Fraternal Order of Police, Inc. v. Baltimore County

ELDRIDGE, Judge. The dispute in this case is over the validity of a provision in a collective bargaining agreement, between Baltimore County and a union, prohibiting the furlough of police officers covered by the agreement for the fiscal year 1992. The County contends that it is not bound by the provision even though the collective bargaining agreement was entered into pursuant to a county ordinance and funds were appropriated in the County’s annual budget for the police officers’ compensation in accordance with the agreement. I. For fifteen years prior to this dispute, Baltimore County and the Fraternal Order of Police, Lodge No. 4 (the Union), representing Baltimore County police officers, entered into collective bargaining agreements covering a wide range of issues including union organization and dues, health insurance, travel allowances, leave policies, wages and overtime.

Such collective bargaining agreements are authorized by § 25-51 of the Baltimore County Code. 1 Each agreement, known as a ¹⁶⁰ Memorandum of Understanding, was finalized by the parties and signed by the County Executive, Union representatives, and the Labor Commissioner of Baltimore County. If a grievance 2 arises regarding the interpretation of the terms of an agreement, § 25-59 of the Baltimore County Code authorizes the use of arbitration to resolve the grievance if arbitration is provided for in the collective bargaining agreement. 3 Pursuant to the statutory authorization for collective bargaining outlined in the Baltimore County Code, the County and the Union entered into a new collective bargaining agreement on January 25, 1991, effective for the fiscal year 1992, which was from July 1, 1991, to June 30, 1992. The agreement provided for arbitration as a method for resolving grievances and provided for yearly automatic renewals of the agreement absent six months notice from either party terminating the agreement. The agreement also contained a provision that prohibited “reduction[s] in force required by lay off or furlough during fiscal year 1992.” 4 The County agreed to ¹⁶¹ this provision in return for the Union’s agreement to a freeze on cost-of-living adjustments for fiscal year 1992.

Subsequent to the signing of the agreement by the County Executive and the Union, the County Executive submitted the budget for fiscal year 1992 to the Baltimore County Council, which enacted the budget. Included within the County’s fiscal 1992 budget, as approved by the County Council, were appropriations for the full wages and benefits of the police officers as provided for in the collective bargaining agreement. In January 1992, despite the prohibition against furloughs, the County, facing a revenue shortfall for 1992, enacted a plan to furlough for five days all county employees including the police officers covered by the collective bargaining agreement. 5 On January 14, 1992, the Union filed a grievance challenging the County’s action with respect to the police officers covered by the agreement. In its grievance, the Union alleged that the furlough of the police officers was in violation of the express terms of the contract between the County and the Union, and the Union sought an order directing the County to cease and desist from any furlough of the police officers.

Moreover, the Union requested that the employees be reimbursed for any loss of wages or employee benefits incurred as a result of the furlough. Both the Union and the County agreed that the grievance should be submitted to arbitration. On June 25, 1992, an arbitration proceeding was held to determine whether the County had breached the collective ¹⁶² bargaining agreement. Finding that the agreement prohibited the use of furloughs for fiscal year 1992, and that the furloughs implemented by the County constituted a breach of the agreement, the arbitrator ordered that all employees covered by the agreement be compensated for loss of wages and benefits incurred as a result of the furlough. 6 After the arbitrator’s decision, the County filed in the Circuit Court for Baltimore County a petition to vacate the award.

The Union responded with an answer and a cross-petition to confirm the award. The County filed a motion for summary judgment, and the Union filed a cross-motion for summary judgment. In requesting summary judgment, the County argued that, despite the agreement’s express language prohibiting furloughs, the arbitrator exceeded his authority by ruling on this matter. The County maintained that the determination of whether to impose furloughs is within the exclusive purview of the County government because it affects the compensation to be received by employees.

In effect, the County asserted that, although the County and the Union were authorized by ordinance to enter into a collective bargaining agreement, any issues regarding the setting of compensation were within the exclusive domain of the County and could not be arbitrated. Moreover, the County claimed that, even if the arbitrator had authority to rule on whether the furloughs breached the collective bargaining agreement, the County had authority, under § 714 of the County Charter, to initiate the furlough provision whenever there is a revenue shortfall. The Union responded that an improper delegation to the arbitrator did not take place, and that the arbitrator was fully ¹⁶³ authorized to decide whether the County had breached its agreement. According to the Union, § 714, which the County relied upon, provided no basis for the County to violate its contract.

Furthermore, the Union argued that the County’s violation of the collective bargaining agreement was an unconstitutional impairment of the obligation of contract. After the submission of briefs and two hearings, the circuit court vacated the arbitrator’s award. The court, relying upon Anne Arundel County v. Fraternal Order, 313 Md. 98 , 543 A.2d 841 (1988), and Maryland Cl. Emp.

Ass’n v. Anderson, 281 Md. 496 , 380 A.2d 1032 (1977), held that “there can be no legally binding arbitration relating to compensation of county employees unless and until” either a state public general law or the “County Charter authorizes that arbitration----” The court viewed the furlough prohibition in the contract as “affecting” compensation. Since neither state law nor the Baltimore County Charter “authorize^] the [County] Executive to legally bind the Baltimore County government,” the court held that the furlough prohibition and the arbitration were invalid. According to the circuit court, the County had impermissibly delegated its budget-making authority, which includes the setting of compensation, by submitting to an arbitrator the issue of whether the furlough prohibition had been breached. The court also indicated that § 714 of the Baltimore County Charter authorized the County Executive to reduce the appropriation in the budget for the police officers’ compensation.

Finally, the circuit court rejected the Union’s argument that the County’s action amounted to an impairment of the obligation of contract in violation of Article I, § 10, of the United States Constitution. The Union filed a notice of appeal to the Court of Special Appeals and, before the case was heard by the intermediate appellate court, filed in this Court a petition for a writ of certiorari. The petition presented three questions as follows: “I. Did the Circuit Court err when it concluded that the agreement to arbitrate the dispute over the furlough of police officers and the resulting Arbitrator’s Award were ¹⁶⁴ not authorized by the Baltimore County Charter and were therefore invalid because they entailed the delegation of the authority of the County Executive and/or County Council to set compensation? “II. Did the Circuit Court err when it concluded that the County Executive had the power under Section 714 of the Baltimore County Charter to furlough police officers in violation of the Memorandum of Understanding? “HI.

Did the Circuit Court err in failing to find that the County’s abrogation of the no-furlough clause of its Memorandum of Understanding with [the Union] was an unconstitutional impairment of contract?” We granted the petition and shall reverse. In light of our conclusion that the circuit court erred as a matter of Maryland law, we need not and do not reach the federal constitutional issue that the Union presents in its third question.

II

Integral to the resolution of this dispute is the interplay between Baltimore County’s budgetary process, prescribed in the County’s Charter, and the County’s collective bargaining ordinance. Baltimore County, pursuant to Article XI-A of the Constitution of Maryland, adopted a home rule charter form of government in 1956. The County’s Charter mandates the use of an executive budget system. Section 706 of the Charter requires the County Executive, “[n]ot later than seventy-five days prior to the end of the fiscal year,” which runs from July 1 to June 30, to prepare and submit to the County Council a budget for the ensuing fiscal year.

This budget consists of “a current expense budget, a capital budget and capital program, and a budget message.” Ibid. Included within the current expense budget are “expenditures recommended by the county executive for the ensuing fiscal year for each program or project which shall be classified by agency, charter and object.” Ibid. Once the proposed budget is submitted to the County Council, § 709 delineates the County Council’s responsibilities by providing that ¹⁶⁵ “the county council may decrease or delete any item in the budget except those required by the public general laws of this state____ The county council shall have no power to change the form of the budget as submitted by the county executive, to alter the revenue estimates except to correct mathematical errors, or to increase any expenditures recommended by the county executive for current or capital purposes. The adoption of the budget shall be by the affirmative vote of a majority of the total number of county council members ... on an ordinance to be known as the Annual Budget and Appropriation Ordinance of Baltimore County.” Thus, the budgetary process requires the County Executive to submit a budget no later than mid-April, which is approximately seventy-five days prior to the beginning of the next fiscal year, and the County Council to approve or disapprove of the appropriations made therein.

In conjunction with the timing requirements outlined in the County’s budgetary process, the County’s collective bargaining ordinance contemplates that negotiations will take place and a memorandum of understanding will be concluded prior to the final date by which the County Executive must submit the annual budget. Section 25-57 of the collective bargaining ordinance provides, inter alia, for “negotiations” between the employer and union representatives, including a provision stating that the county “shall not be required to negotiate with any employee organizations certified after March 1 of any fiscal year regarding wages, hours, and terms and conditions of employment, which would require legislation or the appropriation of funds in the annual budget.” Section 25-57 also provides that representatives of the County and the Union shall “meet at reasonable times and ... appropriately relate such meetings to the county’s budget submission date and negotiate in good faith with respect to wages, hours, terms and conditions of employment and the drafting of written memorandum of understanding containing all matters agreed upon.” (Emphasis added). ¹⁶⁶ Should a dispute arise during negotiations, § 25-58 of the collective bargaining ordinance specifies that the parties may enter into advisory arbitration and states as follows (emphasis added): “In the event that the dispute remains unresolved after fact-finding and mediation efforts, the personnel and salary advisory board shall meet with the negotiating parties, either separately or together, and review the positions of each. The personnel and salary advisory board will afterward submit its final recommendations to the county executive for his consideration prior to April 5.” The collective bargaining law therefore dictates that wages and benefits to be paid to employees, as agreed upon by a union and the County and embodied within a memorandum of understanding, must be duly negotiated prior to the submission of the budget to the County Council. The collective bargaining law thus contemplates that any agreements affecting appropriations are fully subject to the County’s annual budget process.

III

In challenging the validity of the prohibition against furloughs, Baltimore County’s principal argument is that the County government cannot bind itself on matters affecting the payment of money unless the County Charter or a public general law enacted by the General Assembly provides the authority for doing so. The circuit court, in agreeing with the County, relied on Anne Arundel County v. Fraternal Order, supra, 313 Md. 98 , 543 A.2d 841 , and Maryland Cl. Emp. Ass’n v. Anderson, supra, 281 Md. 496 , 380 A.2d 1032 .

The position of the County and the circuit court represents a misreading of this Court’s opinions. In Maryland Cl. Emp. Ass’n v. Anderson, supra, we invalidated a provision in the Harford County collective bargaining ordinance which required binding arbitration if the County and a union reached an impasse during negotiations prior to the signing of a collective bargaining agreement.

In ¹⁶⁷ Anderson , the County and a union could not agree on the percentage increase in salaries to be given to employees for fiscal year 1975. Section 201B(h)(5) of the Harford County Code required that the issue be submitted to binding arbitration. After reaching an impasse, Harford County and the union submitted the dispute to arbitration, and the arbitrator made an award increasing the employees’ wages by 7.8% for the next fiscal year. The Harford County Council, however, did not agree to put the award into effect; instead, it approved a $640 across-the-board raise, which was included in the annual budget and appropriation ordinance.

In rejecting the union’s claim that the Harford County Executive and the County Council were bound by the arbitrator’s decision, we stated in Anderson as follows ( 281 Md. at 512 , 380 A.2d at 1041 ): “[H]ad a State public general law or the County Charter authorized the binding arbitration provisions enacted by the County Council, the provisions would be valid. But there is no such authority in either a public general law or the County Charter____ [T]he prevailing rule in other jurisdictions is in complete accord with the view expressed in Mugford [v. City of Baltimore, 185 Md. 266 , 44 A.2d 745 (1945) ] to the effect that absent such authorization it is invalid for a municipality or charter county to attempt to bind itself in the exercise of legislative discretion over compensation of its public employees. We follow that rule. Because the Harford County ordinance attempted to bind the County in the exercise of its legislative discretion over public employee compensation without being authorized to do so by a public general law or by the County Charter, the provisions of the ordinance to that end are invalid.” Baltimore County asserts that the issue in Anderson is the same as the issue presented here because, in the instant case, the arbitrator’s decision enforcing the prohibition against furloughs in the collective bargaining agreement affects compensation and thus allegedly removes from the County Executive and County Council their legislative discretion with regard to appropriations. ¹⁶⁸ While we agree that the provision prohibiting furloughs does in fact affect compensation, we disagree with the County and the circuit court that this matter could not be subject to arbitration.

The crucial distinction between