                                                     SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)

                           IMO Borough of Keyport v. Local 68 (A-43/44-13) (072361)

Argued October 20, 2014 -- Decided July 14, 2015

LaVECCHIA, J., writing for a majority of the Court.

         The issue in this appeal is whether three municipalities were required to negotiate with union
representatives before taking layoff actions that negatively impacted the hours and wages of affected employees.

          In 2009, the municipalities of Belmar, Mount Laurel, and Keyport (collectively the municipalities), were
experiencing financial strain in light of a pervading and lingering economic downturn. All three municipalities were
operating under collective negotiation agreements (CNAs) with unions representing municipal employees: For
Keyport the International Union of Operating Engineers, Local 68 (Local 68); for Belmar the Communications
Workers of America, AFL-CIO (CWA); and, for Mount Laurel the American Federation of State, County and
Municipal Employees, Council 71, South Jersey Public Employers (AFSCME). Following various efforts to
confront their individual budget crises, each municipality obtained approval from the Civil Service Commission
(Commission) for a layoff plan. Keyport’s plan called for the conversion of three full-time clerical positions into
part-time positions; as a result, the affected employees lost their eligibility for health benefits. The plan stated that
Keyport’s preliminary 2009 budget exceeded the levy cap by $135,000 and that “the Borough must reduce its
appropriations so that it may lawfully adopt a budget for 2009.” Belmar’s temporary layoff plan provided for ten
involuntary unpaid furlough days for all Department of Public Works employees. Belmar described the furloughs as
necessary to achieve a budget that would comply with the State-mandated tax levy cap. Mount Laurel’s plan called
for the imposition of eight involuntary furlough days on all township employees except police and emergency
medical personnel. Mount Laurel represented that the layoffs were necessary to help offset the township’s budget
crisis and to address restoration of the township’s budgetary surplus. None of the municipal layoff actions were
negotiated with union representatives.

          The unions in each municipality brought scope-of-negotiations challenges to the municipal actions. The
Public Employment Relations Commission (PERC), in separate decisions, held that the municipalities violated the
New Jersey Employer-Employee Relations Act (EERA), N.J.S.A. 34:13A-1 to -39, and required each municipality
to negotiate the changes in terms and conditions of employment. PERC applied the three-part test set forth in Local
195, IFPTE v. State, 88 N.J. 393, 404-05 (1982) , for resolving questions about the scope of public sector
employment negotiations. In Local 195, the Court established that a subject is negotiable when: “(1) the item
intimately and directly affects the work and welfare of public employees; (2) the subject has not been fully or
partially preempted by statute or regulation; and (3) a negotiated agreement would not significantly interfere with
the determination of governmental policy.” Id. at 404. PERC determined that the layoffs in each municipality
directly affected employee work and welfare, that the subject of negotiation was not preempted by statute or
regulation, and that the municipalities did not have the managerial prerogative to unilaterally implement the layoffs
because negotiations would not significantly interfere with governmental policy.

          The three municipalities appealed their PERC administrative determinations. The Appellate Division
observed that the Commission had approved all three layoff plans during the time when the Commission’s
emergency regulation permitting “temporary layoffs,” N.J.A.C. 4A:8-1.1A, was in effect. Applying the three-part
test from Local 195, the Appellate Division determined that the unions met the first prong because all of the actions
at issue directly affected the work and welfare of public employees. However, aside from Keyport’s action
eliminating health benefits, the panel concluded that “the unions did not satisfy the second and third prongs of the
[Local 195] test because the municipalities’ actions complied with the Civil Service Act and its regulations, and the
decisions to furlough and demote employees were non-negotiable policy determinations.” The panel affirmed the
order in Keyport that required arbitration of the health benefits issue but reversed PERC in respect of the reduction
in hours in Keyport and in all respects in the Mount Laurel and Belmar cases.
          The Supreme Court granted Local 68’s petition for certification and CWA’s and AFSCME’s joint petition
for certification.

HELD: The three municipalities in this case acted for reasons of economy based on municipal fiscal distress
existing at the time, rendering the management choice to use a temporary or permanent layoff solution one that
constituted a managerial prerogative not subject to negotiation. The layoff actions at issue in this consolidated
appeal constituted non-negotiable subjects under prong three of the Local 195 test for negotiability. Local 195,
IFPTE v. State, 88 N.J. 393 (1982).

1. In Local 195, the Court explained that public policy properly is determined through the political process, by
which citizens hold government accountable, and not through collective negotiation. The Court articulated the
three-part test applied by PERC to the three municipalities in this case. In respect of the first factor, “rates of pay
and working hours” are noted models for the type of subjects that “‘intimately and directly affect[] the work and
welfare of public employees.’” Local 195, supra, 88 N.J. at 403. A subject is preempted, and therefore non-
negotiable under the second factor, when a statute or regulation “‘speak[s] in the imperative and leave[s] nothing to
the discretion of the public employer.’” Id. at 403-04. The third factor requires that interference with the
determination of government policy be significant in order to defeat negotiability. Id. at 404. A matter’s
negotiability turns not “on the talismanic application of labels such as ‘terms and conditions of employment’ or
‘managerial prerogatives[]’ [but r]ather, the inquiry focuses on the extent to which collective negotiations will
interfere with the establishment and effectuation of governmental policy.” Id. at 420 (Handler, J., concurring and
dissenting). (pp. 23-28)

2. Prong one of the Local 195 test is not in issue in this matter. In all three disputes, the layoff actions resulted in
reduced hours of work, with resultant reductions in pay, for the affected employees. Prongs two and three of the test
are the factors in issue. The preemption standard for prong two is clear in its limits and rigid within its parameters.
When legislation or a regulation “establishes a specific term or condition of employment that leaves no room for
discretionary action, then negotiation on that term is fully preempted.” Local 195, supra, 88 N.J. at 403. The statute
and implementing regulations that authorize a layoff of public sector employees lack an imperative nature. Thus,
they do not satisfy the essential requirement for preemption to pertain and preclude negotiation based on the second
prong of Local 195. Likewise, emergency regulation N.J.A.C. 4A:8-1.1A did not mandate an action by public
sector employers affecting terms and conditions of employment for public employees. Neither N.J.A.C. 4A:8-1.1A
nor civil service statutes and regulations governing traditional layoff actions preempt negotiation on the basis of
prong two of the Local 195 test. (pp. 28-35)

3. Based on a well-established analysis performed under prong three of the Local 195 test, layoffs consistently have
been held to be outside of the scope of negotiations: “[N]egotiation will be allowed on a subject that intimately and
directly affects the work and welfare of public employees unless such negotiated agreement would significantly
interfere with the determination of governmental policy.” Local 195, supra, 88 N.J. at 404. Application of that
balancing of interests under prong three has deep roots when it comes to the decision to lay off and thereby adjust a
public workforce involved in the delivery of public services. There is no room for mandatory negotiation in the
determination to reduce a workforce. Public managers must be the ones accountable to the people for such
substantive policy decisions. The Local 195 Court was unanimous in deciding to keep matters involving
predominantly managerial prerogative out of the negotiations process. (pp. 35-38)

4. Economic reasons are indisputably a legitimate basis for a layoff of any type. The three municipal governments
in this case took action while the Commission’s emergency regulation authorizing temporary, as well as permanent,
layoff plans was in effect. These civil service municipalities, when faced with fiscal exigency, had the right to lay
off employees under prior case law and as buttressed by the emergency regulation then in effect authorizing
temporary layoff actions. All three municipalities acted for reasons of economy based on municipal fiscal distress
existing at the time, rendering the management choice to use a temporary or permanent layoff solution one that
constituted a managerial prerogative not subject to negotiation. The layoff actions at issue in this consolidated
appeal constituted non-negotiable subjects under prong three of the Local 195 test for negotiability. (pp. 38-46)

         The judgment of the Appellate Division is AFFIRMED as MODIFIED.



                                                           2
          JUSTICE ALBIN, DISSENTING, expresses the view that the majority opinion sweeps away nearly fifty
years of this Court’ public-sector labor jurisprudence, giving municipal employers the unilateral power to reduce the
wages and hours of public employees promised in collective negotiations agreements.

      JUSTICES PATTERSON and SOLOMON, and JUDGE CUFF (temporarily assigned) join in
JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN filed a separate, dissenting opinion. CHIEF JUSTICE
RABNER and JUSTICE FERNANDEZ-VINA did not participate.




                                                         3
                                  SUPREME COURT OF NEW JERSEY
                                  A-43/44 September Term 2013
                                             072361

IN THE MATTER OF BOROUGH OF
KEYPORT,

    Respondent-Respondent,

         v.

INTERNATIONAL UNION OF
OPERATING ENGINEERS, LOCAL
68,

    Petitioner-Appellant.


IN THE MATTER OF BOROUGH OF
BELMAR,

    Respondent-Respondent,

         v.

COMMUNICATIONS WORKERS OF
AMERICA, AFL-CIO,

    Petitioner-Appellant.


TOWNSHIP OF MOUNT LAUREL,

    Respondent-Respondent,

         v.

COMMUNICATIONS WORKERS OF
AMERICA,

    Petitioner,

          and

AFSCME, COUNCIL 71, SOUTH
JERSEY PUBLIC EMPLOYEES,

                              1
Petitioner-Appellant.

    Argued October 20, 2014 – Decided July 14, 2015

    On certification to the Superior Court,
    Appellate Division.

    Steven P. Weissman argued the cause for
    appellants Communications Workers of
    America, AFL-CIO and AFSCME, Council 71,
    South Jersey Public Employees (Weissman &
    Mintz, attorneys; Mr. Weissman and Ira W.
    Mintz, on the briefs).

    Raymond G. Heineman argued the cause for
    appellant International Union of Operating
    Engineers, Local 68 (Kroll Heineman Carton,
    attorneys).

    Jonathan F. Cohen argued the cause for
    respondent Borough of Belmar (Apruzzese,
    McDermott, Mastro & Murphy, attorneys).

    Joseph F. Betley argued the cause for
    respondent Township of Mount Laurel
    (Capehart Scatchard, attorneys; Mr. Betley
    and Kelly E. Adler, on the letters in lieu
    of brief).

    Gordon N. Litwin argued the cause for
    respondent Borough of Keyport (Litwin &
    Provence, attorneys).

    Martin R. Pachman, General Counsel, argued
    the cause for respondent New Jersey Public
    Employment Relations Commission.

    Richard A. Friedman argued the cause for
    amicus curiae New Jersey Education
    Association (Zazzali, Fagella, Nowak,
    Kleinbaum & Friedman, attorneys; Mr.
    Friedman and Edward M. Suarez, Jr., on the
    brief).

    Edward W.   Purcell, Associate Counsel, argued
    the cause   for amici curiae New Jersey State
    League of   Municipalities and New Jersey
    Institute   of Local Government Attorneys
                            2
            (William J. Kearns, Jr., General Counsel,
            attorney).

            Albert G. Kroll submitted a brief on behalf
            of amicus curiae New Jersey State AFL-CIO
            (Kroll Heineman Carton, attorneys).

            Cynthia J. Jahn, General Counsel, and Robert
            A. Greitz submitted a brief on behalf of
            amicus curiae New Jersey School Boards
            Association.


    JUSTICE LaVECCHIA delivered the opinion of the Court.

    In this appeal we review whether three municipalities were

required to negotiate with union representatives before taking

layoff actions that negatively impacted the hours and wages of

affected employees.    Two of the municipalities imposed on

certain units of public employees mandatory, but temporary,

layoffs, in the form of a reduced number of work days over a

specified period of time, without negotiating those actions with

union representatives.    The third municipality eliminated as

part of an overall layoff plan three full-time clerical

positions and replaced them with part-time positions; as a

result, the affected employees lost their eligibility for health

benefits.   That layoff action also was not negotiated with union

representatives.    However, all three layoff plans had been

submitted and approved by the Civil Service Commission

(Commission) as compliant with all civil service requirements

for a layoff action.


                                  3
    After unions for public employees in each municipality

brought scope-of-negotiations challenges to the municipal

actions, the Public Employment Relations Commission (PERC), in

separate decisions, held that the municipalities violated the

New Jersey Employer-Employee Relations Act (EERA), N.J.S.A.

34:13A-1 to -39, and required each municipality to negotiate the

changes in terms and conditions of employment.

    The Appellate Division consolidated these appeals and

reversed PERC’s determinations, finding the municipal actions

non-negotiable in all but one respect not pertinent to this

appeal.

    Employee rights in these three circumstances are determined

by application of the three-part test set forth in Local 195,

IFPTE v. State, 88 N.J. 393, 404-05 (1982), for resolving

questions about the scope of public sector employment

negotiations.    Based on that test, we conclude that the

negotiability of these three layoff plans hinges on application

of the third prong of the Local 195 analysis that takes into

account whether negotiation would significantly interfere with a

management determination of governmental policy.    Ibid.

    Municipalities governed by the civil service system have

the right to lay off employees when facing exigent financial

circumstances.   A regulation authorizing temporary layoffs,

which enabled municipalities to address fiscal distress in such

                                  4
a manner, was in effect when these layoff plans were developed

and approved by the Commission, although the municipalities

claim that they did not act pursuant to its authority when

seeking Commission approval.   Although the regulation since has

been repealed, its validity is not challenged in this matter.

The fact that it authorized temporary periods of layoffs during

times of exigent fiscal circumstances is significant in our

review.   Whether the municipalities actively relied on that

existing regulation is not controlling of our analysis.

    In reviewing each of these disputes under the third prong

of Local 195, PERC initially took the position that the civil

service employer had to show that it had no other option but to

engage in the layoff in order for managerial policy interests to

predominate over the interests of employees in maintaining the

terms and conditions of their employment.   According to PERC,

only upon making such a showing could a public entity employer

demonstrate the necessary fiscal urgency to support a finding

that the layoff action was non-negotiable based on Local 195’s

third, or managerial-prerogative, prong.    PERC has retreated

from that position in this appeal and in a subsequent agency

quasi-judicial determination that it has brought to our

attention.   In our view, PERC’s former position mistakenly set

the bar too high when assessing managerial prerogative exercised



                                 5
by local governments confronting fiscal distress, as was the

case in these matters.

    For the reasons expressed herein, we hold that at the time

that they occurred, the layoff actions at issue were non-

negotiable under the third prong of the Local 195 test.   We

therefore affirm the Appellate Division judgment, as modified by

this opinion.

                                     I.

    In 2009, the New Jersey municipalities of Belmar, Mount

Laurel, and Keyport (collectively the municipalities or

respondents), were experiencing financial strain.   All three

municipalities were operating under collective negotiation

agreements (CNAs) with unions representing municipal employees.

Following various efforts to confront their individual budget

crises, each municipality obtained approval from the Commission

for a layoff plan, described in detail hereinafter.   Generally

stated and as pertinent to this appeal, the layoff plans, in

varying ways, reduced workers’ hours and therefore impacted

wages.   The following facts and procedural history are culled

from the record created before PERC.

                                 A.

    The Borough of Keyport (Keyport) and the International

Union of Operating Engineers, Local 68 (Local 68), representing

Keyport’s clerical employees, entered into a CNA effective

                                 6
January 1, 2008, through December 31, 2010.   Among other terms,

Article 33 granted Keyport the management right to assign

employees’ schedules, and Article 5 provided that in the event

of a layoff, Keyport would respect employees’ seniority rights.

Article 8 specified that the “work week for all bargaining unit

employees shall be from Monday through Friday, and shall consist

of five (5) consecutive seven and one-half (7½) hour work days

for a thirty-seven and one-half (37½) hour work week.”

     In 2009, Keyport was experiencing significant financial

difficulties in light of a pervading and lingering economic

downturn.   Keyport faced increased healthcare, pension, and

labor costs without an increase in tax revenues; in 2008, it had

a budget surplus of less than $6,000.   After efforts to control

expenses did not alleviate the strain, Keyport submitted a

traditional layoff plan to the Commission on May 20, 2009.     In

order to reduce personnel expenses, the plan, in pertinent part,

converted three full-time clerical positions -- two in the

Construction Department and one in the Office of the Registrar -

- into part-time positions.1   Those layoffs did not have an



1 The plan also demoted one police sergeant to a police officer
and permanently laid off one police officer; however, those
decisions are not at issue in this appeal. Also, by virtue of
the change to part-time positions, the three clerical employees
would lose health insurance coverage. That issue too is not on
appeal, as a result of the Appellate Division’s unchallenged
affirmance of PERC’s remand for arbitration on that benefits
issue.
                                7
identified end date; the proposed layoff therefore permanently

eliminated the full-time positions and converted them to part-

time positions.   The layoff plan represented that the reductions

“[we]re necessary for reasons of economy and efficiency.”    In

particular, the plan stated that Keyport’s preliminary 2009

budget exceeded the levy cap by $135,000 and that “the Borough

must reduce its appropriations so that it may lawfully adopt a

budget for 2009.”   The Commission approved the plan on May 22,

2009.

    In August 2009, Local 68 filed an unfair-practice charge

with PERC, alleging that Keyport violated the parties’ CNA by

reducing the three employees’ hours without first negotiating

with union representatives.   Prior to that, Keyport had filed a

scope-of-negotiations petition with PERC, seeking to restrain

binding arbitration of a grievance filed by the union.   That

grievance had claimed a violation of the CNA as a result of the

reduction in the workweek of the employees in the Building

Department and Registrar’s Office.   Thus, both the grievance and

the unfair-practice charge related to the claim of work hour

reduction.   The parties filed cross-motions for summary judgment

on the unfair-practice charge.   On September 23, 2010, PERC

granted Local 68’s motion, concluding that EERA required Keyport

to negotiate with Local 68 before reducing the employees’ hours



                                 8
from full-time to part-time and ordering that Keyport commence

negotiations immediately.

    In determining that the reduction in hours was mandatorily

negotiable, PERC applied the three-part negotiability test from

Local 195, supra, 88 N.J. at 404-05.   After determining that the

hour and benefits decision “intimately and directly affects the

work and welfare” of the clerical workers (the first Local 195

factor), see id. at 404, PERC, in analyzing Local 195’s third

factor, determined that Keyport did not have the managerial

prerogative to unilaterally implement the position reductions to

part-time because negotiations in the present case would not

significantly interfere with governmental policy.   In support,

PERC cited “the long line of judicial and Commission precedents”

determining that workweek reductions are mandatorily negotiable,

and reasoned that even significant budgetary concerns “must be

presented and protected through the negotiations process.”

    PERC also concluded that Keyport’s compliance with the

Civil Service Act, N.J.S.A. 11A:1-1 to 12-6, and regulations did

not preempt negotiation over the employees’ hours (Local 195’s

second factor).   PERC reasoned that the Civil Service Act and

regulations “do not mandate a reduction in work hours or

otherwise restrict the Borough’s discretion to decide whether or

not to reduce work hours,” and, moreover, that “the Civil

Service Act and [EERA] provide employees with separate and

                                 9
distinct rights,” such that compliance with the Civil Service

Act does not negate employees’ right to negotiate under EERA.

In so holding, PERC distinguished the present case from State of

New Jersey (Department of Environmental Protection) v.

Communications Workers of America, AFL-CIO, 285 N.J. Super. 541,

544, 546, 553 (App. Div. 1995), certif. denied, 143 N.J. 519

(1996) [hereinafter DEP], in which the Appellate Division

affirmed a prior PERC determination that the New Jersey

Department of Environmental Protection’s decision to reduce

employee workweeks from forty to thirty-five hours was preempted

and non-negotiable.   PERC’s reasoning emphasized that DEP

represented a “‘narrow exception to the normal preemption

analysis, because of the nature and amount of pertinent

regulations regarding State employees,’” (quoting id. at 550).

                               B.

    The Borough of Belmar (Belmar) and the Communications

Workers of America, AFL-CIO (CWA), the union representing all

employees of the Department of Public Works (DPW), entered into

a CNA effective January 1, 2005, through December 31, 2009.

Article 7 of the CNA provided that “working hours shall be forty

(40) hours per week for all employees in the bargaining unit,”

and Article 11 provided that each of the covered employees would

receive a 3.9% wage increase in 2005 and a four percent increase

each year from 2006 through 2009.    In addition, Article 18

                                10
provided that Belmar would “discuss any proposed layoff with the

union, in order to explore all avenues and methods.”

    Like Keyport, Belmar was experiencing financial

difficulties in 2009 as a result of the economic downturn.      To

combat its fiscal trouble, borough administrators agreed to wage

cuts; in addition, Belmar met with unions representing municipal

employees to ask them to accept a wage freeze.    Some unions

acquiesced to a freeze, but Belmar and CWA could not reach an

agreement.   In August 2009, Belmar submitted a “temporary layoff

plan” to the Commission for approval, which provided for ten

involuntary unpaid furlough days for all DPW employees during

the period of October 6, 2009, through December 15, 2009.       In

its plan, Belmar described the furloughs as necessary to achieve

a budget that would comply with the State-mandated tax levy cap.

The Commission approved the plan.

    CWA filed an unfair-practice charge with PERC in October

2009, alleging that Belmar’s imposition of the unpaid furlough

days violated the parties’ CNA and that Belmar was required to

negotiate that change in terms and conditions of employment.

The parties filed cross-motions for summary judgment and, on

October 28, 2010, PERC granted CWA’s motion.     As in the Keyport

decision, PERC determined that the furloughs met the first prong

of the Local 195 test given that the furloughs reduced working

hours.   PERC largely relied on its analysis in Keyport to

                                11
determine that the Civil Service Act did not preempt EERA under

the second Local 195 factor.

    Finally, in respect of the third Local 195 prong, PERC

determined that Belmar “did not have a managerial prerogative to

unilaterally reduce the employees’ compensation and workweek.”

PERC reasoned that case law has “consistently distinguished the

non-negotiability of permanent staffing reductions from the

negotiable issues of reductions in employees’ work years,

workweeks, and work hours. . . .     That is so even when the

latter reductions could be labeled layoffs under education or

Civil Service Laws.”   In addition, in applying the balancing of

interests called for under this third factor of Local 195, PERC

concluded that “the interest in a viable negotiations process is

preeminent because the budgetary considerations are dominant and

there is no particularly significant governmental policy purpose

at stake.”   PERC noted that the hour cuts allowed Belmar to

avoid laying off just one employee and criticized Belmar for not

proving “that reducing the workweek rather than laying off a

single employee was needed to keep any programs running or to

achieve any governmental policy purpose.”

    Accordingly, PERC concluded that negotiation was required

before Belmar could impose the furloughs.

                                C.



                                12
    The Township of Mount Laurel (Mount Laurel) and the

American Federation of State, County and Municipal Employees,

Council 71, South Jersey Public Employers (AFSCME), entered into

a CNA effective January 1, 2005, through December 31, 2008.     The

CNA provided for yearly salary increases from 2005 through 2008.

Article 2, entitled “Management Rights,” stated that Mount

Laurel had the right to institute layoffs “in the event of lack

of work or funds or under conditions where continuation of work

would be inefficient and non-productive.”   Additionally, Article

7 stated that “the regularly scheduled workweek shall consist of

five (5) consecutive days, Monday through Friday,” and that an

employee’s regular hours of work were not subject to change,

“except as required under emergency conditions or agreed upon by

both parties.”

    Like Keyport and Belmar, Mount Laurel faced serious

financial problems in 2009.   In June 2009, Mount Laurel

representatives met with union representatives to request

temporary salary and wage concessions to alleviate the financial

strain, but the parties could not reach an agreement.      In August

2009, Mount Laurel submitted a temporary layoff plan to the

Commission, which called for the imposition of eight involuntary

furlough days between November 20, 2009, and June 18, 2010, on

all township employees except police and emergency medical

personnel.   In its proposal, Mount Laurel stated that the

                                13
purpose of the temporary layoffs was to help offset the

township’s budget crisis and to address restoration of the

township’s budgetary surplus, which had decreased by half in

2009.   The Commission approved the plan in October 2009.

     Shortly thereafter, AFSCME filed an unfair-practice charge

with PERC, alleging that Mount Laurel’s unilateral imposition of

the furlough days without negotiation violated the employees’

rights under the parties’ CNA and EERA.   The parties filed

cross-motions for summary judgment.   On October 28, 2010 --

coincident with PERC’s issuance of its negotiability

determination in the Belmar case -- PERC issued a decision on

the cross-motions for summary judgment, holding that Mount

Laurel’s decision to impose furloughs was a mandatory subject of

negotiation.   PERC’s decision relied on its analysis in the

Belmar case in respect of the first two prongs of the Local 195

test, thus concluding that the furloughs directly affected

employee work and welfare and that the subject of negotiation

was not preempted by statute or regulation.

     On the third Local 195 factor, PERC engaged in the fact-

specific balancing of interests test to conclude that this

factor also weighed in favor of negotiability.   See Local 195,

supra, 88 N.J. at 404-05.   Weighing the interests of the

parties, PERC noted that decisions affecting compensation and

hours of work are traditionally negotiable.   PERC concluded that

                                14
Mount Laurel’s objective was to increase the size of its

budgetary surplus, finding that Mount Laurel had failed to

“produce[] any evidence to establish that it [wa]s without

alternatives to achieve the same savings without furloughing its

employees.”   Accordingly, PERC determined that Belmar did not

have the managerial prerogative to reduce employees’ workweek,

stating that, on balance, “the interest in a viable negotiations

process is preeminent because the budgetary considerations are

dominant and there is no particularly significant governmental

policy purpose at stake.”   Having concluded that the furlough

decision required negotiations, PERC ordered the parties to

commence negotiations.

                                D.

    The three municipalities appealed their PERC administrative

determinations to the Appellate Division, see R. 2:2-3(a)(2),

which consolidated the cases on appeal.   The panel reversed

PERC’s decisions as to Belmar and Mount Laurel and as to

Keyport’s hour reduction, holding that the towns were not

obligated to negotiate the imposition of unpaid furloughs or the

reduction from full-time to part-time status.   The Appellate

Division observed that the Commission had approved all three

municipalities’ layoff plans during the time when the

Commission’s emergency regulation permitting “temporary

layoffs,” N.J.A.C. 4A:8-1.1A, was in effect.    The panel further

                                15
noted that the emergency temporary layoff regulation previously

had been challenged and upheld in the Appellate Division.     It

thus framed the present issue as “whether the public employers’

actions, which were effectuated in compliance with the Civil

Service Act, were nevertheless subject to negotiation under the

EERA.”

    Applying the three-part test from Local 195 for determining

the scope of public sector employment negotiations, the panel

determined that the unions met the first prong because all of

the actions at issue directly affected the work and welfare of

public employees.   However, aside from Keyport’s action

eliminating health benefits, the panel concluded that “the

unions did not satisfy the second and third prongs of the [Local

195] test because the municipalities’ actions complied with the

Civil Service Act and its regulations, and the decisions to

furlough and demote employees were non-negotiable policy

determinations.”    The panel affirmed the order in Keyport that

required arbitration of the health benefits issue but reversed

PERC in respect of the reduction in hours in Keyport and in all

respects in the Mount Laurel and Belmar cases.

    Local 68 filed a petition for certification, and CWA and

AFSCME filed a joint petition for certification, collectively

raising the issue of whether the municipalities’ reduction in

hours -- via furloughs in Belmar and Mount Laurel, and via

                                 16
permanent reduction from full-time to part-time status in

Keyport –- were mandatorily negotiable decisions under EERA.

The Court granted both petitions.    216 N.J. 366 (2013).

                               II.

                               A.

    Petitioners CWA, AFSCME, and Local 68 (collectively

petitioners) argue that the Appellate Division erred in holding

that the respondents’ decisions to implement layoff plans by

imposing unpaid furlough days and by demoting full-time

employees to part-time positions were non-negotiable.       Each

petitioner contends that the Appellate Division failed to

properly apply the three-prong negotiability balancing test set

forth in Local 195, supra, 88 N.J. at 404-05.

    First, petitioners argue that, under the second prong of

the Local 195 test, the Appellate Division should have held that

temporary layoff plans are negotiable because EERA imposes a

negotiation requirement on public employers and that obligation

is not preempted by the Civil Service Act and accompanying

regulations (Civil Service law).    Petitioners point out that,

although the Civil Service law grants civil service employers

the discretion to reduce labor costs by unilaterally imposing

layoffs, the Civil Service law does not compel them to do so.

Therefore, petitioners argue, civil service employers are not

precluded from complying with the provisions of EERA as well as

                               17
Civil Service law.   CWA and AFSCME cite the Appellate Division’s

holding in Piscataway Township Board of Education v. Piscataway

Township Principals Ass’n, 164 N.J. Super. 98 (App. Div. 1978),

as support for that proposition.

    Second, petitioners argue that, under the third prong of

the Local 195 test, mandatory negotiations in these cases would

not significantly interfere with any managerial prerogatives or

governmental policies of the civil service employers.

Addressing the arguments of Mount Laurel and Belmar in

particular, CWA and AFSCME argue that the employees’ interest in

negotiating work hours and compensation outweighs Mount Laurel’s

interest in increasing its budget surplus, as well as Belmar’s

interest in avoiding the need to lay off a single employee.     CWA

and AFSCME add that neither Mount Laurel nor Belmar produced

evidence to prove that the inability to increase a budget

surplus or the loss of one employee would adversely affect any

public operations or programs.     All petitioners argue that

although workforce reductions are non-negotiable managerial

prerogatives, work-hour and compensation reductions of the type

at issue here are not.   Petitioners contend that if these

temporary layoff plans are deemed managerial prerogatives, civil

service employers would be permitted to disguise unilateral cuts

in hours and compensation as “layoffs” in order to avoid their

obligation to negotiate those changes under EERA.     Petitioners

                                 18
also argue that the temporary layoff plans are not managerial

prerogatives because the purely fiscal or budgetary

considerations that petitioners assert were at issue in all

three cases do not involve governmental policy.

    Finally, all petitioners express concern that if civil

service employers are permitted to reduce hours and compensation

without negotiating and without demonstrating exigency, the

provisions of CNAs may be violated with impunity, undermining

the salutary public policy of promoting labor-relations

stability through the collective negotiations process.

                                B.

    Respondents Keyport, Belmar, and Mount Laurel maintain that

the Appellate Division properly applied the Local 195

negotiability test in determining that the layoff plans were

non-negotiable.

    First, respondents argue that their layoff actions are non-

negotiable under prong two of the Local 195 test because the

Civil Service law preempts the negotiation requirement imposed

by EERA.   All respondents argue that the Legislature must have

intended the Civil Service law governing layoffs to fully occupy

that field because it provides specific, comprehensive

procedures by which civil service employers may implement layoff

plans, which require consultation rather than negotiation.

Belmar asserts that both Civil Service law and EERA contain

                                19
references indicating that the Civil Service law should prevail

in case of a conflict.    N.J.S.A. 11A:11-2(j); N.J.S.A. 34:13A-

8.1.   Keyport and Mount Laurel cite to DEP, supra, 285 N.J.

Super. at 551-52, where the Appellate Division referred to Civil

Service law as providing a comprehensive layoff scheme that

preempts the EERA negotiation requirement.

       Relatedly, respondents contend that requiring civil service

employers to negotiate before implementing temporary layoff

plans in compliance with Civil Service law would negate

Commission regulations designed to help civil service employers

pass legally compliant budgets in times of fiscal exigency

without permanently cutting employee positions.    Respondents

maintain that mandated negotiations would likely derail and

certainly delay implementation of temporary layoff plans,

undermining the feasibility of using temporary layoff plans to

address the immediate effects of present fiscal distress.

       Further, respondents argue that even if the Civil Service

law does not preempt EERA’s negotiation requirement, the

decision to implement a temporary layoff plan must be non-

negotiable under the third prong of the Local 195 analysis

because it involves managerial prerogatives pertaining to the

determination of governmental policy.    All respondents argue

that case law generally has established that a civil service

employer’s decision to reduce employees’ work weeks or work year

                                 20
for economic reasons is a non-negotiable matter of governmental

policy.   Belmar argues that its temporary layoff plan was non-

negotiable, relying on Council of New Jersey State College

Locals v. State Board of Higher Education, 91 N.J. 18, 32

(1982), which supports that the determination of whether layoffs

are necessary involves a matter of managerial prerogative.

Keyport and Mount Laurel again point to DEP, supra, 285 N.J.

Super. at 551-52, in arguing that the Appellate Division has

recognized that work week reductions stemming from good-faith

economic, efficiency, or budgetary concerns are matters of non-

negotiable managerial prerogative.

    All respondents argue that temporary layoff plans involve

non-negotiable governmental policy determinations because civil

service employers must make delicate decisions concerning the

allocation of funds in order to provide services to taxpayers

and residents in times of financial exigency.   Specifically,

Mount Laurel emphasizes that mandatory negotiation would

interfere with civil service employers’ ability to use temporary

layoff actions to adjust in a timely manner to exigent changes

in economic conditions.

                                C.

    Amici New Jersey State AFL-CIO (NJ AFL-CIO) and New Jersey

Education Association (NJEA) reinforce petitioners’ arguments

that temporary layoffs in the form of unpaid furlough days and

                                21
demotions must be negotiated pursuant to EERA.    NJ AFL-CIO adds

that the PERC decisions below were entitled to a high degree of

deference and asserts that the Appellate Division decision

conflicts with decades of legal precedent and the public

interest in maintaining stable labor relations.    NJEA similarly

advances many of petitioners’ arguments, emphasizing that Civil

Service law does not contain preemptive language and that,

regardless of whether labeled a “layoff,” a public employer’s

decision to reduce work hours or compensation is mandatorily

negotiable.

     New Jersey School Boards Association (NJSBA) and New Jersey

State League of Municipalities (NJSLM) support the arguments

advanced by the municipal respondents.    They argue that layoff

plans implemented in compliance with the Civil Service Act and

regulations are non-negotiable.    NJSBA analogizes the

municipalities’ authority to implement layoff plans pursuant to

the Civil Service law to its authority to reduce teaching staff

pursuant to N.J.S.A. 18A:28-9.2    NJSLM adds that an appellate

court does not owe deference to PERC interpretations of Civil

Service regulations or of the doctrine of preemption.

                                  D.


2 NJSBA maintains that Piscataway Township Board of Education,
supra, 164 N.J. Super. 98 -- relied upon by petitioners -- has
been impliedly rejected by courts because it incorrectly
interprets and applies N.J.S.A. 18A:28-9.

                                  22
    PERC filed a statement in lieu of brief, asserting that

PERC’s “expert judgment should be accepted” in these cases.

However, at oral argument, PERC’s general counsel indicated that

PERC had changed its position and informed the Court that PERC

now asserts that sufficient information in the record

established that the municipalities’ decisions in these three

cases were non-negotiable managerial prerogatives under prong

three of the Local 195 test.   Underscoring that point, PERC’s

counsel brought to the Court’s attention a November 2013 PERC

decision in which PERC determined that the Robbinsville Township

Board of Education’s decision to implement furlough days was a

proper exercise of managerial prerogative.

                               III.

    The analytic framework for this matter is derived from this

Court’s seminal case Local 195, supra, 88 N.J. 393, in which the

scope of collective negotiations for public employers and

employees was addressed.

    In that case, the State and several unions representing

public employees disagreed as to the negotiability of

contractual provisions concerning limitations on contracting and

subcontracting, establishment of a workweek, and transfer and

reassignment determinations.   Id. at 398-400.   The Court’s

decision focused on establishing a test for determining whether

those types of decisions came within the proper scope of

                                23
collective negotiations for the public sector.     See id. at 403-

05.   The Court stated that although “public employees have a

legitimate interest in . . . collective negotiations” in respect

of issues affecting the terms and conditions of their

employment, “the scope of [collective] negotiation[] in the

public sector is more limited than in the private sector.”       Id.

at 401.   Unlike a private employer, a public employer, as

government, has “the unique responsibility to make and implement

public policy.”   Id. at 401-02 (citing Paterson Police PBA Local

No. 1 v. City of Paterson, 87 N.J. 78, 86 (1981); State v. State

Supervisory Emps. Ass’n, 78 N.J. 54, 67 (1978)).     Public policy,

the Court explained, properly is determined through the

political process, by which citizens hold government

accountable, and not through collective negotiation.     Id. at 402

(citing Ridgefield Park Educ. Ass’n v. Ridgefield Park Bd. of

Educ., 78 N.J. 144, 163 (1978)).     Thus, public employment

negotiation has been divided into two categories:     “‘mandatorily

negotiable terms and conditions of employment and non-negotiable

matters of governmental policy.’”    Ibid. (quoting Ridgefield

Park Educ. Ass’n, supra, 78 N.J. at 162).

      In light of the competing interests of a public employer

and public employees, the Court stated in Local 195 that “[t]he

role of the courts in a scope of negotiations case is to

determine . . . whether an issue is appropriately decided by the

                                24
political process or by collective negotiations.”    Ibid.   Thus,

in Local 195, the Court articulated a three-part test for

weighing those interests, establishing that a subject is

negotiable when:   “(1) the item intimately and directly affects

the work and welfare of public employees; (2) the subject has

not been fully or partially preempted by statute or regulation;

and (3) a negotiated agreement would not significantly interfere

with the determination of governmental policy.”     Id. at 404.

    In respect of the first factor, “rates of pay and working

hours” are noted models for the type of subjects that

“‘intimately and directly affect[] the work and welfare of

public employees.’”   Id. at 403 (quoting Paterson Police PBA,

supra, 87 N.J. at 86).   A subject is preempted, and therefore

non-negotiable under the second factor, when a statute or

regulation “‘speak[s] in the imperative and leave[s] nothing to

the discretion of the public employer.’”   Id. at 403-04 (quoting

State Supervisory Emps. Ass’n, supra, 78 N.J. at 80).     However,

under this prong of the analysis, the Court explained that a

subject remains negotiable when a statute or regulation related

to that subject preserves employer discretion; similarly, when

statutes or regulations set minimum or maximum standards in

respect of a subject, the subject is negotiable within the

limits of those standards.   Id. at 403.



                                25
    The third factor requires that interference with the

determination of government policy be significant in order to

defeat negotiability.   Id. at 404.   The Court explained that

consideration of the third factor arises out of recognition

“that most decisions of the public employer affect the work and

welfare of public employees to some extent and that negotiation

will always impinge to some extent on the determination of

governmental policy.”   Ibid. (citing Paterson Police PBA, supra,

87 N.J. at 91-92).   Thus, in order to determine whether

negotiation on a particular subject would significantly

interfere with the formulation of government policy,

         it is necessary to balance the interests of
         the public employees and the public employer.
         When the dominant concern is the government’s
         managerial prerogative to determine policy, a
         subject may not be included in collective
         negotiations even though it may intimately
         affect employees’ working conditions.

         [Id. at 405.]

Neatly summed up, a matter’s negotiability turns not “on the

talismanic application of labels such as ‘terms and conditions

of employment’ or ‘managerial prerogatives[]’ [but r]ather, the

inquiry focuses on the extent to which collective negotiations

will interfere with the establishment and effectuation of

governmental policy.”   Id. at 420 (Handler, J., concurring and

dissenting).



                                26
     Applying those factors to the facts at hand, the Local 195

Court concluded that the contractual provisions under review

relating to the subjects of contracting and subcontracting were

non-negotiable because negotiation would interfere significantly

with the determination of government policy.   Id. at 408

(majority opinion).   The Court analogized the dominant policy

concerns in respect of decisions about contracting and

subcontracting to the policy determinations present in decisions

to reduce the work force for economy and efficiency, which this

Court has recognized as non-negotiable.3   Ibid. (citing State

Supervisory Emps. Ass’n, supra, 78 N.J. at 88).     The Court

further held that the provisions regarding workweek hours by

individual employees were negotiable –- the balance of interests

on the third prong favored negotiation because negotiation would

not impede the State’s ability “to determine the number or

classification of employees on duty at any time.”    Id. at 411.

Finally, the Court held that provisions relating to the

substantive decision to transfer or reassign an employee were

non-negotiable policy determinations, but that provisions




3The Court noted that a CNA “could contain a provision requiring
[a public employer] to discuss . . . economic aspects of
subcontracting” when it is being considered “for purely fiscal
reasons,” but discussion was not equated to negotiation; that
said, the procedural aspects to subcontracting were held to be a
proper subject of collective negotiations. Id. at 420.
                                27
relating to procedures for transfer and reassignment were

negotiable.   Id. at 417.

    With the Local 195 test as the indisputable test guiding

our analysis in scope of negotiations matters, we apply it to

the public employer actions in issue here.

                               IV.

                                A.

    Prong one of the Local 195 test is not in issue in this

matter.   In all three disputes, the layoff actions resulted in

reduced hours of work, with resultant reductions in pay, for the

affected employees.   Those actions by each municipality impacted

terms and conditions of work for their employees.    See, e.g.,

Bd. of Educ. of the Woodstown-Pilesgrove Reg’l Sch. Dist. v.

Woodstown-Pilesgrove Reg’l Educ. Ass’n, 81 N.J. 582, 589 (1980)

(noting “[r]ates of pay and working hours . . . appear to be

items most clearly falling within th[e]” terms-and-conditions

“category” (citation omitted)).    PERC and the Appellate Division

properly so found, and all respondents recognize as much.    There

is no need to dwell further on Local 195’s first prong.

    Prongs two and three of the Local 195 test are the factors

in issue in these matters.   The Appellate Division concluded

that the preemption prong precluded negotiation of the layoff

actions in all three matters and reversed PERC on that basis.

The panel also found that PERC erred in concluding that

                                  28
negotiation was not barred under prong three, basing that

determination upon assessment of the predominant managerial

prerogative interest in pursuing the layoffs in these three

civil service communities facing financial distress.   We

therefore turn to prongs two and three.

                                 B.

                                 1.

    The preemption standard for prong two of the Local 195 test

is clear in its limits and rigid within its parameters.     When

legislation or a regulation “establishes a specific term or

condition of employment that leaves no room for discretionary

action, then negotiation on that term is fully preempted.”

Local 195, supra, 88 N.J. at 403; see State Supervisory Emps.

Ass’n, supra, 78 N.J. at 80-82 (establishing that preemption

doctrine applies to validly promulgated regulations, such as

civil service regulations).

    That principle was reinforced in Bethlehem Township Board

of Education v. Bethlehem Township Education Ass’n, 91 N.J. 38,

44 (1982):   “Negotiation is preempted only if the regulation

fixes a term and condition of employment expressly, specifically

and comprehensively.”   (Citation and internal quotation marks

omitted); see also Council of N.J. State Coll. Locals, supra, 91

N.J. at 26 (reiterating that preemption applies unqualifiedly to

regulations affecting terms or conditions of employment when

                                29
adopted by regulatory agency having no direct employer interest

over employees affected).    For preemption to apply, there must

be no room for debate on the matter of discretion:    “The

legislative provision must ‘speak in the imperative and leave

nothing to the discretion of the public employer.’”    Bethlehem

Twp., supra, 91 N.J. at 44 (quoting Local 195, supra, 88 N.J. at

403-04).    Thus, it is beyond dispute that specific terms and

conditions for public employment set by civil service statutes

or regulations may not permissibly be negotiated.    See State

Supervisory Emps. Ass’n, supra, 78 N.J. at 80-82.

                                 2.

    Here the Appellate Division determined preemption to apply

based on the promulgation of a civil service regulation that had

permitted temporary layoffs of employees in State or local

service, and that thereby benefitted civil service

municipalities such as the three here claiming fiscal distress.

See N.J.A.C. 4A:8-1.1A (temporarily adopted as emergency

regulation on March 25, 2009; repealed effective December 21,

2009).   Specifically and in pertinent part, the regulation had

provided:

            An appointing authority in State or local
            service may institute a temporary layoff for
            economy, efficiency or other related reasons.
            A temporary layoff shall be defined as the
            closure of an entire layoff unit for one or
            more work days over a defined period or a
            staggered layoff of each employee in a layoff
            unit for one or more work days over a defined
                                  30
           period.     A temporary layoff shall be
           considered a single layoff action even though
           the layoff of individual employees takes place
           on different days during the defined period.
           The defined period shall be set forth by the
           appointing authority in its temporary layoff
           plan; however, in a staggered layoff, the
           maximum period to stagger one day off shall
           not exceed 45 days.

           [41 N.J.R. 1537 (Apr. 6, 2009); N.J.A.C.
           4A:8-1.1A(a).]

     There is important background to that emergency regulation.

The Commission adopted the emergency regulation at a time when

New Jersey law had long recognized a public sector employer’s

right to take a layoff action impacting employees working in

civil service jurisdictions of this State.   The authorization

for such layoff actions is set forth in the Civil Service Act,

which provides that any “permanent employee may be laid off for

economy, efficiency or other related reason.”   N.J.S.A. 11A:8-

1(a).   Civil service regulations fleshing out that authority

were in place at all times relevant to these matters.

     First, the regulations identify the reasons that would

support a layoff action, and a “layoff action” is defined to

include a demotion as well as loss of position:

     (a)   An appointing authority may institute layoff
           actions for economy, efficiency, or other
           related reasons.

        1. Demotions for economy, efficiency, or other
           related reasons shall be considered layoff
           actions   and  shall   be   subject to  the
           requirements of this chapter.

                                31
            [N.J.A.C. 4A:8-1.1.]

    Second, the mechanics of a layoff action are detailed in

the civil service regulations.     Public entity employers governed

by Civil Service law are required first to consider alternatives

to layoffs and to take a number of pre-layoff actions.      See

N.J.A.C. 4A:8-1.2, 1.3.   The regulations suggest alternatives to

layoffs, such as “[g]ranting voluntary furloughs,” “[a]llowing

voluntary reduction of work hours by employees,” “[p]roviding

employees with optional temporary demotional title changes,” and

other actions.   N.J.A.C. 4A:8-1.2.     The regulations require that

the public entity employer take certain actions pre-layoff,

“which may include, but are not limited to:      1. Initiating a

temporary hiring and/or promotion freeze; 2. Separating non-

permanent employees; 3. Returning provisional employees to their

permanent titles; 4. Reassigning employees; and 5. Assisting

potentially affected employees in securing transfer or other

employment.”   N.J.A.C. 4A:8-1.3(a).    Importantly, the public

employer is required to “consult with” the union representatives

of affected employees before “initiating measures under th[at]

section.”   N.J.A.C. 4A:8-1.3(c).

    Third, the regulations require Commission approval of a

proposed layoff; therefore, when a public employer determines to

proceed with a layoff action, civil service regulations detail

what information must be submitted.      See N.J.A.C. 4A:8-1.4(a).

                                   32
That list of required information includes “[a] detailed

explanation of all alternative and pre-layoff actions . . .

taken, or . . . considered and determined [to be] inapplicable,”

and “[a] summary of consultations with” union representatives.

N.J.A.C. 4A:8-1.4(a)(6), (7).   If approved, final notice of

layoff is provided to affected employees, N.J.A.C. 4A:8-1.6, and

employees have appeal rights under the civil service system,

N.J.A.C. 4A:8-2.6, including the right to challenge the good

faith of the layoff, see N.J.A.C. 4A:8-2.6(a)(1) (permitting

challenge based on assertion that employer acted “for reasons

other than economy, efficiency or other related reasons”).

    The upshot to that detailed scheme is that the decision to

proceed with a layoff is a heavily imbued management decision,

but a discretionary one, subject to approval by the Commission

for implementation.

                                3.

    A layoff is an action that may be taken by a public sector

employer, provided the employer follows and satisfies civil

service regulatory requirements.     The statute and implementing

regulations that authorize a layoff of public sector employees

do not require that such action affecting terms and conditions

of employment be taken.   They lack an imperative nature.    Thus,

the layoff statute and implementing regulations do not satisfy

the essential requirement for preemption to pertain and preclude

                                33
negotiation based on the second prong of Local 195, supra, 88

N.J. at 403-04.

     Indeed, we are unaware of any case, and have been directed

to none, that has declared the determination to embark on a

traditional layoff action to be non-negotiable based on the

preemption prong of the test for determining the scope of

negotiations.   But see State Supervisory Emps. Ass’n, supra, 78

N.J. at 86-87 (explaining how civil service regulations

comprehensively regulate and control mandatory scheme for

determining seniority and reemployment rights in layoff,

preempting mandatory negotiation of collateral layoff rights

involving seniority, reemployment, and reinstatement).

     When the new regulation governing temporary layoff actions

was adopted as an emergency rule, its premise operated on the

same discretionary basis.   N.J.A.C. 4A:8-1.1A did not mandate an

action by public sector employers affecting terms and conditions

of employment for public employees.   Adopted as an emergency

measure, the regulation quickly offered public entity employers

in civil service jurisdictions new discretionary forms of

temporary layoff actions for use in addressing situations of

fiscal distress.4   Like the statute and regulations governing

traditional layoff actions, see N.J.S.A. 11A:8-1(a); N.J.A.C.


4 For history of the regulation’s repeal, see 41 N.J.R. 3139(a)
(Sept. 8, 2009) (proposal of regulation’s repeal) and 41 N.J.R.
4701(a) (adoption of regulation’s repeal) (Dec. 21, 2009).
                                34
4A:8-1.1(a), we do not view N.J.A.C. 4A:8-1.1A as meeting the

clear standard of an imperative required for preemption to

apply.   Providing authority for a public sector employer to take

temporary layoff action that has an impact on public employees’

hours and wages -- paradigmatic examples of terms and conditions

of employment -- does not impose a mandate as called for under

Local 195’s second prong for preemption.

       The Appellate Division misperceived the import of that

regulation and mistakenly found preemption to be applicable.       We

conclude neither N.J.A.C. 4A:8-1.1A nor civil service statutes

and regulations governing traditional layoff actions preempt

negotiation on the basis of prong two of the Local 195 test of a

decision to proceed with a layoff because that law does not set,

as an imperative, a term and condition of employment for public

employees governed by Civil Service law.    We turn therefore to

the final and critical factor in the Local 195 test.

                                 V.

                                 1.

       Prong three of the Local 195 test holds that a subject may

affect “the work and welfare of public employees” and

nevertheless not be subject to negotiation.    Supra, 88 N.J. at

404.   Based on a well-established analysis performed under that

prong, layoffs consistently have been held to be outside of the



                                 35
scope of negotiations.    The reasoning is based on the balancing

of interests required by prong three.

    In explaining prong three, the Local 195 Court reaffirmed

that most decisions by a public employer affect to some extent

the work and welfare of public employees and that requiring

negotiation in all such instances would impinge on the

determination of public policy.    Ibid. (citing Paterson Police

PBA, supra, 87 N.J. at 91-92).     When assessing the scope of

required negotiations under prong three, those interests must be

balanced:    “[N]egotiation will be allowed on a subject that

intimately and directly affects the work and welfare of public

employees unless such negotiated agreement would significantly

interfere with the determination of governmental policy.”

Ibid.; see also Woodstown-Pilesgrove, supra, 81 N.J. at 591

(“When the dominant issue is [a governmental] goal, there is no

obligation to negotiate and subject the matter, including its

impact, to binding arbitration.”).

    Application of that balancing of interests under prong

three has deep roots when it comes to the decision to lay off

and thereby adjust a public workforce involved in the delivery

of public services.    In State Supervisory Employees Ass’n,

supra, our Court declared that the decision to “cut” a work

force is “unquestionably . . . a predominantly managerial

function.”   78 N.J. at 88.   There is no room for mandatory

                                  36
negotiation in the determination to reduce a workforce.    See

ibid.; cf. Council of N.J. State Coll. Locals, supra, 91 N.J. at

32 (stating same and citing examples of forms of workforce

reduction); DEP, supra, 285 N.J. Super. at 551-52; DiMattia v.

N.J. Merit Sys. Bd., 325 N.J. Super. 368, 374-75 (App. Div.

1999).   That is so because such decisions go to the heart of

governmental policy determinations about what services are to be

provided and how they will be provided to the public.     Public

managers must be the ones accountable to the people for such

substantive policy decisions.    See Local 195, supra, 88 N.J. at

408; DEP, supra, 285 N.J. Super. at 553.

    Scope-of-negotiations law addressing subcontracting follows

that same reasoning.    In Local 195, supra, our Court rejected

the argument that a public employer’s civil service right to lay

off employees preempted subcontracting as a negotiable subject.

88 N.J. at 406.   However, in concluding that the topic did not

belong among those subject to negotiation, the Court found that

the substantive decision to contract or subcontract

significantly interfered with a determination of public policy.

Id. at 407-08.    The Local 195 Court was unanimous in stating its

test for assessing the scope of required negotiations and the

reason for keeping matters involving predominantly managerial

prerogative out of the negotiations process.    That explanation

bears repeating in full.

                                 37
               The   choice   of   how    policies    are
         implemented, and by whom, can be as important
         a feature of governmental choice as the
         selection of ultimate goals. It is a matter
         of general public concern whether governmental
         services are provided by government employees
         or by contractual arrangements with private
         organizations.     This    type    of     policy
         determination does not necessarily concern
         solely fiscal considerations.       It requires
         basic judgments about how the work or services
         should be provided to best satisfy the
         concerns and responsibilities of government.
         Deciding whether or not to contract out a
         given    government   service   may   implicate
         important tradeoffs.

              Allowing such decisions to be subject to
         mandatory negotiation would significantly
         impair the ability of public employers to
         resort to subcontracting. We have previously
         held that decisions to reduce the work force
         for economy or efficiency are non-negotiable
         subjects. The decision to contact out work or
         to subcontract is similarly an area where
         managerial interests are dominant.      This is
         highlighted   by   the   fact  that    allowing
         subcontracting to be negotiable may open the
         road to grievance arbitration.      Imposing a
         legal duty on the state to negotiate all
         proposed instances of subcontracting would
         transfer the locus of the decision from the
         political process to the negotiating table, to
         arbitrators, and ultimately to the courts.
         The   result   of    such   a   course    would
         significantly      interfere      with      the
         determination of governmental policy and would
         be inimical to the democratic process.

         [Ibid. (citations omitted).]

                               2.

    The Local 195 rationale informs our consideration of the

expression of public policy contained in the Commission’s

temporary layoff rule.   The Commission promulgated an emergency
                                 38
regulation authorizing temporary layoffs while the extant

financially distressing conditions, pervading the State and

local communities, supported expansion of the layoff techniques

available to State and local governmental appointing authorities

governed by civil service requirements.    The Commission’s

regulation authorized a layoff mechanism that offered local

governmental appointing authorities a tool through which swift

action may be taken to address pressing fiscal distress, as the

municipalities in this appeal emphasize.   In recognition of that

clear expression of legitimate public policy authorizing such

actions to be taken, it appears to us that a decision to reduce

the workforce of employees within an identified layoff unit,

even on a temporary basis in accordance with a duly authorized

temporary layoff plan, is as much a managerial prerogative as

the decision to layoff permanently, or to subcontract a function

permanently or on a temporary basis.

    Generically, all of the above-referenced actions go

directly to a substantive policy determination about whether and

how to deliver public services when delivery is affected by

serious and pressing economic considerations.   Economic reasons

are indisputably a legitimate basis for a layoff of any type.

See N.J.S.A. 11A:8-1(a) (authorizing layoff action based on

reason of economy); N.J.A.C. 4A:8-1.1(a) (same); see also

N.J.A.C. 4A:8-1.1(a)(1) (authorizing demotions for economy);

                               39
DiMattia, supra, 325 N.J. Super. at 374 (noting that civil

service statutory and regulatory amendments had authorized

public employer to take demotional layoff actions for budgetary

reasons).   Thus, a layoff -- including an authorized temporary

layoff pursuant to a valid Commission regulation authorizing

such action, or demotion in position from full to part-time

status also pursuant to an approved layoff plan -- remains a

management policy determination of considerable heft so long as

economic or other recognized rationales support its use.

    The temporary layoff actions at issue here were undertaken

by municipalities at a time when the Commission’s emergency

regulation made available an additional management tool to

address a pervading financial downturn that was affecting

municipal budgets generally and, in particular, those of the

municipalities involved here.    Municipal budgets, structured on

a cash basis, must be balanced annually, see N.J.S.A. 40A:4-2, -

3, and regulations address proper municipal budgeting practices

to promote healthy and responsible municipal governance, see

N.J.A.C. 5:30-3.2   to -7.7.    In each of these municipalities,

the municipal government endeavored to maintain services in a

responsible way in light of an economic downturn with no relief

in sight.   In each, the municipal appointing authorities took

action while the emergency Commission regulation authorizing

temporary, as well as permanent, layoff plans was in effect.

                                  40
They acted based on extant Commission public policy that made

those options available for use if other Commission layoff

requirements were satisfied, including the consultative

obligation with union representatives and the duty to pursue

prior pre-layoff alternatives.

    For those reasons, in the context of the cases consolidated

before us, we cannot conclude that these matters required

compelled negotiation.    These civil service municipalities, when

faced with fiscal exigency, had the right to lay off employees

under prior case law and as buttressed by the emergency

regulation then in effect authorizing temporary layoff actions.

See N.J.A.C. 4A:8-1.1A.    Although the emergency regulation since

has been repealed, the regulation’s validity is not challenged

in this matter and it authorized temporary periods of layoffs

during times of exigent fiscal circumstances when these

municipal actions were taken.    Whether the municipalities

actively relied on that existing regulation is not controlling

in our review of this appeal.

    Even PERC, in its initial decisions in these matters,

recognized that a management policy determination was involved

in the decision to impose a temporary layoff and did not

question the ability of management to take such policy action.

Instead, it evaluated only the negotiability of the management

decision and performed a balancing-of-interests analysis under

                                 41
prong three of the Local 195 test.     PERC found the decision to

be negotiable.     It based its determination on its own assessment

of the fiscal need faced by each municipality and its own

perception that other management policy choices could possibly

address the financial distress the municipalities faced within

the particular fiscal year in progress.     Under PERC’s initial

analysis, each municipality was required to demonstrate that no

other option was available in order for these layoffs to

constitute a managerial prerogative that a municipal governing

body could exercise in the face of the present circumstances of

fiscal distress.

    As noted, PERC now takes the position that, under the

circumstances, these layoff actions were legitimate management

prerogatives that ought not to have been ruled subject to

negotiation.     That second thought demonstrated the better

judgment.

    PERC erred in initially requiring each municipality to

demonstrate that no other option was available before it could

take the layoff measures of restricting workdays through a

temporary layoff or eliminating full-time positions while

covering tasks through part-time positions so services to the

public continued.    Those were management policy determinations

that constituted prerogatives.     They should not have been

subjected to PERC’s non-deferential “last option” standard.        In

                                  42
subjecting them to that standard, PERC’s judgment failed to

adhere to the teachings of Local 195 and related case law

addressing workforce reductions; as a result, PERC mistakenly

declared these layoff actions subject to negotiations.     Adding

negotiations as PERC would have required would have injected a

whole new dimension, rendering policy determinations subject to

the decisions of arbitrators and ultimately the courts.    And,

that review for negotiability -- over actions that needed to be

accomplished swiftly in order to effectuate their intended

prompt economic relief from the financial distress -- would come

months, if not years, later.   More fundamentally, the wrong

decision makers would be setting policy for the municipalities.

Local 195, supra, 88 N.J. at 407-08.

    Certainly, under prong three of Local 195, an artificial

“fiscal crisis” cannot outweigh important employee work and

welfare interests.   Some evaluation is necessary, and does occur

during the Commission’s approval process, which requires

consideration of the asserted reason for the layoff’s necessity.

We note too that a good faith challenge is available under civil

service regulations, see N.J.A.C. 4A:8-2.6(a)(1), and provides a

more appropriate solution than invoking mandatory negotiation to

zero in on any improper basis for a reduction in workforce

action.   See Local 195, supra, 88 N.J. at 425 (Handler, J.,

concurring and dissenting) (noting that mandatory negotiation

                                43
can be inapt solution to invoke, when other solutions for review

of management action exist, because negotiation “route is

cumbersome, inappropriate and potentially disruptive of

governmental management”).

    Finally, we reject the argument that past decisions

addressing and requiring negotiation of unilaterally imposed

reductions to hours of work are at odds with the outcome reached

here.   The decisions cited have not arisen in the context of a

bona fide layoff plan.   See, e.g., Galloway Twp. Bd. of Educ. v.

Galloway Twp. Ass’n of Educ. Sec’ys, 78 N.J. 1, 5-6 (1978)

(addressing individual actions taken unilaterally against

certain secretaries during collective negotiations with

representative).   When a layoff plan has been prepared to

accommodate policy determinations about the efficient delivery

of services when economy is a factor, the public management’s

right to reduce its workforce -- by a layoff or restructuring of

the number and type of positions, full or part-time -- must be

treated as a management prerogative.   Several past appellate

decisions properly have recognized the management prerogative

present when a decision to proceed with a layoff is involved.

See, e.g., DEP, supra, 285 N.J. Super. at 551-53; DiMattia,

supra, 325 N.J. Super. at 374-75; see also Klinger v. Bd. of

Educ. of Cranbury, 190 N.J. Super. 354, 357-58 (App. Div. 1982)

(recognizing that reduction in force eliminating full-time

                                44
physical education teacher and creating instead two 7/10ths

part-time teachers is within management’s authority),5 certif.

denied, 93 N.J. 277 (1983).

     All of the layoff actions challenged herein were reviewed

by the Commission and approved for implementation as legitimate

layoffs.   There was an opportunity to appeal the “good faith” of

each layoff under civil service regulations but that avenue was

not pursued.   Nor is there any challenge in any of these matters

to the validity of the temporary layoff regulation that was in

place at the time these actions were taken.   At this late date,

based on our review of the records presented, we are satisfied

that all three municipalities acted for reasons of economy based

on municipal fiscal distress existing at the time, rendering the

management choice to use a temporary or permanent layoff

solution one that constituted a managerial prerogative not

subject to negotiation.   We therefore hold that the layoff

actions at issue in this consolidated appeal constituted non-

negotiable subjects under prong three of the Local 195 test for

negotiability.

                               VI.




5We note but ascribe little weight to the earlier-in-time
decision in Piscataway Township Board of Education, supra, 164
N.J. Super. 98. The facts in Klinger are more closely aligned
to the present matter and its reasoning is more persuasive.
                                45
    The judgment of the Appellate Division is affirmed, as

modified by the reasoning expressed herein.

     JUSTICES PATTERSON and SOLOMON, and JUDGE CUFF (temporarily
assigned) join in JUSTICE LaVECCHIA’s opinion. JUSTICE ALBIN
filed a separate, dissenting opinion. CHIEF JUSTICE RABNER and
JUSTICE FERNANDEZ-VINA did not participate.




                               46
                                  SUPREME COURT OF NEW JERSEY
                                  A-43/44 September Term 2013
                                             072361

IN THE MATTER OF BOROUGH OF
KEYPORT,

    Respondent-Respondent,

         v.

INTERNATIONAL UNION OF
OPERATING ENGINEERS, LOCAL
68,

    Petitioner-Appellant.


IN THE MATTER OF BOROUGH OF
BELMAR,

    Respondent-Respondent,

         v.

COMMUNICATIONS WORKERS OF
AMERICA, AFL-CIO,

    Petitioner-Appellant.


TOWNSHIP OF MOUNT LAUREL,

    Respondent-Respondent,

         v.

COMMUNICATIONS WORKERS OF
AMERICA,

    Petitioner,

          and

AFSCME, COUNCIL 71, SOUTH
JERSEY PUBLIC EMPLOYEES,

                              1
    Petitioner-Appellant.


    JUSTICE ALBIN, dissenting.


    The majority opinion sweeps away nearly fifty years of this

Court’s public-sector labor jurisprudence, giving municipal

employers the unilateral power to reduce the wages and hours of

public employees promised in collective negotiations agreements.

Before today, the cardinal principle guiding public-sector labor

negotiations had been that the wages and hours of public workers

are subject to negotiation -- not to a public employer’s fiat.

The simple precept that wages and hours are mandatorily

negotiable is a common refrain not only in this Court’s

opinions, but also in the decisions of the Appellate Division,

and the Public Employment Relations Commission (PERC).

    In the name of a furlough, two municipalities reduced the

wages and standard of living of an entire public-employee

workforce unit in violation of the Employer-Employee Relations

Act (EERA).    Another municipality cut in half the hours and

salaries of three workers, thus depriving them of health

insurance.    Each municipality could have laid off one to three

workers to achieve its budgetary goal, which was to increase the

municipal surplus.    Instead, the municipalities chose to breach

their collective negotiations agreements with their employees’

unions.   In all three cases, PERC -- the public body empowered

                                  2
to enforce the EERA -- ruled that the unilateral actions of the

municipalities contravened the EERA and the principle that wages

and hours are mandatorily negotiable.      The majority affirms the

overthrow of all three PERC decisions.

    The majority’s endorsement of furloughs by fiat in non-

emergent circumstances is a dismal sign for the future of

public-sector collective negotiations.      The temporary regulation

promulgated by the Civil Service Commission on which the

majority relies does not change the equation.      When public

employers can unilaterally reduce wages and hours of employees,

there is not much left to negotiate.       Because the majority’s

decision undermines the very foundation of collective

negotiations, which is at the heart of the EERA, I respectfully

dissent.

                                  I.

                                  A.

    The Borough of Belmar and a local affiliate of the

Communication Workers of America (CWA), which represents

employees in Belmar’s public-works department, signed a

collective negotiations agreement (CNA) effective January 1,

2005 through December 31, 2009.       That agreement provided that

the workweek for each employee would be forty hours and that

every employee would receive a 3.9% salary increase in 2005 and

a 4.0% increase each year from 2006 through 2009.      In 2008,

                                  3
Belmar’s budget surplus declined from $1,630,802 to $1,284,563.

To offset the decrease in the surplus, Belmar requested that its

employees forgo their 4% salary increase for 2009.     The public-

works department employees demanded that Belmar adhere to its

agreement.

     Taking the my-way-or-the-highway approach, Belmar

furloughed the workers one day per week from October 6, 2009

through December 15, 2009, wiping out their 4% salary increase

for 2009.    Belmar could have achieved the same savings by laying

off just one worker.     Instead, it chose to reduce the hours and

wages of the entire bargaining unit in violation of its

agreement.

                                  B.

    The Township of Mount Laurel and an affiliate of the

American Federation of State, County and Municipal Employees,

AFL-CIO (AFSCME), which represents the Township’s blue-collar

workers, entered into a CNA that ended on December 31, 2008.

The agreement remained in effect after December 31, while the

parties negotiated a new contract.     The agreement set forth the

work hours and wages of each employee.

    In 2009, Mount Laurel’s budget surplus declined to

$600,000.    To increase the surplus, the Township asked its blue-

collar workers to accept a voluntary furlough of eight days over

an eight-month period.    The workers declined the offer.   Mount

                                   4
Laurel then involuntarily furloughed those employees for eight

days -- a savings equivalent to laying off three employees.

                                C.

    The Borough of Keyport and a local affiliate of the AFL-

CIO, which represents the Borough’s clerical employees, entered

into a CNA effective from January 1, 2008 through December 31,

2010.   The agreement set forth each employee’s work hours and

wages, including a salary increase.   The agreement provided that

the newest employees would be laid off first, if layoffs were

necessary.

    Keyport experienced a decline in its budget surplus over a

six-year period.   In 2009, in response to its depleted surplus,

the Borough took certain steps, which involved cutting in half

the hours and wages of three clerical employees.   Halving the

salaries of those employees also resulted in the cancellation of

their health benefits.   The unauthorized actions taken by the

Borough violated the CNA.

                                D.

    In all three cases, PERC found that the municipalities

engaged in unfair labor practices by eschewing negotiations and

peremptorily decreasing the hours and wages of the targeted

employees.   Relying on this Court’s jurisprudence, PERC observed

that “‘surely working hours and compensation are terms and

conditions of employment within the contemplation of the

                                 5
Employer-Employee Relations Act.’”    Borough of Belmar, P.E.R.C.

No. 2011-34, 36 NJPER 405, 407 (2010) (quoting Bd. of Educ. of

Englewood v. Englewood Teachers Ass’n, 64 N.J. 1, 6-7 (1973)).

PERC determined that the municipalities could not justify their

unilateral actions in violating their contractual commitments.

For example, in the case of Belmar, PERC held that “[t]he

Borough has not asserted that reducing the workweek rather than

laying off a single employee was needed to keep any programs

running or to achieve any governmental policy purpose.”     Id. at

408.    In Township of Mount Laurel, P.E.R.C. No. 2011-35, 36

NJPER 409, 411 (2010), PERC found that the Township did not

“produce[] any evidence to establish that it is without

alternatives to achieve the same savings without furloughing its

employees nor has it shown that any operations or programs would

be hindered if it had to layoff employees to achieve the same

budgetary savings instead of implementing temporary layoffs.”

PERC, in effect, concluded that the furloughing of employees was

a disguise for driving down the wages of entire work units of

employees.

       PERC is a specialized administrative agency designated by

statute to interpret, implement, and enforce the EERA.    N.J.

Tpk. Auth. v. AFSCME, Council 73, 150 N.J. 331, 335 (1997)

(citing N.J.S.A. 34:13A-5.2).    PERC brings expertise to the

resolution of public-body labor disputes, City of Hackensack v.

                                  6
Winner, 82 N.J. 1, 24 (1980), and its “interpretation of the

[EERA] is entitled to substantial deference,” N.J. Tpk. Auth.,

supra, 150 N.J. at 352.   A PERC ruling should not be overturned

“‘unless it is clearly demonstrated to be arbitrary or

capricious.’”   In re Hunterdon Cnty. Bd. of Chosen Freeholders,

116 N.J. 322, 329 (1989) (quoting State v. Prof’l Ass’n of N.J.

Dep’t of Educ., 64 N.J. 231, 258-59 (1974)).

                                E.

    The Appellate Division turned a blind eye to the deference

owed to PERC decisions.   It reversed, finding that an emergency

civil service regulation authorized the Civil Service Commission

to approve the municipalities’ furlough and wage-and-hour-

reduction plans.   Relying on prong two (preemption) and prong

three (managerial prerogative) of the test set forth in Local

195, IFPTE v. State, 88 N.J. 393, 404-05 (1982), the panel held

that “the decisions to furlough and demote employees were non-

negotiable policy determinations.”

    The majority concedes that the Appellate Division erred in

finding that the civil service regulation preempted PERC.      Ante

at __-__ (slip op. at 35).   Accordingly, the only remaining

issue is whether -- as the majority argues -- the municipalities

were exercising a managerial prerogative that allowed them to

trump the principle guiding all collective negotiations:     wages

and hours are mandatorily negotiable.   If the majority is

                                 7
correct, then nearly fifty years of our jurisprudence is wrong.

This Court has never held that the process of collective

negotiations of wages and hours can be bypassed by a public

employer unilaterally arrogating to itself the power to reduce

wages and hours.

                                  II.

    “Public employees are given comprehensive rights under the

Employer-Employee Relations Act.”       In re Hunterdon Cnty. Bd. of

Chosen Freeholders, supra, 116 N.J. at 327; see also N.J.S.A.

34:13A-1 to 34:13A-43.   Perhaps foremost among those rights is

the right to freely negotiate with a public employer over the

terms and conditions of employment.       N.J.S.A. 34:13A-5.4(a)(5).

The EERA forbids a public employer from “[r]efusing to negotiate

in good faith with a majority representative of employees in an

appropriate unit concerning terms and conditions of employment.”

Ibid.   Public-sector labor negotiations break down into two

categories:   “‘mandatorily negotiable terms and conditions of

employment and non-negotiable matters of governmental policy.’”

Local 195, supra, 88 N.J. at 402 (quoting Ridgefield Park Educ.

Ass’n v. Ridgefield Park Bd. of Educ., 78 N.J. 144, 162 (1978)).

    Whatever else terms and conditions of employment may mean,

it has been universally accepted that wages and hours are terms

and conditions of employment that public employers must

negotiate with their employees.       See id. at 412; State v. State

                                  8
Supervisory Emps. Ass’n, 78 N.J. 54, 67 (1978) (noting that

“working hours” and “compensation” are “the essential components

of terms and conditions of employment” and must be negotiated);

Galloway Twp. Bd. of Educ. v. Galloway Twp. Ass’n of Educ.

Sec’ys, 78 N.J. 1, 6-8 (1978) (concluding that reducing full-

time secretarial positions to part-time violated public

employer’s obligation to negotiate); Bd. of Educ. of Englewood,

supra, 64 N.J. at 6-7 (“Surely working hours and compensation

are terms and conditions of employment within the contemplation

of the Employer-Employee Relations Act.”); Burlington Cnty.

Coll. Faculty Ass’n. v. Bd. of Trs., 64 N.J. 10, 12 (1973)

(noting that “days and hours of work by individual faculty

members . . . are mandatorily negotiable under the [Employer-

Employee Relations Act]”); Boonton Bd. of Educ., P.E.R.C. No.

2006-98, 32 NJPER 239, 240 (2006) (“The number of hours an

employee works and the employee’s compensation and fringe

benefits are all mandatorily negotiable terms and conditions of

employment.”); Gloucester Cnty., P.E.R.C. No. 93-96, 19 NJPER

244, 245-46 (1993) (noting that New Jersey “Supreme Court has

consistently held that work hours are a mandatorily negotiable

term and condition of employment” and that “short of abolishing

a position, an employer must negotiate over reductions in the

work year, work week, and work day of unit positions”);

Stratford Bd. of Educ., P.E.R.C. No. 90-120, 16 NJPER 429, 430

                                9
(1990) (“[W]ork hours and compensation . . . [are] . . .

mandatorily negotiable”); Bayshore Reg. Sewerage Auth., P.E.R.C.

No. 88-104, 14 NJPER 332, 333 (1988) (“A public employer, short

of abolishing a position, must negotiate over reductions in

hours and compensation.”); Willingboro Bd. of Educ., P.E.R.C.

No. 86-76, 12 NJPER 32, 33 (1985) (concluding that cutting wages

and hours by one-third of public employee cafeteria workers

violated EERA and required mandatory negotiations); State of New

Jersey (Ramapo State Coll.), P.E.R.C. No. 86-28, 11 NJPER 580,

581 (1985) (“[A]n employee’s work year is a mandatorily

negotiable term and condition of employment.”); Cherry Hill Bd.

of Educ., P.E.R.C. No. 85-68, 11 NJPER 44, 46 (1984) (“It has

been well established since the first precedents interpreting

the New Jersey Employer-Employee Relations Act that working

hours are mandatorily negotiable.”); Sayvreville Bd. of Educ.,

P.E.R.C. No. 83-105, 9 NJPER 138, 140 (1983) (“[A]n employer

violates its duty to negotiate when it unilaterally alters an

existing practice or rule governing a term and condition of

employment, such as the length of the work year or the amount of

an employee’s salary . . . .”); Hackettstown Educ. Ass’n,

P.E.R.C. No. 80-139, 6 NJPER 263, 263 (1980) (“[PERC] has

consistently held that the length of the work year (or the

abolition of 12 and 11 month positions and the creation of 10



                               10
month positions) is a mandatory term and condition of

employment.” (Footnotes omitted)).

     Not just in New Jersey, but elsewhere, it has been a

categorical imperative of public-sector collective bargaining

that wages and hours must be negotiated.   See Paul M. Secunda et

al., Mastering Labor Law 185-87 (2014) (noting that wages and

hours are mandatorily negotiable in public-sector collective

bargaining); see also Nat’l Educ. Ass’n v. Bd. of Educ., 512

P.2d 426, 433 (Kan. 1973) (concluding that “terms and conditions

of professional service” of public employees included wages and

hours); Detroit Police Officers Ass’n v. City of Detroit, 233

N.W.2d 49, 52 (Mich. Ct. App. 1975) (noting that wages and hours

“are mandatory subjects of collective bargaining” in public-

employment setting); Clark Cnty. Sch. Dist. v. Local Gov’t Emp.-

Mgmt. Relations Bd., 530 P.2d 114, 117-18 (Nev. 1974) (noting

that public employer must negotiate hours and wages with

employees).

     The Local 195 scope-of-negotiations test is not intended to

resolve an issue about which there can be no dispute -- the

negotiability of wages and hours in the public-sector setting.1



1 In assessing whether a matter is negotiable or non-negotiable,
the Local 195 test requires a determination whether “(1) the
item intimately and directly affects the work and welfare of
public employees; (2) the subject has not been fully or
partially preempted by statute or regulation; and (3) a
negotiated agreement would not significantly interfere with the
                                11
The test is intended for matters, unlike wages and hours, that

fall in the gray area between what is negotiable and non-

negotiable.   This point is made clear throughout our

jurisprudence.   If a matter clearly falls within the category of

wages and hours, the inquiry is over.     Thus, “[w]here the

condition of employment is significantly tied to the

relationship of the annual rate of pay to the number of days

worked, then negotiation would be proper.”     Bd. of Educ. of

Woodstown-Pilesgrove Reg’l Sch. Dist. v. Woodstown-Pilesgrove

Reg’l Educ. Ass’n, 81 N.J. 582, 591 (1980).

    In Woodstown-Pilesgrove, we held that negotiation was

required when a board of education unilaterally extended a

single school day by two hours without any additional

compensation for the school’s teachers.     Id. at 593-94.

Similarly, in Board of Education of Englewood, supra, 64 N.J. at

3, 6-7, we held that the unilateral extension of teachers’ work

day by an hour and three quarters without additional pay

undoubtedly concerned “terms and conditions of employment within

the contemplation of the Employer-Employee Relations Act” and

had to be negotiated.   Moreover, in Piscataway Township Board of

Education v. Piscataway Township Principals Ass’n, 164 N.J.




determination of governmental policy.”     Local 195, supra, 88
N.J. at 404.
                                12
Super. 98, 101 (App. Div. 1978), the Appellate Division

explained:

         [T]here   cannot   be   the   slightest   doubt
         that cutting the work year, with the
         consequence of reducing annual compensation of
         retained personnel who customarily, and under
         the existing contract, work the full year
         (subject to normal vacations), and without
         prior negotiation with the employees affected,
         is in violation of both the text and the spirit
         of the Employer-Employee Relations Act.

    Conversely, outside of the realm of wages and hours, we

have held that a public employer is not required to negotiate

matters that fall squarely within managerial prerogatives.     See,

e.g., Local 195, supra, 88 N.J. at 406-07, 417 (concluding that

subcontracting as well as transfer or reassignment of employees

are non-negotiable subjects); Paterson Police PBA Local No. 1 v.

City of Paterson, 87 N.J. 78, 98 (1981) (holding that municipal

decisions regarding organization and deployment of police forces

are not negotiable); State Supervisory Emps. Ass’n, supra, 78

N.J. at 84 (finding that seniority relating to layoffs, recall,

bumping and reemployment is preempted by civil service laws and

therefore not negotiable).

    The involuntary furloughing of an entire work unit --

cutting employees hours and wages, as occurred in Belmar and

Mount Laurel -- is incompatible with this Court’s holdings in

Woodstown-Pilesgrove and Board of Education of Englewood and the

Appellate Division’s holding in Piscataway Township Board of

                               13
Education.     The involuntary halving of hours and wages of

clerical workers is also incompatible with those cases.

                                 III.

       That the EERA and our case law require hours and wages to

be negotiated does not place municipalities and other public

entities in a budgetary strait jacket when revenues decline.

The Civil Service Act provides that “permanent employee[s] may

be laid off for economy, efficiency or other related reason.”

N.J.S.A. 11A:8-1(a).    In Belmar, the laying off of a single

employee would have achieved the same savings as the furloughing

of an entire work unit -- and without violating the collective

negotiations agreement.    In Mount Laurel and Keyport, the

municipalities had the option of laying off employees to

accomplish the necessary savings rather than reducing the wages

of workers.

       In overturning the three PERC decisions, the majority

relies on the emergency civil service regulation that was

promulgated in March 2009 and repealed in December 2009, even

though the municipalities did not rest their arguments on that

regulation.2    Ante at __-__ (slip op. at 5).   In essence, the


2   The emergency regulation provided that:

            An appointing authority in State or local
            service may institute a temporary layoff for
            economy, efficiency or other related reasons.
            A temporary layoff shall be defined as the

                                  14
emergency regulation defined a layoff as synonymous with a

furlough.     That regulation allowed a municipality to submit a

furlough plan for acceptance to the Civil Service Commission.

Acceptance of the plan, however, did not mean a furlough was not

negotiable.

    A public employer’s compliance with civil service

regulations is not the end of the process, for the public

employer must also satisfy the requirements of the EERA.

Prosecutor’s Detectives & Investigators Ass’n v. Hudson Cnty.

Bd. of Chosen Freeholders, 130 N.J. Super. 30, 46 (App. Div.)

(“Our duty is to read the Civil Service Act and the Employer-

Employee Relations Act, as applied to the situations before us,

so that both are harmonized and each is given its appropriate

role.”), certif. denied, 66 N.J. 330 (1974).




            closure of an entire layoff unit for one or
            more work days over a defined period or a
            staggered layoff of each employee in a layoff
            unit for one or more work days over a defined
            period.     A temporary layoff shall be
            considered a single layoff action even though
            the layoff of individual employees takes place
            on different days during the defined period.
            The defined period shall be set forth by the
            appointing authority in its temporary layoff
            plan; however, in a staggered layoff, the
            maximum period to stagger one day off shall
            not exceed 45 days.

            [N.J.A.C. 4A:8-1.1A(a) (repealed December 21,
            2009).]
                                 15
       Even the majority acknowledges that the regulation did not

preempt the obligation of the municipality to negotiate.      Ante

at __-__ (slip op. at 35).    Instead, the majority submits that -

- based on the emergency regulation -- the municipalities were

exercising a managerial prerogative and thus had the right to

unilaterally furlough employees.      Ante at __-__ (slip op. at

45).    The majority focuses on prong three of the Local 195,

supra, test:    “a subject is negotiable between public employers

and employees when . . . a negotiated agreement would not

significantly interfere with the determination of governmental

policy.”    88 N.J. at 404.

       However, the majority cannot point to any true emergency

that compelled the municipalities to choose furloughs over

traditional layoffs.    As noted earlier, the layoff of just one

employee in Belmar and the layoff of just three employees in

Mount Laurel would have met the budgetary needs of those

municipalities.    Reducing the wages and hours of an entire unit

was an exercise of raw political power by the municipalities and

is incompatible with the EERA’s requirement that the terms and

conditions of employment be resolved through negotiation.

       The majority’s reliance on the emergency civil service

regulation appears to be nothing more than preemption in

disguise.    The regulation should have been harmonized with the

purposes animating the EERA.    Here, furloughing is merely a name

                                 16
invoked to justify the unilateral cutting of wages and hours of

employees -- an action previously unacceptable under our

jurisprudence.

    Clearly, we live in difficult economic times in which

municipalities struggle to balance their budgets.     But the

problems facing Belmar, Mount Laurel, and Keyport were and are

no different than those facing a multitude of other

municipalities.   None of the municipalities in this case

confronted an economic state of emergency so severe that it was

left without other reasonable options than furloughing entire

units of public employees.

    By sanctioning the path taken by these municipalities, the

majority has struck a stake in the heart of the collective

negotiations process.   A collective negotiations agreement is of

little value when a municipality can unilaterally reduce the

hours and wages of public employees by calling it a furlough.

The power to furlough, moreover, is a powerful club that can be

wielded at the negotiations table to coerce concessions.

    In the end, there is a right way and a wrong way to achieve

economy and efficiency consistent with the EERA.    Cutting wages

and hours of an entire work unit in violation of negotiated

agreements -- by whatever name -- is not in keeping with our

time-honored jurisprudence and the EERA.

                                IV.

                                17
    Before the Appellate Division, PERC filed a thirty-three

page brief arguing for affirmance of the three PERC decisions.

In a March 2011 supplemental letter to the Appellate Division,

PERC wrote:    “The Commission’s management, labor, and public

members applied their knowledge of negotiations practices

concerning compensation, workweek, and work schedules and agreed

that the Borough had an obligation to negotiate the reduction in

workweek, work year and compensation of the CWA unit members.

That expert judgment should be accepted.”     In a letter to the

Clerk of this Court concerning the present appeals, a Deputy

Attorney General, on behalf of PERC’s general counsel, wrote:

“[T]he Commission takes no position on the Petitions for

Certification” filed by the municipalities.     PERC filed its

Appellate Division brief with this Court.     Then, with no prior

notice given to this Court, PERC’s general counsel made a

complete about-face, announcing at oral argument that PERC had

changed its mind and no longer stood behind the PERC decisions

before us.    In an exercise of circular reasoning, counsel

pointed to a 2013 PERC decision, Robinsville Township Board of

Education, P.E.R.C. No. 2014-30, 40 NJPER 253, 253-54 (2013),

upholding the involuntary furlough of three teachers, which in

turn relied on the very Appellate Division opinion in this case,

whose approach PERC had strenuously opposed.



                                 18
    Merely because the composition of PERC has changed

dramatically during the current administration does not mean

that our standard of review should change.     Counsel cannot be

faulted for taking his orders from the newly composed PERC.        But

our review is from the PERC decisions before us.     Deference

applies to those decisions, regardless of the change of

personnel on PERC.     The majority is mistaken in accepting PERC’s

changed position to erode the traditional standard of review of

the cases on appeal.

                                  V.

    By overruling the PERC decisions and endorsing the

furloughs in these cases, even under the emergency civil service

regulation, the majority has held that a negotiated agreement on

wages and hours significantly interferes with the determination

of government policy.     That holding is not only contrary to our

jurisprudence, it is also in conflict with the legislative

policy enunciated in the EERA.     Collective negotiations mean

nothing if wages and hours are not on the table for discussion.

One can only hope that the damage the majority inflicts on the

collective negotiations process will be limited to the period

the emergency civil service regulation was in effect.

    I therefore respectfully dissent.




                                  19
                 SUPREME COURT OF NEW JERSEY

NO.    A-43/44                                     SEPTEMBER TERM 2013
ON CERTIFICATION TO            Appellate Division, Superior Court

IN THE MATTER OF BOROUGH OF KEYPORT,
       Respondent-Respondent,

             v.

INTERNATIONAL UNION OF
OPERATING ENGINEERS, LOCAL 68,
      Petitioner-Appellant.

IN THE MATTER OF BOROUGH OF BELMAR,
       Respondent-Respondent,

             v.

COMMUNICATIONS WORKERS OF
AMERICA, AFL-CIO,
      Petitioner-Appellant.

TOWNSHIP OF MOUNT LAUREL,
     Respondent-Respondent,

             v.

COMMUNICATIONS WORKERS OF AMERICA,
     Petitioner,

             and

AFSCME, COUNCIL 71, SOUTH
JERSEY PUBLIC EMPLOYEES,
      Petitioner-Appellant.


DECIDED               July 14, 2015
                 Justice LaVecchia                                PRESIDING
OPINION BY                Justice LaVecchia
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY           Justice Albin
                                     AFFIRMED AS
CHECKLIST                                                      DISSENT
                                        MODIFIED
CHIEF JUSTICE RABNER                 --------------------   --------------------
JUSTICE LaVECCHIA                             X
JUSTICE ALBIN                                                       X
JUSTICE PATTERSON                             X
JUSTICE FERNANDEZ-VINA               --------------------   --------------------
JUSTICE SOLOMON                               X
JUDGE CUFF (t/a)                              X
TOTALS                                        4                      1
