The document discusses challenges cities face in contracting out public services and the Costa Mesa court decision that limited this practice. The Costa Mesa decision upheld an injunction blocking Costa Mesa's plan to outsource many city services. However, the court's analysis was narrow and did not consider various legal strategies cities could use to protect their power to contract out services, such as establishing the services meet the definition of "special services" or that cities have broad constitutional authority to determine how municipal powers are provided. The document also outlines strategies for cities to meet their legal obligations to bargain with unions over contracting decisions.

1. Daphne M. Anneet
Burke, Williams & Sorensen, LLP
danneet@bwslaw.com
Contracting Out Under Siege
Protecting and Preserving
Cities’ Power To Contract Out
CCCA 54th Annual Municipal Seminar

2. THE PERFECT STORM
• Falling revenues
• Increasing wage, pension
and benefit costs
• Structural deficits
• Outsourcing a means to
deliver better service at a
lower cost

3. CONTRACTING OUT UNDER SIEGE
• Legal
• Political
• Public relations
• Traditional unfair labor
practice

4. CONTRACTING OUT UNDER SIEGE
Contract Cities
• City of Lakewood model
• Contract out many or most
of services

5. CONTRACTING OUT UNDER SIEGE
Special Services Statutes limit
power (Gov’t Code § §
37103 & 53060)
Even though…
• Special services exempt from
competitive bid

6. CONTRACTING OUT UNDER SIEGE
Special Services Statutes limit
power (Gov’t Code § §
37103 & 53060)
Even though…
• Can’t waste public funds
– No authority to purchase
services where public
official has existing duty
and ability to provide
service

7. CONTRACTING OUT UNDER SIEGE
• Unions seize upon Costa
Mesa as a new legal weapon
• Hemet - franchise of refuse
• Redding – outsource of call
center services

8. • The Costa Mesa Decision
• What it held
• What it did not address
• Overview of strategies to
protect and preserve
contracting out power
– Legal strategies to blunt Costa
Mesa
– Labor relations considerations
PRESENTATION OVERVIEW

9. The Costa Mesa
Decision

10. BACKGROUND
• Council approved
comprehensive
outsourcing plan
• 18 Departments or
Divisions
• Variety of City
services
City’s Outsourcing Plan
3/1/2011

11. BACKGROUND
• CMCEA = union
• MOU gives CMCEA
right to be part of
outsourcing
discussion
• Advance notice of
any decision to
contract out
• City did not comply
Meet and Confer
Obligations - MOU

12. BACKGROUND
• Notices to 100 EEs
• No advance notice
• Effective dates
(9/17/11 & 10/8/11)
• 56% of membership
• Contingent on
outsourcing of
position
• “Sincere regret”
• Only 1 RFP issued
Layoff Notices
3/17 & 3/31 2011

13. THE LITIGATION
Suit Filed
5/16/2011
• Declaratory and
injunctive relief
• Preliminary Injunction
• Imminent threat of job
loss
• Outsourcing Plan
violates:
– MOU
– Special services statutes
preclude outsourcing of
“non-special services
that City employees
currently perform”

14. THE LITIGATION
City’s response
• No duty to bargain
decision, only effects
• Premature – no final
decision made
• Statutory right to outsource

15. THE LITIGATION
Preliminary Injunction
Granted
(7/15/2011)
• Interim relief
– No contracting with a
nonlocal agency for
services CMCEA
members perform
– No layoffs as a result
of any such
contracting

16. THE LITIGATION
Narrow issue
• Propriety of the
preliminary
injunction
Appellate Court affirms
preliminary injunction order
8/17/2010

17. COURT OF APPEAL DECISION
Irreparable Injury
• Job loss = injury
• City admitted it was
“earnestly pursuing”
outsourcing
• Broad scope of plan
• Layoff notices real
threat of job loss

18. THE LITGATION
Balance of Hardships
• CMCEA would incur
greater interim harm
• EE’s in serious peril of job
loss, a serious matter
• City can pursue
outsourcing plan,
evaluate options, issue
RFPs, just can’t contract
out and/or layoff pending
hearing on the merits

19. Contract Claim
• No evidence City
involved CMCEA in any
discussion re outsourcing
as MOU requires
COURT OF APPEAL DECISION
Possibility of Success
On the Merits

20. COURT OF APPEAL DECISION
Statutory Claim
• Government Code
sections 53060 and 37103
limit a city’s right to
contract with private
entities for “nonspecial
services”
• City presented no
evidence that services
qualify as “special
services.”
Possibility of Success
On the Merits

21. NARROW HOLDING
At this point in the controversy,
however, we are convinced
CMCEA's members would suffer
irreparable harm in the absence
of a preliminary injunction, there
is “some possibility” they will
prevail on both their contract
and statutory claims (which are
independent grounds for relief),
and the relative harm to the
parties favors preliminary relief.

22. COURT OF APPEAL DECISION
• Under Article XI 7 of the Cal.
Constitution, general law cities
have powers a “broad as the
legislature itself” (Costa Mesa,
supra, 209 Cal.App.4th at p.310
n.3.)
• Implied authority to contract to
carry out necessary functions
(Id. at p.310)
• Powerless to take action in
“conflict” with general laws (Id.)

23. •Article XI, § 7
“conflict”=
preemption
•Costa Mesa court
did no analysis of
conflict under the
preemption doctrine
COURT OF APPEAL DID NOT CONSIDER
Preemption Doctrine

24. • Special services statutes
do not preclude general
law city from contracting
for prosecuting services,
even though it has a city
attorney
• No implied preemption of
the field
COURT OF APPEAL DID NOT CONSIDER
Preemption analysis in
Montgomery v. Superior
Court (1975) 36
Cal.App.3d 657

25. •Cities created pursuant
to charter have the ability
to override general state
laws on
– Any subject classified as
a municipal affair
COURT OF APPEAL DID NOT CONSIDER
California
Constitution, Article
11, section 5

26. COURT OF APPEAL DID NOT CONSIDER
Gov’t Code § 37112 • “In addition to
other powers, a
legislative body may
perform all acts
necessary or proper
to carry out the
provisions of this
title.”

27. COURT OF APPEAL DID NOT CONSIDER
74 Ops. Cal.Atty.Gen.
109 (1991)
• Attorney General opined
§ 37112 authorizes the
outsourcing of a city jail to
a private operator as a
“necessary or proper”
way for city to exercise its
power to establish a city
jail. 74 Ops. Cal.Atty.Gen.
109 (1991)
• No discussion of special
services statutes as a
limitation in that opinion

28. COURT OF APPEAL DID NOT CONSIDER
Special Services
Statutes Clarify Existing
Case Law
• Special services statutes a
clarification/codification of
existing law which:
– Authorized local
governments to contract
for special services without
competitive bid, unless
– the contemplated services
were required to be
performed by an existing
official who was willing
and able to provide the
service.

29. •County board has no
authority to contract with
private persons for the
performance of duties
which the law enjoins the
official to perform
COURT OF APPEAL DID NOT CONSIDER
20 Ops. Cal.Atty.Gen.
21 (1952)

30. • Purpose of special
services: “remove all
question of the necessity
of advertising for bids for
“special services” by a
person specially trained
and experienced and
competent to perform
the special services
required.” (Id. at pp. 95-
96.)
COURT OF APPEAL DID NOT CONSIDER
Cobb v. Pasadena City
Bd. of Ed. (1955) 134
Cal.App.2d 93, 95

31. Legal Strategies
To Blunt
The Potential Impact
Of The
Costa Mesa Decision

32. • Identify specific,
constitutional and/or
statutory independent
grounds for outsourcing
• Costa Mesa: Jail (Penal
Code); Payroll (Gov’t Code)
• Hemet: Refuse (Integrated
Waste Management Act;
Pub. Res. Code)
• Redding: Call Center
Services (Cal. Const. Art. XI,
§ 9)
INDEPENDENT AUTHORITY TO CONTRACT
Strategy #1

33. SERVICE MEETS “SPECIAL SERVICES” TEST
Strategy #2
Establish
• Council acted wisely and
thoughtfully
• Consistent with all
elements of special
services statutes
• No legal obligation to
provide contemplated
service with in-house
resources
• Decision supported by
strong legislative record

34. ELEMENTS OF § 53060
1951: Legislative body may contract for:
*1+ “special services and advice in
[2] financial, economic, accounting, engineering, legal,
or administrative matters . . .” “The authority given
shall include the right of the legislative body of the
corporation or district to contract for the issuance
and preparation of payroll checks.
*3+ The persons contracted with are to be “specially
trained and experienced and competent to perform
the special services required.”

35. ELEMENTS OF GOV’T CODE § 37103
1949: Legislative body may contract with:
*1+ “any specially trained and experienced person,
firm or corporation for
[2] special services and advice in
[3] financial, economic, accounting, engineering,
legal or administrative matters. It may pay such
compensation to these experts as it deems
proper.”

36. AUTHORIZED AS A “SPECIAL SERVICE”
Strong Legislative
Record
• Satisfy each element
• Rationale for outsourcing
• Full evaluation to meet
service objectives
(quantity, quality, cost)
• Historical overview of
experience with service
and related issues
• Fiscal analysis
• Analysis of options
• Expert review required?
• Meet and confer process
• Oral Reports – oral/written
• Resolutions

37. CITIES’ BROAD CONSTITUTIONAL POWER
Strategy #4 • Article XI, §7 broad powers
• Limited only by state law in
“conflict” with local
legislation
• Implied power to contract to
carry out purpose
• Wide latitude to decide
which municipal powers to
provide
• (Costa Mesa, supra, 209
Cal.App.4th at p. 310)

38. CITIES’ BROAD CONSTITUTIONAL POWER
Strategy #4 • Article XI, §5 broad
powers
• Cities created
pursuant to charter
have power to
override general
state laws
• On any subject that
can be classified as
a municipal affair

39. CITIES’ BROAD CONSTITUTIONAL POWER
Strategy #4 • Charter cities have
plenary power over
municipal affairs under
Article XI, §5
• State prevailing wage
laws do not apply to a
charter city
– State Bldg. and Const.
Trades Council of Cal.,
AFL-CIO v. City of Vista
(2012) 54 Cal.4th 547)

40. PREEMPTION ANALYSIS
Strategy #5
• Special Services
Statutes are
permissive, not
preemptive
• Codify existing case
law
– Contemporaneous
Attorney General
opinions/cases

41. Labor Relations
Strategies

42. • Notice and
opportunity to
bargain
• Point of agreement
or impasse
• Before firm
decision is made
MEET AND CONFER OBLIGATIONS
Meet and Confer Before
Making A Firm Decision

43. MEET AND CONFER OBLIGATIONS
• A decision on a
mandatory subject
before reaching
agreement or
impasse is a violation
of the duty to bargain
in good faith
– Ex. RFP
Provide Advance
Notice of Proposed
Action Re:
Contracting Out

44. MEET AND CONFER OBLIGATIONS
Avoid Direct Dealing
• Interference with
union’s right to
exclusive
representation
• Notice to union
before affected
employee
• Management should
not discuss with
employees

45. COMMUNICATIONS STRATEGIES
Develop Coherent
Communications
Strategy
• Be prepared for
common approach
and themes
• Advise management
and electeds on
communications
strategy

46. COMMUNICATIONS STRATEGIES
Communications -
Free Speech
• Factually accurate
• No promises of
benefits
• No threats
• No disparaging remarks
about union leadership
• No suggestion of a
course of action

47. “How many times are you gonna
tell me to pick up my things before
I really hafta do it?”

48. • Position on
contracting out
– Support the
evaluation process
– No decision until
review complete
and meet & confer
concluded
• Service Levels
– Ok to discuss, but
no decision until
process complete
Comments Before a
Firm Decision is Made
COMMUNICATIONS STRATEGIES

49. COMMUNICATION STRATEGIES
• Closed session
discussion
• Unequivocal support
• Favored proposal
• Rewards/threats
• Employee concessions
• Current personnel
Comments To Stay
Away From Before A
Firm Decision is Made

50. “Security is lax on this side.”

51. THE BATTLE IS FAR FROM OVER
• Identify independent
contracting authority
• Establish compliance with
special services statutes
• Re-assert broad powers
• Comprehensive labor
relations strategy

52. Daphne M. Anneet
Burke, Williams & Sorensen, LLP
danneet@bwslaw.com
THANK YOU