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AGO Opinion 97015

LB 878; Constitutionality of a Buy-Out Program for State Employees
Opinion 97015


DATE: March 3, 1997


SUBJECT: LB 878; Constitutionality of a Buy-Out Program for State Employees




REQUESTED BY: Senator David I. Maurstad

Nebraska State Legislature




WRITTEN BY: Don Stenberg, Attorney General

Dale A. Comer, Assistant Attorney General






In our Op. Att'y Gen. No. 97002 (January 8, 1997), we

discussed a number of questions pertaining to state employee buy-

outs posed to us by Lawrence Primeau, the Director of the Nebraska

Department of Administrative Services ("DAS"). In his opinion

request, Mr. Primeau raised several issues involving the propriety

and constitutionality of possible legislation which would permit

state employee buy-outs. Based upon our policy of responding to

opinion requests from state officials only with respect to

questions arising "in the discharge of their duties," we declined

to answer Mr Primeau's questions concerning the constitutionality

of possible legislation dealing with state employee buy-outs, and

we stated that we preferred to address such constitutional

questions in the context of an opinion request from a legislator in

reference to specific proposed legislation. You have now posed

such constitutional questions in reference to LB 878, a legislative

bill pertaining to state employee buy-outs.






LB 878 would require the Personnel Division of DAS to

"develop, administer, and coordinate all requests from agencies for

an employee buy-out program." The Personnel Division would further

"determine under what conditions a buy-out is offered, including

the appropriateness of a buy-out and the number of buy-outs to be

offered." Section 1 of the bill also includes the following

specific findings by the Legislature:




The Legislature finds that the state must use its human

resources in the most cost-effective manner possible by

employing skilled workers at reasonable rates and in

positions in which their skills will be best utilized.

The Legislature also finds that it is necessary to create

a program that will give state employees the opportunity

to leave state government with compensation for

surrendering vested rights under the State Personnel

System or the state's collective-bargaining agreement.




LB 878 goes on to define the "employees" which would be

subject to the bill as those state employees covered under the

State Personnel System or a collective bargaining agreement, and

the bill would apply only to the state agencies, departments, or

boards whose employees fit into those categories. LB 878 also

creates the following procedure for establishment of a buy-out

program:




If an agency determines there is a need for a buy-out

program, the director of the affected agency shall submit

a proposed plan detailing the scope of the buy-out,

addressing such factors as geographic sites,

classifications impacted, future agency needs, and

potential costs. The Director of Administrative Services

shall be responsible for approving any buy-out plan prior

to the offering of the plan to eligible employees.




LB 878 does not define the term "buy-out;" nor does the bill

describe the particulars of any employee rights which might be the

subject of a buy-out program or how those rights might be valued.





You first ask, "[d]oes LB 878 allow impermissible compensation

to state employees that is contrary to the constitutional provision

prohibiting the payment of extra compensation after services are

rendered? (Article III, Section 19)"




Art. III, § 19 of the Nebraska Constitution provides, in

pertinent part,




The Legislature shall never grant any extra compensation

to any public officer, agent, or servant after the

services have been rendered nor to any contractor after

the contract has been entered into, . . . nor shall the

compensation of any public officer, including any officer

whose compensation is fixed by the Legislature, be

increased or diminished during his term of office . . .




Since LB 878 specifically applies to state employees rather than

officers of state government, we will concern ourselves only with

the initial portion of art. III, § 19.




The purpose of state constitutional provisions prohibiting

extra compensation to public employees after services are rendered

is to prevent payments in the nature of gratuities for past

services. 67 C.J.S. Officers § 236. As stated by the Nebraska

Supreme Court in Wilson v. Marsh, 162 Neb. 237, 75 N.W.2d 723

(1956), a case which, in part, involved the application of art.

III, § 19 to judicial pensions:




It could hardly be made clearer or more positive

that retirement benefits are either earned compensation

for services rendered after the grant of them and that

they are therefore valid or that they are a gratuity and

not a part of compensation and therefore invalid.




Id. at 253, 75 N.W.2d at 733. As a result, if the language of LB

878 allows buy-out programs which might constitute gratuities for

past services, then the provisions of the bill are of suspect

constitutionality. On the other hand, if the only buy-out programs

permitted by LB 878 involve payment to state employees for the

actual value of existent rights earned when services were rendered

rather than gratuities, then the bill is acceptable under art. III,

§ 19.




While Section 1 of LB 878 detailing legislative findings

refers to compensation for the surrender of "vested" employee

rights under the Personnel System or collective bargaining

agreements, that is the only reference in the bill to the nature of

the employee rights which would be subject to the buy-out process.

Beyond that reference, the term "buy-out" is not defined in LB 878,

and the bill does not specify either the nature of the rights

subject to the buy-out process or the manner in which those rights

must be valued. Instead, the bill essentially leaves the

determination of the conditions of a buy-out and its

"appropriateness" to the DAS Personnel Division and the Director of

DAS. As a result, there is no way to determine on the face of LB

878 whether the buy-outs contemplated under the bill would involve

improper gratuities for past services or permissible payment for

the actual value of existent rights earned when services were

rendered. It seems to us, therefore, that LB 878 does allow

impermissible compensation to state employees in contravention of

art. III, § 19 simply because it fails to specify the exact nature

of the rights which would be subject to a buy-out program and how

those rights must be valued.


You also ask, "[w]hat rights and benefits do state employees

possess that would enable the state to offer a monetary buy-out?"




As discussed above, art. III, § 19 of the Nebraska

Constitution prohibits gratuities for past services. Therefore, it

would appear that the acceptability of any buy-out program under

art. III, § 19 involves two considerations. The buy-out cannot

constitute a gratuity. Nor can the payment included with the buy-

out be for past services.




In the context of government employee pension benefits, the

Nebraska Supreme Court has indicated that an award of pension

benefits to particular government employees involves an

impermissible gratuity for past services when the services of those

employees were rendered and terminated before the date of the

legislative act awarding the benefits. Retired City Civilian

Employees Club of the City of Omaha v. The City of Omaha Employees'

Retirement System, 199 Neb. 507, 260 N.W.2d 472 (1977). On the

other hand, all that is necessary to avoid this problem with

benefits for past services is that the employees receiving the

pension benefits in question be employees of the governmental

entity on the effective date of the Act creating the benefits.

Gossman v. State Employees Retirement System of the State of

Nebraska, 177 Neb. 326, 129 N.W.2d 97 (1964). In the present

instance, the employees subject to buy-outs under LB 878 are

defined as "those employees covered under the State Personnel

System or a collective bargaining agreement." Under that

definition, the persons receiving the benefit of the buy-outs would

necessarily be current employees of the State of Nebraska. As a

result, we do not believe that the bill involves a payment for past

services.




Permissible buy-out payments also cannot constitute

gratuities. A gratuity, in turn, is something acquired without

bargain or inducement, or a gift. BLACK'S LAW DICTIONARY 631 (5th

ed. 1979). With this definition in mind, it seems to us that

payments to state employees in a buy-out program must involve an

actual or existent right which the individual employee possesses,

and that the amount of the payment for the buy-out must reflect the

actual value of the right, as best it can be ascertained. Anything

beyond that would constitute both a gift and an impermissible

gratuity.




State employees who are covered by the State Personnel System

or collective bargaining agreements have a number of statutory

rights which are clearly existent rights subject to valuation. For

example, under Neb. Rev. Stat. § 81-1328 (1994), state employees

earn vacation time and can be paid for that time if they are

dismissed or voluntarily leave state employment. Similarly, under

Neb. Rev. Stat. §§ 81-1320 and 81-1325 (1994), state employees earn

sick leave and can be paid for accumulated portions of that leave

upon retirement under certain circumstances. We believe that

payment for the readily ascertainable value of such rights in a

buy-out program would not involve an impermissible gratuity.




In our Opinion No. 97002, we also discussed other rights

available to state employees in response to specific questions from

the Director of DAS. We were asked whether there is a legal right

to continued employment in Nebraska, whether such a right can be

valued and whether employee "bumping rights" can be valued. In

Opinion No. 97002, we concluded that certain state employees

subject to the Personnel Rules or labor contracts have the rights

established by those enactments or agreements and are not employees

"at will." We also indicated that the rights of those employees

and state employee bumping rights could theoretically be valued,

although we were uncertain about what valuation theory would be

used, and we were concerned about the speculative nature of that

valuation process. Nonetheless, since certain state employees are

not entirely employees "at will," and since those rights and state

employee bumping rights can, in theory, be valued, we believe that

such rights could form the basis for a state employee buy-out

program. However, we would caution that the valuation process for

such a buy-out program must be sufficiently precise so as to avoid

any payment beyond the actual value of the rights at issue.

Otherwise, the buy-out program would involve an impermissible

gratuity. Moreover, we believe that the valuation process involved

in such an employee buy-out program should be stated in the




enabling statute in order to avoid the difficulty with LB 878 where

the lack of precise definitions and definite valuation procedures

could allow impermissible gratuitous buy-outs.




Sincerely yours,




DON STENBERG

Attorney General








Dale A. Comer

Assistant Attorney General




05-60-14.op




cc: Patrick J. O'Donnell

Clerk of the Legislature




Approved by:








_________________________

Attorney General