New York Court of Appeals Affirms Appellate Court\'s Holding That Retirement Plan Contribution Dispute Was Not Arbitrable

May 29, 2013

By: Christopher T. Kurtz

In a recent decision of statewide applicability to public employers with unionized members of the Police and Fire Retirement System (“PFRS”), the New York Court of Appeals (“Court”) addressed the issue of whether the City of Yonkers’ refusal to pay or reimburse new employees for their statutorily-required Tier V pension contributions was arbitrable.  In City of Yonkers v. Yonkers Fire Fighters, the Court affirmed the decision of the Appellate Division, Second Department (which had reversed the lower court’s decision), and held that the dispute was not arbitrable, thereby affirming a permanent stay of arbitration.  The case will likely have positive implications for similarly-situated public employers across the state.  The City of Yonkers ("City") was represented by Bond, Schoeneck & King in the litigation.

The dispute arose in connection with the 2009 enactment of Article 22 of New York’s Retirement and Social Security Law (“Tier V”).  Among other changes, Tier V provides that those who join the PFRS on or after January 10, 2010 must contribute 3% of their salary towards the retirement plan in which they are enrolled.

Prior to the enactment of Tier V, the City and the Yonkers Fire Fighters (the “Union”) were parties to a collective bargaining agreement (“CBA”) which expired on June 30, 2009.  Like many other firefighter and police collective bargaining agreements throughout the state, the CBA required the City to provide a “non-contributory” pension/retirement plan to its firefighters.

In late 2009, the City hired several firefighters who, because of a “gap” in the law, had the option of joining the PFRS as either members of Tier III or Tier V – both contributory (3%) tiers.  In an attempt to apply the terms of the expired CBA to relieve its Tier V members of the statutorily-required 3% member contribution, the Union filed a grievance and sought arbitration based upon the contractual obligation to provide a non-contributory plan.

The Union relied upon an exception (Retirement and Social Security Law, Article 22, Section 8) in the Tier V statute which provides that members of the PFRS need not join the contributory Tier V if there is an alternative (non-contributory) retirement plan available to them under a CBA “that is in effect on the effective date of Tier V.”  This provision gives new members of the PFRS a means by which they could avoid Tier V and its 3% contributions and join an existing non-contributory plan.  The Union sought to use the “Triborough” provisions of the Taylor Law, which require that the terms of an expired agreement continue until a new agreement is reached, to extend this exception to its members hired in late 2009 on the theory that its CBA, which expired on June 30, 2009, was nonetheless still “in effect.”

Finding that the Union’s reliance on “Triborough” applying to the statutory Section 8 exception was misguided and not the Legislature’s intent, the Court found that the CBA in question expired on June 30, 2009 and, therefore, was not “in effect” on January 10, 2010, the effective date of Tier V.  The Court adopted a position taken by the City and determined that the Legislature intended to honor only agreements providing for non-contributory status that had not expired at the time the statute became effective.

The Union also grieved, and attempted to arbitrate, an alternative argument that even if its new members could not join Tier V as non-contributing members, then, under the CBA, the City should pay (or potentially reimburse) its new members’ 3% pension contributions.  The Court, however, found that the arbitration sought by the Union was barred as an impermissible negotiation of pension benefits.  The Court accepted the City’s argument that Section 201(4) of the Civil Service Law and Section 470 of the Retirement and Social Security Law prohibit the arbitration of this dispute.  While New York generally favors arbitration, an issue is not proper for arbitration when the subject matter of the dispute violates statutory law, as was the case here.  Among other things, Sections 201(4) and 470 state that the benefits provided by a public retirement plan are prohibited subjects of collective bargaining.  In this case, arbitration of the relevant dispute would be improper, as these statutes clearly bar the negotiation of benefits provided by a public retirement system such as the PFRS 3% contribution.

Finally, the Court rejected the Union’s remaining contention that the Section 8 exception runs afoul of the Contract Clause of the United States Constitution, which prohibits the retroactive impairment of contracts after their inception.

This 4-2 decision of the Court could impact any public employer that employs police and/or firefighter members of Tier V, and who has a collective bargaining agreement that addresses non-contributory retirement plans.  However, because of the many complex legal issues involved, it is recommended that these matters, as well as those involving questions surrounding the applicability of this decision to Tier V, be reviewed with labor counsel.