CHICAGO (Legal Newsline) - A federal appeals court last week upheld a district court's decision siding with Illinois Gov. Pat Quinn in denying thousands of state employees pay raises.
The State, facing a fiscal deficit, brokered a series of compensation agreements with Council 31 of the American Federation of State, County and Municipal Employees, or AFSCME. The union represents about 40,000 state employees in Illinois.
Under the agreements, the parties trimmed several hundred million dollars in fiscal years 2011 and 2012 by deferring employees' wage increases and instituting a voluntary furlough program.
Despite the cost-saving measures, the fiscal year 2012 budget did not contain sufficient appropriations for the deferred wage increases that were due to employees of 14 state agencies.
Accordingly, the State instituted a pay freeze for those employees, essentially rejecting the agreements that the parties had previously reached.
Council 31 then sued on behalf of itself and the affected employees, alleging that the State's actions violated the Contracts Clause and the Equal Protection Clause of the U.S. Constitution and resulted in several violations of state law.
The union sought a preliminary injunction that would order the State to pay the wage increases as they came due. The State filed a motion to dismiss all claims.
The U.S. District Court for the Central District of Illinois denied Council 31's motion for a preliminary injunction and granted the State's motion to dismiss.
The union appealed.
In its May 17 ruling, the Seventh Circuit affirmed the district court's decision.
It agreed that the State was immune from suit in federal court because Council 31 was seeking monetary relief.
"It does not matter that the injunction in this case would preclude state officials from enforcing the rules without explicitly directing payment from the state's treasury; the effect of issuing the injunctive relief Council 31 seeks in this case is the same as the effect of the relief sought by the plaintiff in MSA Realty -- the injunction would force the defendants, acting in their official capacities, to extract funds from the state's treasury for the ultimate benefit of the plaintiffs," Judge Daniel A. Manion wrote for the Seventh Circuit.
"There is thus no question that the 'essence of the relief sought' is the payment of funds out of the treasury to the employees at the 14 state agencies whose budgets did not contain sufficient appropriations to pay wage increases."
The Seventh Circuit also held that the union's lawsuit did not present a federal constitutional issue.
In particular, the court found that the union failed to state a Contracts Clause claim because it did not adequately allege that the rules -- which amended the State's pay plan -- unconstitutionally impaired the collective bargaining agreements.
Also, the union failed to state an Equal Protection claim because there is a rational relationship between the rules and the legitimate governmental purpose of cost savings, the court said.
"Council 31 must plausibly allege that no reasonably conceivable set of facts supports the pay freeze as a rational instrument of cost savings," Manion wrote in the Seventh Circuit's 23-page opinion.
"Here, the parties agree that the State has encountered a fiscal crisis that will cause the State to run out of money by the end of the fiscal year. Instituting cost-savings measures is unquestionably a legitimate governmental interest, particularly for a government in such dire fiscal straits. And by Council 31's own admission the State would save approximately $75 million by implementing the pay freeze."
The judge continued, "It is therefore evident that the rules are a rational method of contributing to the legitimate governmental aim of cost savings."
AFSCME is also suing over the pay raises in Cook County Circuit Court.
The Seventh Circuit's decision made no judgment regarding those proceedings.
"The union is continuing to battle in state court where the Quinn administration is seeking to overturn the arbitrator's order that the wage increases should be paid," according to a statement by AFSCME last week.
An arbitrator sided with the union in July 2011, finding that the pay freeze violated the terms of the collective bargaining agreements and ordered the State to pay the wage increase that was due.
The State filed suit in the circuit court to vacate the arbitrator's award. Council 31 counterclaimed for enforcement of the award.
A ruling in that case is expected late next month, according to AFSCME.
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.