Association of Surrogates & Supreme Ct. Reporters v. State, 79 N.Y.2d 41 (1992)
A state law imposing a lag payroll on state employees, effectively deferring a portion of their wages, violates the Contract Clause of the U.S. Constitution when it impairs existing collective bargaining agreements, as such impairment is neither reasonable nor necessary to serve an important public purpose.
Summary
This case concerns New York State’s attempt to offset budget shortfalls by enacting a five-day lag payroll for nonjudicial employees, effectively deferring part of their wages until termination of employment. The Association of Surrogates challenged this law as a violation of the Contract Clause. The Court of Appeals affirmed the lower courts’ decisions, holding that the lag payroll statute unconstitutionally impaired the State’s contractual obligations under existing collective bargaining agreements. The court reasoned that the State’s action was neither reasonable nor necessary, particularly given the availability of other options to address the budget shortfall.
Facts
New York State, facing budget deficits, enacted State Finance Law § 200(2-b) to implement a five-day lag payroll for nonjudicial employees of the Unified Court System. This meant employees would be paid for nine days instead of ten in each biweekly pay period over five periods, deferring wages to be paid in a lump sum upon termination of service. Collective bargaining agreements with the employees’ unions had expired shortly before the statute’s enactment. The State argued the expired contracts allowed for the lag payroll. The unions argued that Civil Service Law § 209-a(1)(e) kept the contracts in effect.
Procedural History
The plaintiffs, employee unions, sued to invalidate the lag payroll statute. The lower courts granted summary judgment to the plaintiffs, declaring the statute unconstitutional and permanently enjoining its enforcement. The State appealed, and the Court of Appeals granted expedited review.
Issue(s)
1. Whether the collective bargaining agreements between the State and its employees remained in effect after their stated expiration dates due to Civil Service Law § 209-a(1)(e)?
2. Whether State Finance Law § 200(2-b), which imposed a lag payroll, unconstitutionally impaired the State’s contractual obligations in violation of the Contract Clause of the U.S. Constitution?
3. Whether, if the statute unconstitutionally impairs contracts with represented employees, it should be applied to unrepresented employees?
Holding
1. Yes, because Civil Service Law § 209-a(1)(e) extends the terms of an expired collective bargaining agreement until a new agreement is negotiated.
2. Yes, because the lag payroll statute substantially impaired the State’s contractual obligations and was neither reasonable nor necessary to serve an important public purpose.
3. No, because the legislature would not have intended the statute to apply to only a small segment of employees.
Court’s Reasoning
The court first determined that the collective bargaining agreements remained in effect due to Civil Service Law § 209-a(1)(e), which mandates the continuation of the terms of an expired agreement until a new one is negotiated. The court reasoned that this provision was incorporated into the contracts themselves, providing continued protection under the Contract Clause. The court emphasized that the purpose of this law was “to promote employer-employee harmony and uninterrupted service in the public sector.”
Turning to the Contract Clause issue, the court acknowledged that not all impairments of contract are unconstitutional, but that a substantial impairment must be justified as reasonable and necessary to serve a legitimate public purpose. Because the State was impairing its own contracts, the court subjected the statute to a more searching analysis. The court found that the lag payroll, which withheld 10% of employees’ wages for an indefinite period, was a substantial impairment. The court rejected the State’s argument that the lag payroll was reasonable and necessary, noting that other options were available to address the budget shortfall. Quoting from a prior case, the court stated that “the menu of alternatives does not include impairing contract rights to obtain forced loans to the State from its employees.”
Finally, the court addressed the severability issue, holding that the lag payroll should not be applied to unrepresented employees. Citing People ex rel. Alpha Portland Cement Co. v. Knapp, the court stated, “The question is in every case whether the legislature, if partial invalidity had been foreseen, would have wished the statute to be enforced with the invalid part exscinded, or rejected altogether.” The court reasoned that the legislature would not have intended the statute to apply to only a small segment of employees, as the intended effect of the statute would be severely undercut. The court pointed out the absence of a severability clause.