LIABILITY OF STATE FOR SEVERANCE PAY TO EMPLOYEES OF AN OPERATOR UNDER CONTRACT WITH THE STATE
The state cannot legally reimburse an operator under contract with the state for monies paid to employees as severance pay, where such pay was not contemplated in the contract.
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December 13, 1949
Honorable A. M. Johnson
Director of Labor and Industries
Olympia, Washington Cite as: AGO 49-51 No. 180
We are in receipt of your letter of November 28, 1949, in which you ask the following question: Can the state legally reimburse an operator under contract with the state for monies paid to employees in the form of severance pay, where severance pay was not contemplated in the contract which provided "the State will not reimburse the operator for any wages or labor costs which shall be over or under the prevailing union scale for the job classification filled by the employees."
Our conclusions may be summarized as follows: The state cannot legally reimburse such an operator for monies paid to employees in the form of severance pay.
Article II, section 25, of the Washington Constitution, provides as follows:
"The legislature shall never grant any extra compensation to any public officer, agent, servant, or contractorafter the services shall have been rendered or the contract entered into, nor shall the compensation of any public officer be increased or diminished during his term of office." (Emphasis supplied)
[[Orig. Op. Page 2]]
Since under Amendment 11 to the constitution no monies may be paid out of the state treasury or any of its funds except in pursuance of an appropriation by the legislature, money paid by the state as extra compensation to any agent, servant or contractor after the contract has been entered into falls within the prohibition of section 25, Article II.
The contract under consideration provides that the operator should operate three state owned ferries across the Tacoma Narrows, beginning January 1, 1948, until a bridge under construction at that point shall have been completed.
The contract between the state and the operator includes the following provisions:
"The state will employ and pay the operator on the earliest date possible in the month after the month in which said service is furnished the following sums and in the following described manner:
"(a) The sum of money equal to the actual wages, including all deductions from such wages paid by the operator for each one month period covering the operations of three ferry boats. * * *"
"This state will not reimburse the operator for any wages or labor costs which shall be over or under the prevailing union scale for the job classification filled by the employees." (Emphasis supplied)
This language indicates plainly that the parties did not contemplate that the operator should pay in addition to the prevailing union scale wages, any additional compensation in the form of severance pay, nor that the state should reimburse the operator if he made such payments. In the event that the operator negotiated a contract of employment with his employees which prescribed that severance pay was to be a consideration for the employment, the operator would be liable for such amounts. If the state thereafter undertook to relieve that liability by reimbursing an operator for these payments, it would be granting extra compensation after the contract had been entered into.
[[Orig. Op. Page 3]]
We quote from a copy of a letter of September 9, 1949, from the Business Manager of Marine Engineers' Beneficial Association No. 38, Inc., which is the bargaining agent for the ferry employees, to Mr. William J. Skansie, the operator under contract here:
"With the settlement of the wage issue and several minor amendments to the agreement, there remains only one issue between your Company and this Association to be settled before an agreement is reached. This issue is one of the proposals set forth in our letter of November 9, 1948 and is of great importance to this Association and to the engineers directly involved. That proposal is the one which would amend the agreement to provide for the establishment of the principle which would allow severance pay to those licensed marine engineers who will permanently lose their employment as a result of the elimination of the present ferry route when the Tacoma Narrows Bridge is completed. This payment of a severance, or dismissal pay, to employees when operations are eliminated under similar circumstances is now commonly accepted. When the San Francisco Bay bridges were built and ferry operations were terminated, the licensed engineers received severance pay, on the basis of one month's pay for each year of service, from the Southern Pacific Railway Company. It is our proposal that an agreement similar to this be worked out between this Association and your Company." (Emphasis supplied)
It is true that had the original agreement anticipated some sort of termination payments the state would be obliged to reimburse the operator for making such payments. In view of the emphasized portion of the letter cited above, the scale of wages per unit work period seems to be undisputed. The state, according to the terms of the agreement, is liable only for reimbursement according to that wage scale.
[[Orig. Op. Page 4]]
Reimbursement for additional compensation, not contemplated at the execution of the contract, would fall under the constitutional prohibition of section 25, Article II.
We, therefore, conclude that the state may not legally reimburse the operator under this contract with the state for monies paid to the employees in the form of severance pay.
Very truly yours,
LAWRENCE K. McDONELL
Assistant Attorney General