New Jersey public employers are currently feeling the effects of Arbitration Reform Bill P.L. 2010 c.105 (“the legislation”), which applies to any collective negotiations agreement (“agreement”) expiring on or after January 1, 2011 to March 31, 2014. This legislation sunsets on April 1, 2014. But in the meantime, the legislation greatly impacts the role of arbitration in police and firefighter contract negotiations by establishing a 2 percent cap on the aggregate increase in “base salary” that can be provided to public employees in an interest arbitration award. The legislation’s 2 percent cap prohibits an arbitrator from issuing an award that, on an annual basis, increases “base salary” by more than 2 percent of the aggregate amount expended by the employer on “base salary” items for the members of the union in the 12 months immediately preceding expiration of the agreement. An arbitrator can distribute the aggregate monetary value over the term of the agreement in unequal annual percentages.
In negotiations and during interest arbitration, disputes often arise as to what qualifies as “base salary” and “non-salary economic issues”. The legislation provides that the 2 percent cap applies to all “base salary” items, such as step increment payments, longevity and cost of living increases. The legislation specifically prohibits an arbitrator from issuing an award that addresses “non-salary economic issues” unless already included in the existing contract. “Non-salary economic issues” encompass paid time off, pension costs, and health /medical insurance costs. The legislation’s exclusion of “non-salary economic issues” from an award is particularly important because it restricts an arbitrator’s ability to create new cost items in successor contracts.
There is currently no case law to provide further guidance on the legislation’s distinction between “base salary” and “non-salary economic issues,” but we will provide updates on any new developments.