy in light of his decision.

The parties could not agree upon a remedy, and on October 24, 2012, the arbitrator issued his decision on remedy. The arbitrator determined that since PERC ruled on March 25, 2010, employees could not accumulate vacation days in 2010 beyond the two years permitted by N.J.S.A. 11A:6-3(e), because they could not rely on the CNAs after PERC's ruling.

The arbitrator said that the amount and value of the accrued vacation time would be determined as of December 31, 2009. The arbitrator wrote that any firefighter

who retired after December 31, 2009, but before March 25, 2010, and who availed themselves of the contractual right to receive accumulated vacation time on consecutive days just prior to his retirement date and who has received such time shall remain unaffected. Employees who elect this option upon setting a fixed retirement date in the future shall receive the earned and accumulated vacation days that are at issue at the value that existed on December 31, 2009 regardless of the date of retirement. A firefighter who has retired after December 31, 2009, but before March 25, 2010, and who did not avail himself of the contractual right to receive accumulated vacation time on consecutive days prior to retirement shall receive the accumulated vacation time in question in a 100% lump sum payment, at the value that existed on December 31, 2009, to the extent that the contractual limitation allowing for payment of terminal leave and accumulated vacation time combined cannot amount to more than a year's salary. A firefighter who retired on March 25, 2010 or thereafter shall, in similar fashion, shall receive the accumulated vacation time in a 100% lump sum payment to the extent that the contractual limitation allowing for payment of terminal leave and accumulated vacation time combined cannot amount to more than a year's salary.

The arbitrator added that, because the impact of these payments could adversely affect the City's finances, firefighters and fire officers who retire between January 1, 2010, and the date of the arbitrator's decision, and who were eligible for a 100% lump sum payment, could be paid in two consecutive budget years, at the City's option.

III.

Locals 1076 and 1078 thereafter filed a verified complaint in the Chancery Division to confirm the award or, alternatively, to grant equitable relief allowing the firefighters and fire officers to be paid for the vacation time accrued prior to PERC's decision. The City filed an answer seeking dismissal of the complaint and a counterclaim to set aside the arbitrator's award and remedy.

The Chancery Division judge filed a thorough and comprehensive written opinion dated February 5, 2013, in which he concluded that the arbitrator had correctly deferred to PERC's decision that the vacation accrual provisions of the CNAs were not mandatorily negotiable and that N.J.S.A. 11A:6-3(e) prohibited the firefighters and fire officers from accruing more vacation time than the statute permits. The judge wrote that the arbitrator had correctly applied traditional principles of equitable estoppel and detrimental reliance in ruling that PERC's decision should not be applied retroactively to divest the employees of the vacation benefits they had earned and carried over pursuant to the CNAs before PERC's decision.

The judge found that the arbitrator's interpretation of the CNAs and his findings that the employees detrimentally relied upon the CNAs and City's representations concerning the accrued vacation time were entitled to deference. The judge stated that the arbitrator fashioned a remedy which precludes the City from taking a course of action that would work an injustice upon the employees who reasonably believed they would be compensated for up to three years of unused vacation time, rather than the two years permitted by N.J.S.A. 11A:6-3(e).

The judge found that the arbitrator's interpretation of the relevant provisions of the agreements and his conclusions regarding the prospective application of PERC's decision were plausible and therefore reasonably debatable. The judge additionally found that the arbitrator's decision and the remedy he fashioned were consistent with the terms of the agreements and New Jersey's case law.

The judge accordingly entered an order dated February 5, 2013, confirming the arbitrator's award and remedy. This appeal followed.

IV.

The City argues that the trial court should have set aside the award as procured by undue means, pursuant to N.J.S.A. 2A:24-8(a). The City maintains that the arbitrator misapplied or disregarded PERC's decision and ignored limitations on the scope of public-sector negotiations by treating the relevant provisions of the CNAs as if they were permissibly negotiable.

The City additionally argues that the court incorrectly relied upon plaintiff's theory of judicial non-divestment of the benefits of the public employees. The City also contends that limiting PERC's decision to prospective application "would breed mischief." We disagree.

N.J.S.A. 2A:24-8 provides, that a court may vacate an arbitration award:

a. Where the award was procured by corruption, fraud or undue means;

b. Where there was either evident partiality or corruption in the arbitrators, or any thereof;

c. Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause being shown therefor, or in refusing to hear evidence, pertinent and material to the controversy, or any other misbehaviors prejudicial to the rights of any party;

d. Where the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter submitted was not made.

[Ibid.]

An award in a public sector arbitration "will be confirmed 'so long as the award is reasonably debatable.'" Linden Bd. of Educ. v. Linden Educ. Ass'n ex. rel. Mizichko, 202 N.J. 268, 276 (2010) (quoting Middletown Twp. PBA Local 124 v. Twp. of Middletown, 193 N.J. 1, 11 (2007)). Courts engage in "an extremely deferential review when a party to a collective bargaining agreement has sought to vacate an arbitrator's award." Policemen's Benevolent Ass'n, Local No. 11 v. City of Trenton, 205 N.J. 422, 428 (2011).

This "high level of deference" is based on the strong public policy that favors arbitration as a means to resolve labor-management disputes. Id. at 429 (citing Linden Bd. of Educ., supra, 202 N.J. at 275-76). Arbitration should be a "fast and inexpensive way" to resolve such disputes, not simply a stop on the way to the courthouse. Ibid. (citing Linden Bd. of Educ., supra, 202 N.J. at 276; State, Office of Emp. Relations v. Commc'ns Workers of Am., 154 N.J. 98, 111 (1998)).

Here, the arbitrator did not disregard or misinterpret PERC's decision, as the City claims. As we have explained, PERC merely determined that Section 29.4 of the CNAs was not subject to mandatory negotiation, to the extent it allowed employees to accrue more vacation time than N.J.S.A. 11A:6-3(e) permits.1

PERC expressly stated that it was not deciding the validity of the relevant provisions of the previously-negotiated agreements, and did not render any determination on whether the City was obligated to pay firefighters and fire officers for vacation time they had accrued under the terms of the prior agreements. Thus, the arbitrator did not disregard or misinterpret PERC's decision.

Furthermore, the Chancery Division judge correctly determined that the arbitrator's decision represented a reasonably debatable interpretation and application of the agreements that were in effect when the firefighters and fire officers accrued the disputed vacation time. The CNAs allowed the employees to accrue up to three years of vacation time and permitted the employees to be compensated for that time upon retirement. The arbitrator deferred to PERC's decision, applied that decision prospectively, enforced the terms of the prior agreements, and allowed the employees to be compensated for vacation time accrued through December 31, 2009.

Moreover, as the judge noted, in rendering his decision and remedy, the arbitrator was legally permitted to consider principles of equitable estoppel and detrimental reliance in applying the relevant contract terms. The judge properly relied on Middletown Township Policemen's Benevolent Association Local No. 124 v. Township of Middletown, 162 N.J. 361 (2000). In that case, the Township assured a police officer that, after his retirement, he would continue to have free health insurance benefits for himself and his family. Id. at 364. The Township's assurance was consistent with the terms of its collective bargaining agreement with the Police Benevolent Association (PBA). Ibid.

Thereafter, a suit was brought alleging that the relevant provision of the collective bargaining agreement with the PBA was contrary to N.J.S.A. 40A:10-23, because the statute required retired local government employees to pay the cost of their health benefits, and only permitted the employer to assume the cost for employees who retired after twenty-five years of service. Id. at 365.

The trial court determined that the Township had provided free health benefits to ineligible employees, including the retired police officer. Id. at 366. The trial court also determined that the Township had validly refused to continue to provide the officer and his family with free health benefits. Ibid.

The Supreme Court held, however, that the Township could be equitably estopped from terminating the officer's health benefits. Id. at 373. The Court noted that "[e]quitable estoppel may be invoked against a municipality 'where interests of justice, morality and common fairness clearly dictate that course.'" Id. at 367 (quoting Gruber v. Mayor and Twp. Comm. of Twp. of Raritan, 39 N.J. 1, 13 (1962)). The Court pointed out that there is a recognized distinction between actions that are ultra vires in the primary sense, and those that are ultra vires in the secondary sense. Id. at 368.

The former is an act beyond the jurisdiction of the municipality, and the latter is an irregular exercise of a basic power under the municipality's grant of authority which is not jurisdictional. Ibid. (citing Skulski v. Nolan, 68 N.J. 179, 198-99 (1975), and Summer Cottagers' Ass'n of Cape May v. City of Cape May, 19 N.J. 493, 504 (1955)). The Court said that "[a]ctions that are ultra vires in the secondary sense will permit the application of estoppel." Ibid. (citing Skulski, supra, 68 N.J. at 198).

The Court found that the Township's agreement with the PBA did not comply with N.J.S.A. 40A:10-23 because it required health benefits to be provided to retired employees who had not completed twenty-five years of service. Id. at 370-71. However, the agreement was ultra vires in the secondary sense because the Township had the power to enter into agreements concerning health benefits for retired workers, but exercised that basic power in an irregular manner. Id. at 371.

The Court held that the Township could be equitably estopped from terminating the officer's health benefits because it had repeatedly assured the officer that the benefits would continue. Id. at 371-72. The officer retired before completing twenty-five years of service, and in doing so, relied in good faith on the Township's assurances. Id. at 372.

The Court noted that the Township had provided the health benefits to the officer for ten years, and after ten years in retirement, the officer was "effectively foreclosed" from obtaining employment that would provide him with free health benefits. Ibid. The cost of the benefits also would impose a substantial burden on the officer. Ibid.

Here, the Chancery Division judge correctly recognized that the Middletown case provided ample support for the arbitrator's decision. The City has the authority to enter into agreements that provide for the accrual of unused vacation time and payment for such time upon retirement. However, the City irregularly exercised that power over the years by entering into agreements that allow firefighters and fire officers to accrue up to three years of vacation time, rather than the time permitted by N.J.S.A. 11A:6-3(e).

Thus, the judge correctly recognized that the relevant provisions of the City's CNAs were ultra vires in the secondary sense, thereby permitting the arbitrator to consider equitable estoppel in determining how the contract terms should be applied, in light of PERC's decision. Furthermore, as the judge noted, the record before the arbitrator established that the City had encouraged firefighters and fire officers to accrue up to three years of vacation time as permitted by the CNAs, and the employees had done so in good faith, in reliance upon those agreements.

In view of the standard that applies to judicial review of arbitration awards, the judge correctly found the arbitrator had reasonably determined that equitable considerations precluded the City from denying the firefighters and fire officers payment for the vacation time accrued in accordance with the CNAs until December 31, 2009, after which reliance upon the CNAs was no longer justified. The arbitrator did not employ undue means in determining that enforcement of the contract terms for vacation time accrued up to December 31, 2009, was consistent with the terms of the contract and applicable legal principles. As the judge found, the arbitrator's decision was plausible and reasonably debatable.

We therefore conclude that the judge did not err by refusing to set aside the award pursuant to N.J.S.A. 2A:24-8(a).

V.

The City additionally argues that the judge erred by refusing to set aside the award pursuant to N.J.S.A. 2A:24-8(d) because the arbitrator allegedly exceeded or imperfectly executed his authority. The City asserts that the arbitrator properly recognized that PERC's decision barred prospective application of the CNAs provisions on the accrual of vacation time, but created a remedy out of "whole cloth" that preserved those contract provisions for current employees until their retirements. The City says that, in doing so, the arbitrator went outside the jurisdiction conferred by the parties' agreements. Again, we disagree.

Here, the judge correctly recognized that when a collective bargaining agreement is silent as to remedy, it is the arbitrator's role to fill in the gaps in order to reach a fair decision. See Scotch Plains-Fanwood Bd. of Educ. v. Scotch Plains-Fanwood Educ. Ass'n, 139 N.J. 141, 156 (1995). The judge noted that there was nothing in the CNAs that precluded the arbitrator from applying PERC's decision prospectively and fashioning an appropriate remedy by applying equitable considerations, in light of the circumstances.

As the judge found, the arbitrator issued a remedy that took PERC's decision and the relevant provisions of the CNAs into consideration. In doing so, the arbitrator reasonably determined that any interpretation of the contract should be informed by PERC's decision, as well as equitable principles. Thus, the judge correctly concluded that the arbitrator did not act outside the scope of his jurisdiction.

VI.

The City additionally argues that the judge should have set aside the arbitrator's decision as contrary to public policy. The City maintains that the relevant provisions of the CNAs conflict with the limitations on the accrual of vacation time established by N.J.S.A. 11A:6-3 and are void ab initio. The City contends that the arbitrator's decision essentially requires it to continue violating the law.

However, as we have explained, in Middletown, the Court applied equitable estoppel and precluded the Township from refusing to continue to provide a retired police officer with free health benefits, as provided by the Township's collective bargaining agreement, even though the relevant provisions of the agreement were contrary to State law. Middletown, supra, 162 N.J. at 370-71. The Court concluded that denial of the benefits would result in an injustice because the employee had relied on the agreements when he retired. Id. at 372. The arbitrator's decision in this case was entirely consistent with principles set forth in Middletown. Therefore, the arbitrator's decision is not contrary to public policy.

The City further argues that the judge should have precluded the unions from re-litigating PERC's decision that the vacation accrual provisions of the City's agreements are "preempted and unenforceable." Again, we disagree.

PERC found that N.J.S.A. 11A:6-3 limits the extent to which the City's firefighters and fire officers may accrue vacation time, and the accrual of vacation time beyond that permitted by the statute is not mandatorily negotiable.

However, PERC was not asked to determine the issue presented in this case, which is whether the City's firefighters and fire officers should be paid for vacation time beyond that permitted by N.J.S.A. 11A:6-3, where the vacation time was accrued prior to PERC's decision, and the employees relied in good faith upon the CNAs and the City's representations when they accrued the disputed vacation time. PERC never decided that question. Thus, the unions were not precluded from litigating that issue in this case.

Affirmed.

1 Locals 1076 and 1078 argue that PERC's decision was in error. We conclude, however, that the Locals may not relitigate the issues decided by PERC because they did not appeal from that decision.