On September 30, 2014, the Illinois First District Appellate Court held in State of Illinois v. AFSCME, 2014 IL App (1st) 130262 that an arbitrator's award stemming from an arbitration agreement aligned with Illinois public policy that favors the enforceability of contracts between the state and unions of public employees. While the court found public policy in favor of enforcing the contracts…it leaves many to wonder…how do public bodies hold up their end of the bargain when the financial situation has changed?

In the AFSCME case, the State of Illinois had agreed to a four-year collective bargaining agreement (CBA) with the American Federation of State, County and Municipal Employees (AFSCME) and later negotiated Cost Savings Agreements (CSA's) regarding delays in wage increases. When the wage increases were not paid, even under the delayed terms of the CSA's, the union filed a grievance demanding their pay increases.

At arbitration, the State argued that the General Assembly had failed to appropriate funds in a sufficient amount to pay the wage increase and that Illinois Public Labor Relations Act, 5 ILCS 315/1 et seq. (West 2008), prohibited the State from paying the wage increases until the General Assembly appropriate sufficient funds that would cover the wage increases. The arbitrator found the State breached the CBA and the CSAs when it failed to pay the agreed wages to employees and ordered the State to pay the agreed wages, including the 2% wage increase for fiscal year 2012 that was at issue.

The court reasoned the State's interpretation of public policy conflicted with the Illinois Public Labor Relations Act, which expressly provides the State and its' agencies with the ability to "negotiate multi-year collective bargaining agreements" with unions of state employees. 5 ILCS 315/21. Under the State's interpretation of the policy, the State and its agencies could not promise unions anything that required funding for future years. The State's interpretation of public policy would make multi-year contracts impossible to enforce.

The court held the agencies negotiating with unions commit the State to pay parties who enter into contracts with the State, even before the General Assembly has appropriated funds for the contract. In addition, the court held the arbitrator's award aligned with the overriding public policy of permitting the State to negotiate enforceable multi-year CBAs with unions of state employees.

Many public entities have faced wage increases, pension increases and retirement incentives from collective bargaining agreements where the provisions have been awarded by an arbitrator or even inherited from prior administrations. More than ever, the demand of increasing pension and health insurance costs require the attorneys bargaining on your behalf to have substantial experience in labor negotiations and the overall operations, budget and management of the public corporation. For assistance in negotiating or interpreting your collective bargaining agreement, please contact any of Heyl Royster's Governmental Practice attorneys.