By: Michael F. Kaelber, Esq., Coordinator of Continuing Legal Education and Research, Foundation for Educational Administration
These are difficult financial times for many New Jersey school districts; increased costs, reductions in state aid and the 2% property tax cap have made it increasingly more difficult for school districts to operate effectively. For many school districts, personnel costs make up more than 80% of the school budget. Most contract settlements are greater than the 2% property tax cap and health care costs are increasing by over 20% under many health plans. What does a school district do to contain personnel costs and still deliver a quality educational program? What many school districts have done is to subcontract personnel to other public and private providers who can provide the services at a reduced cost. New Jersey has seen some significant developments in subcontracting labor law over the last few years. This article provides a review of those developments to assist school districts in the decision-making process.
2020 Law on Subcontracting
P.L. 2020, c. 79, enacted 9/11/2020, and codified at N.J.S.A. 34:13A-46, established that all aspects or actions relating to or resulting from an employer’s decision to subcontract, including severance pay, are mandatorily negotiable, except for those actions expressly required or prohibited by law. “Employer” is defined as any local or regional school district, educational services commission, jointure commission, county special services school district, county college, or board or commission under the authority of the Commissioner of Education or the State Board of Education.
No employer shall enter into a subcontracting agreement which affects the employment of any employees in a collective bargaining unit represented by a majority representative during the term that an existing collective bargaining agreement (CBA) with the majority representative is in effect. This is a key provision of the law that you will see come up in the case law determinations later in this article.
No employer shall enter into a subcontracting agreement for a period following the term of the current CBA unless the employer:
a. Provides written notice to the majority representative of employees in each collective bargaining unit which may be affected by the subcontracting agreement and to the New Jersey Public Employment Relations Commission (PERC), not less than 90 days before the employer requests bids, or solicits contractual proposals for the subcontracting agreement; and
b. Has offered the majority representative of the employees in each collective bargaining unit which may be affected by the subcontracting agreement the opportunity to meet and consult with the employer to discuss the decision to subcontract, and the opportunity to engage in negotiations over the impact of the subcontracting. The employer’s duty to negotiate with the majority representative of the employees in each collective bargaining unit shall not preclude the employer’s right to subcontract should no successor agreement exist.
Each employee replaced or displaced as the result of a subcontracting agreement shall retain all previously acquired seniority during that period and shall have recall rights whenever the subcontracting terminates.
An employer who violates any provision of this act shall be deemed to have committed an unfair practice, and any employee or majority representative organization affected by the violation may file an unfair practice charge with PERC. If the employee or organization prevails on the charge, the employee is entitled to a remedy including, but not limited to, reinstatement, back pay, back benefits, back emoluments, tenure and seniority credit, attorney’s fees, and any other relief PERC deems appropriate.
PERC Case Law Interpreting P.L.2020, c.79
PERC has issued several decisions over the past three years that have addressed the issue of school district subcontracting in light of P.L. 2020, c.79. The cases follow.
IMO Vineland BOE and Vineland Ed. Assn. PERC No. 2024-047 3/28/2024 – In this case, PERC sustained the refusal of the Director of Unfair Practices (DUP) to issue a complaint on an unfair practice charge (ULP) filed by the Association. The ULP charge alleged that the board of education (BOE) violated the New Jersey Employer-Employee Relations Act, N.J.S.A. 34:13A-1, et seq. when it subcontracted with private companies and contractors, ESS Substitute Staffing Services (ESS), Educere, and adjunct faculty from Rowan College, to fill vacant teaching positions and Complete Care Health Network (Complete Care) to provide additional health services to its students.
The BOE asserted that its subcontracting of teaching services was not intended to replace unit positions with non-unit contractors but was limited to positions it could not fill through the regular hiring process. The BOE asserted that Complete Care contractors provided additional health services that were not and/or could not be performed by Association nurses. There was no claim or evidence in the record that any current Association unit employees have been displaced by the BOE’s subcontracting to fill vacant teaching positions or to provide health services.
Applying the Supreme Court’s Local 195 test, PERC found that the BOE’s decision to subcontract was non-negotiable and that the Association did not allege that the BOE subcontracted in bad faith. The Supreme Court in Local 195 held that public employers have a non-negotiable managerial prerogative to subcontract governmental services to a private company even if the decision is based solely on a desire to save money and even if employees will lose jobs as a result.
PERC also found that N.J.S.A. 34:13A-46 (P.L. 2020, c. 79) only prohibits subcontracting that affects the employment of currently employed unit employees; therefore, since the BOE’s subcontracting did not displace any current employees but only filled vacancies and new positions, it did not violate N.J.S.A. 34:13A-46.
IMO Paterson BOE and Paterson Ed. Assn. PERC No. 2025-31 2/27/2025 – In this case, PERC sustained the refusal of the Director of Unfair Practices (DUP) to issue a complaint on an unfair labor practice charge (ULP) filed by the Association against the board of education (BOE). The ULP charge alleged that the BOE violated the New Jersey Employer-Employee Relations Act, including the school subcontracting provisions, when it entered a subcontracting agreement with a private company (Texas based Proximity) to receive live in-classroom teaching services from remote instructors who were not BOE employees during the term of the parties’ current collective negotiations agreement (CNA).
The BOE’s reasons for entering the Proximity Agreement were to “to fill in the gaps” of a “teacher shortage plaguing the District,” and to “fill high needs, hard to fill areas such as Bilingual, ESL, Science, and Math,” which “required the District to utilize non-traditional teacher recruitment and retention strategies…”
Applying the Supreme Court’s Local 195 test, PERC found that the BOE’s decision to subcontract was non-negotiable. The Supreme Court in Local 195 held that public employers have a non-negotiable managerial prerogative to subcontract governmental services to a private company even if the decision is based solely on a desire to save money and even if employees will lose jobs as a result.
The DUP properly concluded that the Proximity subcontracting agreement was not a subcontracting agreement as defined by or subject to the notice and negotiation requirements of the school subcontracting law. N.J.S.A. 34:13A-46 (P.L. 2020, c. 79) only restricts subcontracting during the contract term that affects the employment of currently employed unit employees. The Association could not identify a single existing unit employee that was replaced or displaced by a non-unit Proximity employee. Since the BOE’s subcontracting agreement with Proximity did not replace or displace any current employees but only filled vacancies and new positions, it did not violate N.J.S.A. 34:13A-46.
There was no interference with protected activity or BOE bad faith shown by the Association.
While this was a PERC decision, it should be noted that the Proximity Agreement is the subject of a pending petition of appeal before the Commissioner of Education. The Association contends to the Commissioner that the Proximity Agreement violates various provisions of the New Jersey school laws (Title 18A) because Proximity instructors: do not hold New Jersey teaching certificates or endorsements; have not undergone a criminal history check; were not appointed by a majority vote of the full membership of the BOE; are not evaluated by District supervisors; and are not New Jersey residents. The outcome of this Commissioner of Education decision will be critical to New Jersey school district subcontracting.
IMO Elizabeth BOE and Elizabeth Ed. Assn. PERC No. 2025-46 6/26/2025 – In this case, PERC sustained the refusal of the Director of Unfair Practices (DUP) to issue a complaint on an unfair labor practice (ULP) filed by the Association against the board of education (BOE). The ULP charge alleged that the BOE violated the New Jersey Employer-Employee Relations Act, including the school subcontracting provisions, by depriving Association bus drivers of overtime opportunities, when the BOE subcontracted with a private company, Durham School Services, to provide private bus drivers to fill the 6:00 to 7:00 a.m. bus routes; routes that Association bus drivers had previously worked.
For the 2024-25 school year, the parties had negotiated a change to a “straight schedule” in which the Association bus drivers worked a single 7:00 a.m. to 4:00 p.m. shift. Prior to the 2024-25 school year, bus drivers had been on a “split schedule” where they would work a 6:00 a.m. to 10:30 a.m. shift and then a 2:00 p.m. to 5:30 p.m. shift.
Because of the work schedule change, the BOE needed bus drivers for the 28 routes that commenced at 6:00 a.m. to properly service Special Education High School students. On 9/19/24 the BOE entered into the Durham School Services agreement to provide service for the 28 routes.
PERC found that because the Association bus drivers did not work the disputed routes on an overtime basis during the preceding year and had negotiated a schedule that did not include the 6:00 a.m. to 7:00 a.m. routes, the BOE’s subcontracting of those routes did not “affect” the employment of Association bus drivers pursuant to N.J.S.A. 34:13A-46 of the PERC Act’s subcontracting amendments. N.J.S.A. 34:13A-46 (P.L. 2020, c. 79) only restricts subcontracting during the contract term that affects the employment of currently employed unit employees. Since the Association negotiated a change to the schedule that did not include the routes subcontracted to Durham, the subcontracting agreement did not violate N.J.S.A. 34:13A-46.
PERC noted, in a footnote, that when the Association negotiated the schedule change, it could have, but did not, negotiate an overtime preference clause for the 6:00 a.m. to 7:00 a.m. shift.
Key Takeaways
The key takeaways for school districts from a review of the recent subcontracting law and case law interpreting it are:
- All aspects or actions relating to or resulting from an employer’s decision to subcontract, including severance pay, are mandatorily negotiable.
- No employing school district may enter into a subcontracting agreement which affects the employment of any employees in a collective bargaining unit represented by a majority representative during the term that an existing collective bargaining agreement (CBA) with the majority representative is in effect.
- However, where subcontracting during the CBA term does not affect the employment of currently employed unit employees but only is used to fill vacancies and new positions, it does not violate J.S.A. 34:13A-46 (P.L. 2020, c. 79).
It is hoped that this article will be helpful to school business administrators to understand the key legal considerations involved as they consider subcontracting employees as a means to address financial challenges in their school districts.