NATIONAL ASS’N OF GOVERNMENT EMPLOYEES v. COMMONWEALTH, 419 Mass. 448 (1995)

646 N.E.2d 106

Supreme Judicial Court of Massachusetts. Middlesex.November 10, 1994.
February 9, 1995.

Present: LIACOS, C.J., WILKINS, ABRAMS, NOLAN, GREANEY, JJ.

Constitutional Law, Impairment of contracts. Commonwealth,
Collective bargaining, Contracts, Officers and employees, Health benefit plan. Contract, Collective bargaining contract. Public Employment, Collective bargaining. Insurance, Group. General Court.

A line item in the fiscal year 1994 General Appropriation Act that reduced the Commonwealth’s percentage contribution to its employees’ health insurance premiums was a valid exercise by the Legislature of its reserved power under G.L.c. 32A, § 8, which superseded the applicable collective bargaining agreements’ reference to a different percentage contribution; consequently, in the context of the statutory constraints, there was no unconstitutional impairment of the employees’ contractual rights. [452-455]

CIVIL ACTION commenced in the Superior Court Department on September 23, 1993.

The case was heard by Peter M. Lauriat, J., on a statement of agreed facts.

The Supreme Judicial Court granted an application for direct appellate review.

Pierce O. Cray, Assistant Attorney General, for the Commonwealth others.

Mark Dalton for the plaintiffs.

Page 449

Augustus J. Camelio Steven A. Torres, for American Federation of State, County Municipal Employees, amicus curiae, submitted a brief.

Matthew D. Jones, Katherine D. Shea, Elizabeth A. Sloane, David Rome, Ruth A. Bourquin Augustus J. Camelio, for Alliance, AFSCME/SEIU, AFL-CIO, amicus curiae, submitted a brief.

ABRAMS, J.

Pursuant to the relevant sections of G.L.c. 32A (1992 ed.), the Commonwealth entered three three-year[3] collective bargaining agreements with the National Association of Government Employees (NAGE), which established that the Commonwealth would contribute ninety percent of employees’ health insurance premiums, and that the employees would contribute the balance.[4] The plaintiffs, NAGE, several of its officials and two State employees, brought suit in Superior Court seeking a declaratory judgment invalidating, as applied to certain NAGE members, a line item in the fiscal year 1994 General Appropriation Act,[5] which reduced the percentage contribution by the Commonwealth from ninety to eighty-five per cent, and thus increased the percentage contributions of the employees from ten to fifteen per cent.[6]
St. 1993, c. 110, § 2, line item 1108-5200. The plaintiffs claim that the item’s increase in State employees’

Page 450

insurance premium contributions impaired the covered employees’ rights under the collective bargaining agreements and therefore violated the contract clause of the United States Constitution.

After a hearing, the Superior Court judge issued a memorandum of decision and order of judgment on April 12, 1994. The judge declared that “the provision in the Commonwealth’s 1994 fiscal year budget increasing the health insurance premiums from ten per cent to fifteen percent for those employees covered by the three NAGE/Commonwealth collective bargaining agreements is unconstitutional as an impairment of the obligation of contract, and therefore null and void.” The judge entered a declaration to that effect. The Commonwealth appealed. We granted the Commonwealth’s application for direct appellate review. We declare that the line item which reduced the Commonwealth’s contribution to eighty-five per cent does not conflict with the collective bargaining agreements and therefore does not violate the contract clause.

I. Contract clause. The contract clause provides that “[n]o state shall . . . pass any . . . law impairing the obligation of contracts. . . .” For a violation of the contract clause, there must be a “change in law [that] impairs [a] contractual relationship” and that impairment must be substantial. General Motors Corp. v. Romein, 112 S.Ct. 1105, 1109 (1992) (contract clause “inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial”). See Energy Reserves Group, Inc. v. Kansas Power Light Co., 459 U.S. 400, 411 (1983), quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978) (“threshold inquiry is `whether the state law has, in fact, operated as a substantial impairment of a contractual relationship'”). We turn to the agreements and the relevant statutory provisions.

II. The contracts. The parties do not dispute that the agreements are still in effect. Although each of the agreements’ three-year periods lapsed in 1993, under open-ended

Page 451

duration clauses,[7] the agreements are extended until the execution of successor agreements. No successor agreements have been executed.

Although the Commonwealth’s contribution to State employees’ health insurance premiums is a mandatory subject of collective bargaining, see G.L.c. 150E, § 6 (1992 ed.); Anderson v Selectmen of Wrentham, 406 Mass. 508, 511 (1990), under G.L.c. 32A, § 8 (1992 ed.), the Commonwealth’s contribution must be no less than seventy-five percent of the premiums for group health insurance, and the Commonwealth may pay a percentage greater than the statutory minimum, “upon approval by way of an annual, or more frequent appropriation act.”[8] Section 8 further provides that “[e]ach appropriation act as may be applicable . . . shall describe the ratio of contribution to be paid by the commonwealth and by the . . . employees.” Id. In other words, the ratio agreed to in collective bargaining is not effective unless it is incorporated by the Legislature in an appropriation act. Once effective, the Commonwealth’s percentage contribution “shall continue until changed by a subsequent appropriation act.”Id.[9]

Page 452

The employees are responsible for the balance of the insurance premiums. Their contributions are withheld from their salaries at a rate of “no more than twenty-five per cent of the . . . total monthly premium or rate, or . . . a lesser amount as provided in the most recent applicable appropriation act.” Id.

The percentage contributions of the Commonwealth and its employees have varied over the years, as directed by periodic appropriation acts.[10] The agreements at issue set the Commonwealth’s percentage contribution within the bounds of the relevant statutory provisions. The essence of the plaintiffs’ claim is that the Commonwealth bound itself to a statutorily permissible ninety per cent contribution under the three collective bargaining agreements at issue, and that under the contract clause this agreement could not constitutionally be altered by the Legislature. Reading the contracts in the context of their statutory constraints, we do not agree.

III. Alleged impairment of rights under the contracts.
Collective bargaining agreements of the sort at issue are mandated and governed by G.L.c. 150E (1992 ed.). General Laws c. 150E, § 7 (d), lists those statutes that are subordinated to collective bargaining agreements. General Laws c. 32A, § 8, is not among them. “[S]tatutes not specifically enumerated in § 7 (d) will prevail over contrary terms in collective bargaining agreements.” Commonwealth v. Labor Relations Comm’n, 404 Mass. 124, 126 (1989). Accord Burlington

Page 453

v. Labor Relations Comm’n, 390 Mass. 157, 163 (1983).

Under the provision in § 8 which provides that the Commonwealth’s contribution shall be effected by an appropriation act, see supra, the Legislature reserved for itself the power to change the percentage of the Commonwealth’s agreed-to contributions. This reserved power of the Legislature cannot be overridden by collective bargaining. See Cambridge v. Attorney Gen., 410 Mass. 165, 173 (1991) (“[m]unicipal employers and employees may not negotiate to avoid complying with laws of general applicability . . .”); Anderson, supra at 511, 513-514 School Comm. of Medford v. Labor Relations Comm’n, 380 Mass. 932 (1980). See also Energy Reserves Group, Inc., supra at 411, quoting Hudson Water Co. v. McCarter, 209 U.S. 349, 357 (1908) (“One whose rights . . . are subject to state restriction, cannot remove them from the power of the State by making a contract about them”). The collective bargaining agreements at issue were executed subject not only to the percentage limitations of § 8, but also to the reserved power of the Legislature to reduce the percentage of the Commonwealth’s contribution in appropriation acts.[11] See McCarthy v Sheriff of Suffolk County, 366 Mass. 779, 784 n. 9 (1975) (contractual rights in pension benefits made subject to reserved power of Legislature to alter terms of office).

Page 454

The power reserved for the Legislature under § 8 to alter the ratio became an implied term that was incorporated into the contracts. “As a general rule, the law existing at the time an agreement is made necessarily enters into and becomes part of the agreement.” Feakes v. Bozyczko, 373 Mass. 633, 636 (1977). Accord Mayor of Salem v. Warner Amex Cable Communications Inc., 392 Mass. 663, 666 (1984). See also General Motors Corp.
v. Romein, 112 S.Ct. 1105, 1111 (1992) (“state laws are implied into private contracts . . . when those laws affect the validity, construction, and enforcement of contracts”); United States Trust Co. v. New Jersey, 431 U.S. 1, 19-20 n. 17 (1977), quoting Home Bldg. Loan Ass’n v. Blaisdell, 290 U.S. 398, 429-430 (1934) (“the laws which subsist at the time and place of the making of a contract . . . enter into and form part of it, as if they were expressly referred to or incorporated in its terms”). In negotiating the collective bargaining agreements the parties did not have the power to bind the Commonwealth to a contribution ratio which could not be altered by the Legislature. The reserved power supersedes the agreements’ reference to the then-existing ninety per cent contribution ratio.[12]

Page 455

IV. Conclusion. The challenged line item was a valid exercise by the Legislature of its reserved power. General Laws c. 32A, § 8, existed at the time the agreements were made; the agreements incorporate its mandate that the appropriation process determines the percentage of the Commonwealth’s contribution.[13] Because the agreements themselves necessarily contemplated changes in premium contributions through subsequent appropriation acts, there was no conflict between the line item and the collective bargaining agreements. Thus, there was no impairment of NAGE’s contractual rights and therefore no violation of the contract clause.

The judgment of the Superior Court is vacated and the case remanded for entry of a declaration that St. 1993, c. 110, § 2, line item 1108-5200 does not violate the contract clause of the United States Constitution.

So ordered.

Page 456