Keeping bank exec contracts while breaking union contracts

[Nobody]

Although all I’d like for this to be a GQ thread, I know the nature would cause this to wind up in here in GD.

Back when people were getting outraged over bank execs making big bonuses what I heard in the news was that the banks were contractually obligated to pay those bonuses and so there was no way of stopping them.

Cut to a few months later when some states decided to break union contracts.

Is this a difference between federal and state powers? Do states have the power to break contracts but the federal government doesn’t?
I’m pretty certain the feds can break a contract if they feel it’s necessary, so maybe certain conditions have to be met before the feds can break a contract and those conditions weren’t met with regards to the bank executives, or…?

[gonzomax]

The auto execs did not get the same treatment. They fired some and allowed salaries to be cut for others. They slashed wages for the workers.But the treasury department was not full of ex Ford execs. It was full of Goldman execs.

[Hyperelastic]

@Nobody

Cut to a few months later when some states decided to break union contracts.

Which states did this? I thought only a bankruptcy judge could break a contract, and states can’t go bankrupt. Cities can, and have, gone bankrupt, with the result that some labor contracts were broken.

[tomndebb]

I am not aware of any states that simply “broke contracts.”

A number of states, led in large part by actions in Wisconsin, changed labor laws so that various groups, (generally public service workers), could not negotiate new contracts in the ways that old contracts were negotiated. They also changed the laws to make it (even) easier for government agencies to fire workers.

Regardless how one sees the existing contracts or the changes in laws to cover new contracts, I am not aware of any contracts that were broken.

Had they actually broken specific contracts, there would still be a difference between those actions and the actions of the financial industry: specifically, the government was prohibited from breaking contracts between companies and employees in private industry. It was noted that the government could not interfere with the private contracts between corporations and their employees, not that a government could not change the laws to modify its own contracts. (I suspect that if a government agency did break its own contract, it would be beset by a number of lawsuits.)

[Bricker]

@Nobody

Cut to a few months later when some states decided to break union contracts.

When did this happen, exactly and to which specific contracts?

[Nobody]

It’s funny. I KNEW that dopers who payed attention to American news, and even were in threads about it, would ask about breaking union contracts. I really hoped I wouldn’t have to post a cite to a well known event, but I should have known better.

cite

@Daily Tribune

the Senate voted on Wednesday to grant broad new powers to emergency managers who oversee financially struggling cities and schools, including the authority to void union contracts and remove elected officials.

Bolding mine.

OK, so it might be only one state, but you guys really forgot about that?

[PBear42]

I try to follow the news, but I miss some things. Was this bill passed into law? Have any contracts been abrogated? Was it challenged? Article. I, § 10 of the U.S. Constitution prohibits states from making any “Law impairing the Obligation of Contracts.”

[Nobody]

Yes it passed. I don’t remember hearing much about it afterwards, but doing a Google search brings up a link to this union site saying there’s a petition being circulated to overturn this law.
Another link here says the law is being challenged in court.
According to this link there have been elected officials that have been removed from office.
And, according to this, Detroit public school emergency manager Roy Roberts

reworked union contracts under the Local Government and School District Fiscal Accountability Act signed this year by Republican Gov. Rick Snyder.

[Bricker]

@Nobody

It’s funny. I KNEW that dopers who payed attention to American news, and even were in threads about it, would ask about breaking union contracts. I really hoped I wouldn’t have to post a cite to a well known event, but I should have known better.

cite

Bolding mine.

OK, so it might be only one state, but you guys really forgot about that?

I asked about what contracts have been abrogated.Your link describes a law that purports to give Michigan broad powers to to abrogate contracts, but doesn’t mention an actual instance of it happening.

[Bricker]

@Bricker

I asked about what contracts have been abrogated.Your link describes a law that purports to give Michigan broad powers to to abrogate contracts, but doesn’t mention an actual instance of it happening.

OK, your second post does describe the use of this law in the Detroit Public School system.

So now that I know what you’re talking about, you asked:

Is this a difference between federal and state powers? Do states have the power to break contracts but the federal government doesn’t?

Maybe.

As a starting point, states have plenary power, while the federal government has supreme but limited, ennumerated powers. Basically, this can be thought of as:

1. The federal government can only do what the Constitution says it can, and nothing else

2. The states can do whatever they want, unless the federal Constitution says they can’t

In this case, the state passed a law saying that under certain circumstances, the state government can modify or abrogate its contracts. This appears to conflict with Art I, Sec. 10 of the US Constitution.

Although this is not my area of law, I don’t believe it actually does conflict with that mandate, though, as we learn from Phelps v. Board of Education of the Town of Wesk New Work, 300 US 319 (1937).

In Phelps, the Supreme Court considers a similar situation: the existing contract with teachers provided that once they had passed three years’ employment, “…No principal or teacher shall be dismissed or subjected to reduction of salary in said school district except for inefficiency, incapacity, conduct unbecoming a teacher or other just cause…”

Nonetheless, as a result of “existing economic conditions” (which I take to refer to the Depression) the state legislature in 1933 passed a law empowering local school boards to assess the salaries of employees “notwithstanding any tenure.” The teachers complained, and the Supreme Court upheld the ability of the state legislature to act as they did.

I welcome correction or edification from someone more versed in this area of law, but that’s my initial take on it.

[gonzomax]

@Bricker

I asked about what contracts have been abrogated.Your link describes a law that purports to give Michigan broad powers to to abrogate contracts, but doesn’t mention an actual instance of it happening.

Not quite correct. it gives the governor power. He can install a manager for a city that he determines is in fiscal danger. He then can bust any and all contracts including purchasing contracts. He can put them up for rebid or negate them
But he does not have to do all the dirty work himself. he can appoint a person in government or private business, to run the city. The power is now in his hands. So he has killed the power of elected officials and made them subservient to the city manager.
I am not at peace with that.
http://www.alternet.org/newsandviews/article/562405/emergency_financial_manger_fires_entire_government_of_benton_harbor,_mi/

[Bricker]

@gonzomax

Not quite correct. it gives the governor power. He can install a manager for a city that he determines is in fiscal danger. He then can bust any and all contracts including purchasing contracts. He can put them up for rebid or negate them
But he does not have to do all the dirty work himself. he can appoint a person in government or private business, to run the city. The power is now in his hands. So he has killed the power of elected officials and made them subservient to the city manager.
I am not at peace with that.
http://www.alternet.org/newsandviews/article/562405/emergency_financial_manger_fires_entire_government_of_benton_harbor,_mi/

Gotcha.

Well, if a future thread asks about whether Gonzomax is at peace with this law, I’ll now know what to answer. But the OP’s question inexplicably dealt with the Constitutional issues and not your state of mind, so I went ahead and answered that.

If you, or anyone, would like a cite about the constitutionality of removing elected officials, let me know.

[Bricker]

@Bricker

.

Although this is not my area of law, I don’t believe it actually does conflict with that mandate, though, as we learn from Phelps v. Board of Education of the Town of Wesk New Work, 300 US 319 (1937).

That’s the Town of West New York. Apparently I was having a minor seizure while typing.

[Really_Not_All_That_Bright]

@Bricker

In this case, the state passed a law saying that under certain circumstances, the state government can modify or abrogate its contracts. This appears to conflict with Art I, Sec. 10 of the US Constitution.

Although this is not my area of law, I don’t believe it actually does conflict with that mandate, though, as we learn from Phelps v. Board of Education of the Town of Wesk New Work, 300 US 319 (1937).

In Phelps, the Supreme Court considers a similar situation: the existing contract with teachers provided that once they had passed three years’ employment, “…No principal or teacher shall be dismissed or subjected to reduction of salary in said school district except for inefficiency, incapacity, conduct unbecoming a teacher or other just cause…”

Not quite. The state passed legislation providing that they couldn’t be dismissed after three years blah blah blah. It wasn’t a term of the union contract itself:

@SCOTUS

The position of the appellants is that by virtue of the Act of 1909 three years of service under contract confer upon an employe of a school district a contractual status indefinite in duration which the legislature is powerless to alter or to authorize the board of education to alter.

The teachers asserted that the statute created a contractual right, not that the contract itself established that right. So Phelps says the legislature can abrogate unilaterally created “contract rights”- assuming they exist- but is silent on whether the legislature can unilaterally abrogate a bilateral contract itself.

Unless I’m missing something.

[Icarus]

@gonzomax

Not quite correct. it gives the governor power. He can install a manager for a city that he determines is in fiscal danger. He then can bust any and all contracts including purchasing contracts. He can put them up for rebid or negate them
But he does not have to do all the dirty work himself. he can appoint a person in government or private business, to run the city. The power is now in his hands. So he has killed the power of elected officials and made them subservient to the city manager.
I am not at peace with that.
http://www.alternet.org/newsandviews/article/562405/emergency_financial_manger_fires_entire_government_of_benton_harbor,_mi/

I’ve seen this process first hand - bankrupt city, taken into receivership by the state, financial manager installed - although they did not explicitly void contracts in this case. Gonzo - what alternative remedy would you propose in these situations?

[gonzomax]

@Icarus

I’ve seen this process first hand - bankrupt city, taken into receivership by the state, financial manager installed - although they did not explicitly void contracts in this case. Gonzo - what alternative remedy would you propose in these situations?

Benton Harbor was taken over and it stinks. It is a poor mostly black city that has been fighting developers who wanted to take their waterfront city park and and include it in a neighboring cities new golf course. One of the first acts of city management was to allow that. The intentions of city managers are in question. They do not appear to work for the people. What ever they have of value can be sold off and the citizens are powerless to prevent it. Then they will have nothing.

[gonzomax]

What should have been done ,was Obama should have taken over the banks. He should have broken them up, Too big to fail has degenerated. The Six biggest banks control more of our economy than they did before the crash.
Now the banks are enjoying great profits at our expense. They used our tax money to buy Tbills and bonds. They got money for free and the bonds guaranteed easy and sure profits. They made out like bandits and paid us back with our own money. Great deal for them. Then they jacked up interest rates and banking fees . More money for them. Bad for us.
Is there somewhere in this deal that they did job creation? Fuck no. They were supposed to lend money to business to get the economy moving. But they made loans extremely difficult to get and smothered the economy.
Want to do some good. Re-evaluate homes. They are worth half what is shown on the banks books. That is why they do not move. But banks don’t want that because their total assets would take a huge hit showing auditors that they are phony numbers. These assets are part of what their banking bonuses are predicated on.
Banks are the problem. All communities are stuck with homes that don’t move and businesses that can’t get money.

[PBear42]

Bricker, thanks for the cite to Phelps. Those interested can read the full opinion here. On review, I think RNATB is right. The nub of the decision was that the statute did not create contract rights.

Although after the expiration of the first three years of service the employe continued in his then position and at his then compensation unless and until promoted or given an increase in salary for a succeeding year, we find nothing in the record to indicate that the board was bound by contract with the teacher for more than the current year. The employe assumed no binding obligation to remain in service beyond that term. Although the act of 1909 prohibited the board, a creature of the state, from reducing the teacher’s salary or discharging him without cause, we agree with the courts below that this was but a regulation of the conduct of the board and not a term of a continuing contract of indefinite duration with the individual teacher.

By contrast, the following year, the Supreme Court decided the case of Indiana ex rel. Anderson v. Brand, 303 U.S. 95 (1938), in which it held on different facts that the teachers had contractual rights which could not be abrogated. It distinguished Phelps as follows (Justice Roberts wrote both opinions):

Where the claim is that the state’s policy embodied in a statute is to bind its instrumentalities by contract, the cardinal inquiry is as to the terms of the statute supposed to create such a contract. The State long prior to the adoption of the act of 1927 required the execution of written contracts between teachers and school corporations, specified certain subjects with which such contracts must deal, and required that they be made a matter of public record. These were annual contracts, covering a single school term. The act of 1927 announced a new policy that a teacher who had served for 5 years under successive contracts, upon the execution of another was to become a permanent teacher and the last contract was to be indefinite as to duration and terminable by either party only upon compliance with the conditions set out in the statute. The policy which induced the legislation evidently was that the teacher should have protection against the exercise of the right, which would otherwise inhere in the employer, of terminating the employment at the end of any school term without assigned reasons and solely at the employer’s pleasure. The state courts in earlier cases so declared. 16

The title of the act is couched in terms of contract. It speaks of the making and canceling of indefinite contracts. In the body the word ‘contract’ appears ten times in section 1, defining the relationship; eleven times in section 2, relating to the termination of the employment by the employer, and four times in section 4, stating the conditions of termination by the teacher.

The tenor of the act indicates that the word ‘contract’ was not used inadvertently or in other than its usual legal meaning. By section 6 it is expressly provided that the act is a supplement to that of March 7, 1921, supra, requiring teachers’ employment contracts to be in writing. By section 1 it is provided that the written contract of a permanent teacher ‘shall be deemed to continue in effect for an indefinite period and shall be known as an indefinite contract.’ Such an indefinite contract is to remain in force unless succeeded by a new contract signed by both parties or canceled as provided in section 2. No more apt language could be employed to define a contractual relationship. By section 2 it is enacted that such indefinite contracts may be canceled by the school corporation only in the manner specified. The admissible grounds of cancellation, and the method by which the existence of such grounds shall be ascertained and made a matter of record, are carefully set out. Section 4 permits cancellation by the teacher only at certain times consistent with the convenient administration of the school system and imposes a sanction for violation of its requirements. Examination of the entire act convinces us that the teacher was by it assured of the possession of a binding and enforceable contract against school districts.

Until its decision in the present case the Supreme Court of the State had uniformly held that the teacher’s right to continued employment by virtue of the indefinite contract created pursuant to the act was contractual.

[Citation and discussion of Indiana cases omitted.]

We think the decision in this case runs counter to the policy evinced by the act of 1927, to its explicit mandate and to earlier decisions construing its provisions. Also that the decision in Phelps v. Board of Education, 300 U.S. 319, 57 S.Ct. 483, 81 L.Ed. 674, that the act there considered did not create a contract, is not, as the court below suggests, authority for a like result here.

Moreover, insofar as I can tell from the links Nobody has provided, Michigan’s emergency financial manager statue does not concern public employees whose terms of employment are specifed by statute. Rather, these appear to be simple collective bargaining agreements. I have a hard time seeing how Phelps would apply, even if Anderson had never been decided.

BTW, per the OP, I’m treating this as GQ even though we’re in GD. That is, I’m trying to figure out what the law is, not what it should be.

[Bricker]

@Really_Not_All_That_Bright

So Phelps says the legislature can abrogate unilaterally created “contract rights”- assuming they exist- but is silent on whether the legislature can unilaterally abrogate a bilateral contract itself.

@PBear42

Bricker, thanks for the cite to Phelps. Those interested can read the full opinion here. On review, I think RNATB is right. The nub of the decision was that the statute did not create contract rights.

And I agree with that – this is what I get for going on half-remembered and long-ago classes and a quick skim of the case. But with some sense knocked into my head, I agree that Phelps is of no help here.