Evergreen Contracts and Municipal Standing Under the Contract Clause, 1019 RIBJ, RIBJ, 68 RI Bar J., No. 2, Pg. 11

Author:Peter F Skwirz, Esq. Ursillo, Teitz & Ritch, Ltd, Providence.
Position:Vol. 68 2 Pg. 11

Evergreen Contracts and Municipal Standing Under the Contract Clause

Vol. 68 No. 2 Pg. 11

Rhode Island Bar Journal

October, 2019

September, 2019

Peter F Skwirz, Esq. Ursillo, Teitz & Ritch, Ltd, Providence.

I. Introduction

On May 14, 2019, Governor Gina Raimondo signed into law the “evergreen contracts” bill, P.L. 2019, ch. 15 & 16. The law provides that, for school teachers and other municipal union employees, the terms of an expired collective bargaining agreement (CBA) pertaining to wages and benefits “shall continue as agreed to in the expired collective bargaining agreement until such time as a successor agreement has been reached between the parties.” In essence, this bill would make it so that the provisions in municipal CBAs regarding wages and benefits would extend indefinitely, regardless of the agreed upon duration contained in the CBA.

Some of the press and opinion pieces surrounding this legislation have juxtaposed the Governor's (then Treasurer) championing of the 2011 pension overhaul, compared to the Governor's current support for the evergreen bill.1 Putting politics aside, the 2011 pension overhaul and the evergreen bill provide a comparison on an interesting legal issue. When the Rhode Island Retirement Security Act of 2011 (RIRSA) was enacted into law, the unions sued, arguing that the RIRSA unlawfully impaired the obligation of their contracts.2 Both the U.S. Constitution and the Rhode Island Constitution prohibit the General Assembly from enacting any "law impairing the obligation of contracts."3 The unions were somewhat successful in their legal challenge. The suit survived a motion to dismiss, with the Superior Court concluding, on April 25, 2014, that the unions had a contract right protected by the Contract Clause. This left for further litigation whether that contract right was substantially impaired by the RIRSA and, if so, whether the RIRSA was supported by a legitimate public purpose that would justify the impairment. Faced with the uncertainty of this litigation, the union forced the state to the bargaining table, which ultimately resulted in a compromise that impacted the unions less harshly than the RIRSA would have as originally enacted.

Using the RIRSA litigation as an example, one might expect that, now that the evergreen bill is enacted into law, it is the municipalities' turn to bring a Contract Clause suit. If unions have a protected contract interest in their CBAs, one would assume that municipalities - and, by extension, municipal taxpayers - also have a protected contract interest. Transforming a contract of a few years' duration into a contract of limitless duration by legislative fiat would certainly seem to be a substantial impairment of that contract. As stated by the Rhode Island League of Cities and Towns, the evergreen law will "tie the hands of local elected officials when negotiating in the best interests of their taxpayers. The expiration date of collective bargaining agreements is important - it motivates the parties to come together and resolve their issues prior to the close of the contract."4 Although it is subject to debate whether this substantial impairment is justified by some overriding legitimate public interest, municipalities should have the opportunity to make their case to the court in a Contract Clause suit to the same extent that unions did when challenging the RIRSA.

However, in an old line of cases, the U.S. Supreme Court has held that a municipality may not seek to protect its constitutional right to contract from interference by the state legislature by invoking the Contract Clause of the U.S. Constitution. Although the Rhode Island Supreme Court has discussed this doctrine in dicta, the Court has not adopted it. This article will argue that the Rhode Island Supreme Court should not apply this federally created doctrine to the R.I. Contract Clause. Instead, the Court should leave the door open for Rhode Island municipalities to make a state constitutional challenge to General Assembly acts, like the evergreen bill, that impair municipal CBAs.

This article will first examine the nature of the Contract Clause. Next, the article will look at the federal doctrine limiting a municipality's ability to make a Contract Clause claim. Finally, the article will argue that such municipal Contract Clause claims should be allowed under the R.I. Constitution, and will discuss the current state of Rhode Island law on this issue.

II. The Contract Clause

The Contract Clause in Art. I, sec. 10 of the U.S. Constitution is one of the very few prohibitions placed on state legislatures by the framers of the originally enacted Constitution, predating both the Bill of Rights and Reconstruction amendments. The Contract Clause is grouped together in Art. I, sec. 10 with such venerable constitutional controls on state legislative authority as the prohibition on ex-post facto laws and the prohibition on bills of attainder. Madison stated in the Federalist Papers that “laws impairing the obligation of contracts, are contrary to the first principles of the social compact, and to every principle of sound legislation.”5 He described the Contract Clause as part of a “constitutional bulwark in favor of personal security and private rights,” and went on to state: “The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and less-informed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. They very rightly infer, therefore, that some thorough reform is wanting, which will banish speculations on public measures, inspire a general prudence and industry, and give a regular course to the business of society.”6

The intent of the framers of the Contract Clause was to give stability to people structuring their affairs through contracts and to prevent “enterprising and influential speculators” from taking unfair advantage of their influence in the state legislature to unsettle settled expectations. In other words, the prohibition on laws impairing the obligation of contract is important. It is important to individual rights. It is important to the democratic process.

Because of this important purpose, “in the Contracts Clause the framers were absolute. They took the view that treating existing contracts as ‘inviolable’ would benefit society by ensuring that all persons could count on the ability to enforce promises lawfully made to them – even if they or their agreements later prove unpopular with some passing majority.”7 In more recent years, the U.S. Supreme Court has watered down the absolute approach of the framers and, instead, has held that a state legislature may “‘substantially impair’ a contractual obligation in pursuit of ‘a significant and legitimate public purpose’ so long as the impairment is ‘reasonable.’”8 The Rhode Island Supreme Court has adopted this non-absolutist test when interpreting the Contract Clause of the Rhode Island Constitution.9

Even in the non-absolute version, the Contract Clause provides an important democratic function. It provides a check on politically influential groups from using legislative clout to alter previously negotiated contract terms and obligations, merely to provide an advantage to that influential group. That is because...

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