Pennsylvania Supreme Court To Consider When a Public Sector-Related Entity May Subcontract Bargaining Unit Work to Private Sector Contractors Without Bargaining

This post was contributed by Gina E. McAndrew, a new associate in McNees Wallace & Nurick LLC's Labor & Employment Practice Group in Scranton, Pennsylvania.

In a case which will interest public and private sector employers alike, American Federation of State, County and Municipal Employees, District Council 87 v. Pa. Labor Relations Bd., the Pennsylvania Supreme Court is poised to address important issues regarding the subcontracting of public sector bargaining unit work to private sector contractors.

The work in question is the work of the Luzerne/Schuylkill Workforce Investment Board ("WIB"), which was created under federal and state law to "increase local employment through the provision of educational training and services, which are paid for by federal funds." Previously, these duties were performed by the Luzerne County Workforce Investment Development Agency ("County Agency"), but the WIB decided to issue a Request for Proposals to explore whether a subcontractor should be hired to perform the services. The County Agency employees were represented by AFSCME (the "Union"), and the Union demanded to negotiate with the County regarding the potential subcontracting. The County did not respond to these demands and the WIB proceeded to issue the RFP.

The RFP indicated that the decision was subject to approval by both Luzerne and Schuylkill Counties' Commissioners; however, the Commissioners did not act on recommendations forwarded by the WIB. The County Agency bid on these services, but was not recommended for or awarded either contract. The WIB proceeded to award contracts to bidders and enter into contracts with third-party contractors. Thereafter, the Union filed an unfair labor practice charge against Luzerne County for unilaterally subcontracting without bargaining.

A hearing examiner issued a Proposed Decision and Order, finding that the WIB was controlled by the County, and thus the County had committed an unfair labor practice. The hearing examiner determined that the chief elected officials directed the WIB to seek bids, the RFPs indicated the Commissioners had to approve the contracts, and that the WIB was required to act with the agreement of these officials on certain matters. However, the Pennsylvania Labor Relations Board reversed that decision, finding that the County did not control the WIB, as it was the WIB's decision to subcontract, issue the RFPs, review bids, choose successful bidder(s) and enter into the contracts. As such, the Board found the County did not commit an unfair labor practice when a third party (WIB) made the decision to subcontract.

The Union appealed to the Commonwealth Court. In upholding the Board's decision, the Court found no error in the Board's factual conclusions that WIB independently decided to subcontract. The Court also noted that the County Agency attempted to retain its contracts by submitting a bid, as it had done at least once previously, and that the disbursement of funds was at the direction of the WIB. The Court held that although the chief elected official partners with the WIB to create a local plan and approves the budget, this does not mean that the local official controls the WIB. The Court concluded that WIB was "an independent third party not subject to the collective bargaining agreement" and its actions were "not attributable to the County."

However, the Court's ruling was not unanimous. In his dissent, Judge Pellegrini, joined by Judge McGinley, opined that the Board erred in finding the County had not committed an unfair labor practice, as the County failed to negotiate to a bona fide impasse before subcontracting.  Judge Pellegrini disagreed with the majority's ruling, reasoning that the WIB was part of County government, as its purpose was to "advise and assist" County officials and had no authority to enter into a contract authorizing the disbursement of funds; the County had control over the WIB based upon the facts of record, including that the RFPs indicated that decisions were subject to the Commissioners' approval; and the WIB did not have a "separate legal status."

The Pennsylvania Supreme Court has agreed to hear this issue on appeal. The decision will likely have significant implications for public sector employers, and their various related and affiliated entities, as well as private sector organizations seeking to do business with these entities. Stay tuned for future updates on this important topic.

Source: Wallace & Nurick LLC's Labor & Employment Practice Group in Scranton, Pennsylvania