Fourth Circuit upholds county furlough against Contract Clause challenge

by Kirsten E. Small

As the slow economy continues to put state and municipal governments under pressure to fund necessary services while maintaining balanced budgets, furloughs of government workers are increasingly common. In areas where local government workers are unionized, a furlough may run afoul of the Constitution's Contract Clause, which provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1.

The Fourth Circuit addressed such a challenge in Fraternal Order of Police v. Prince George's County, No. 09-2187 (June 23, 2010). Nexsen Pruet represented the County; yours truly wrote the brief and the case was argued by William "Billy" Wilkins.

Faced with declining revenues and unable to raise taxes, Prince George's County declared a two-week furlough of all County employees during fiscal year 2009. The County acted pursuant to § 16-229 its Personnel Code, which allows furloughs when "required" by "an ascertained shortfall in revenue."

Approximately 80-95% of county employees are union members; the Unions challenged the furlough on the basis that the County was impairing its own contractual obligations (specifically, the wage and hour provisions of collective bargaining agreements) in violation of the Contract Clause. The Unions also argued that (1) the furloughs violated a county ordinance providing that specific terms of CBAs override contrary county law, and (2) the furloughs were not "required."

The district court rejected the Unions' claims under county law, holding (1) that the CBAs did not specifically prohibit furloughs, and therefore § 16-229 was incorporated into the CBAs as a matter of law; and (2) that the County properly determined that a furlough was "required."

However, the court held that the furlough violated the Contract Clause because (1) it impaired the County's obligations under the CBAs to pay certain wages, (2) the impairment was substantial, and (3) the impairment was not "reasonable and necessary to serve an important public purpose." U.S. Trust Co. v. New Jersey, 431 U.S. 1 (1977). The County argued on appeal that there could be no impairment because (as the district court held) § 16-229 was a term of the Unions' contracts. Alternatively, the County argued that the furlough was reasonable and necessary. A key dispute between the parties--and the aspect of the case most watched by locoal governments and unions across the country--was the degree of deference to which the County was entitled in making this determination.

The Fourth Circuit accepted the County's first argument, that the CBAs were not impaired because the furlough ordinance was, by operation of law, a term of the collective bargaining agreements. Because the CBAs therefore gave the County the right to furlough union employees when "required," and because the Unions had not cross-appealed the district court's holding that the furlough was "required" within the meaning of county law, the Fourth Circuit reversed the district court.

While this is a big win for Prince George's County, it is unclear how much help the decision will provide to other local governments facing budget shortfalls. The Court addressed only the narrow question of the impact of county law, and did not reach the larger question of when a furlough of union employees may be "reasonable and necessary" and, most importantly, the degree of deference to which a local government is entitled in making this determination.