Opinion
No. 1317 C.D. 2013
12-19-2014
Philadelphia Fire Fighters' Union, Local 22, International Association of Fire Fighters, AFL-CIO v. City of Philadelphia, Appellant
BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY JUDGE LEADBETTER
This case was reassigned to the author on September 9, 2014.
The City of Philadelphia appeals from the order of the Court of Common Pleas of Philadelphia County, First Judicial District, which vacated an Act 111 grievance arbitration award that essentially held that the City did not need to refund the wage taxes it withheld from City firefighter Mark Pryor's benefits paid under the act commonly referred to as the Heart and Lung Act (Act). The primary question on appeal is whether common pleas exceeded its limited scope of review when it vacated the award. After review, we conclude common pleas did exceed its power of review and reverse.
Act of June 28, 1935, P.L. 477, as amended, 53 P.S. §§ 637-638.
The arbitration award was entered under the authority of the Act of June 24, 1968, P.L. 237, as amended, 43 P.S. §§ 217.1 - 217.10 (commonly referred to as "Act 111"). Act 111 governs collective bargaining between a public employer and its police and fire personnel.
The underlying facts are not disputed. Pryor suffered a work-related heart attack and was unable to work for approximately one year, returning to work on January 8, 2008. During his period of disability, the City paid Pryor his full rate of salary pursuant to Section 1(a) of the Act, which provides:
[A]ny . . . policeman, fireman or park guard of any county, city, borough, town or township . . . who is injured in the performance of his duties, including in the case of firemen, duty as special fire police, and by reason thereof is temporarily incapacitated from performing his duties, shall be paid . . . his full rate of salary, as fixed by ordinance or resolution, until the disability arising therefrom has ceased. . . .53 P.S. § 637(a) (emphasis added). Although the City did not withhold federal or state taxes from Pryor's wage indemnity benefits, it did withhold City wage taxes pursuant to Philadelphia Code § 19-1502 (pertaining to Wage and Net Profits Tax). Pryor's bargaining unit, the International Association of Fire Fighters, Local 22 (Union), subsequently initiated the grievance arbitration process on Pryor's behalf, contending, inter alia, that the City improperly withheld city wage taxes from Pryor's benefits because he was entitled to his full wages without any deduction for taxes.
It is undisputed by the parties that Act benefits are not subject to federal and state wage taxes.
The parties resolved the other issues originally raised by the Union.
The grievance was litigated before a panel of arbitrators, who addressed the limited issue of "whether wage tax amounts were properly deducted by the City from Claimant's Heart & Lung wage indemnity payments." Decision and Award at 2. The panel majority ultimately concluded that it had jurisdiction to determine the issue and that the City had the right to deduct City wage taxes from payment made pursuant to the Act. Specifically, the panel majority concluded that the parties' Collective Bargaining Agreement provided the panel with a broad grant of authority to resolve disputes pertaining to entitlement to benefits and, therefore, the panel had jurisdiction to resolve the issue. In reaching its decision on the merits, the panel majority acknowledged the Union's reliance on City of Philadelphia v. Fraternal Order of Police, Lodge No. 5, 723 A.2d 747 (Pa. Cmwlth. 1999), and Roman v. Department of Corrections, 808 A.2d 304 (Pa. Cmwlth. 2002), to support its position that Pryor's wage indemnity benefits under the Act were not subject to taxation. The panel majority also recognized that the Act is intended to provide injured uniformed personnel with the same level of wages while recovering from a work-related injury as they would have received as an active employee. However, notwithstanding the authority cited by the Union, the panel majority opined that an Act recipient's greater take home pay, as compared to that actually experienced while working, is the result of legislative grace, specifically that afforded by federal and state tax provisions exempting from income taxation sickness and disability benefits as well compensation paid under the Workers' Compensation Act, Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §§ 1-1041.4, 2501-2708, and similar legislation. The panel majority noted that unlike the former express statutory exemptions, the City here had not exempted benefits received under the Act from wage tax, expressly excluding only periodic payments for sickness and disability and benefits paid under the Workers' Compensation Act; there was no exclusion from tax for payments made in the nature of or similar to workers' compensation benefits. Accordingly, because the City's tax provisions failed to exclude Act benefits from wage tax, the majority concluded that the City properly withheld wage taxes from Pryor's Heart and Lung Act benefits.
In City of Philadelphia, the bargaining units for the City's police and fire fighters sought to compel the City to comply with Act 5 of 1995, the Act of June 1, 1995, P.L. 45, as amended, 53 P.S. § 13133(c), which essentially subjected the City to the requirements of the Heart and Lung Act (prior to Act 5, the City was exempt from the Act's requirements). At the time Act 5 was enacted, the City was paying its injured uniformed personnel only 80% of their gross pay rather than the full pay required by the Act. The primary issue before this court was: "[W]hether the Heart and Lung Act requires the City, specifically, and all local municipalities generally, to compensate eligible employees at 100% of their gross pay as the [Appellants/Unions] argue, or, as the City contends, 100% of the injured employee's take home, or net pay [not the pre-tax gross salary]." Id. at 749-50 (emphasis in original, footnote omitted). We concluded that the Act unambiguously required the City to pay eligible employees their "full rate of salary," that is, the amount the City was prepared to pay the employee for services rendered, without any deductions for taxes. Id. at 751. Accordingly, the court rejected the City's position that the term "salary" as used by the Act, denoted an employee's net amount of compensation after taxes.
Subsequently, in Roman, this court addressed whether an injured employee of the Department of Corrections was entitled to a hearing prior to the termination of her Act 632 benefits following her discharge (Act 632 benefits are paid pursuant to the Act of December 8, 1959, P.L. 1718, as amended, 61 P.S. § 951); Act 632 benefits, which are virtually identically to Heart and Lung Act benefits, are paid to employees of State penal and correctional institutions who are injured by an inmate in the course of their jobs. 808 A.2d at 306, 307. In deciding the underlying issue, this court noted that, like the Heart and Lung Act, the purpose of Act 632 is to "provide a full salary, not compensation, to employees in certain dangerous occupations who have been injured on the job and who are expected to recover and return to work in the foreseeable future. [This Act is] not a replacement for workers' compensation benefits." Id. at 308. We noted further that workers' compensation benefits equal only twothirds of a claimant's salary, or roughly the amount of net pay after taxes, and such benefits are not subject to further taxation. Id. at 310 n.5. In comparison, citing City of Philadelphia, we noted that the Act 632 recipient receives somewhat of a windfall, because he or she receives his full salary while temporarily disabled and such benefits are not subject to taxation. Id.
Specifically, see Internal Revenue Code § 3121(a)(2)(A), 26 U.S.C. § 3121(a)(2)(A); Treasury Regulation § 31.3121(a)(2)-1(a), (d); Section 301(d)(ii) of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, added by the Act of August 31, 1971, P.L. 362, as amended, 72 P.S. § 7301(d)(ii).
See City of Philadelphia Income Tax Regulation § 104. However, where "an employee shall receive the full amount of his regular salary from his employer, during a period of sickness or disability, by virtue of his contract of employment, such compensation shall be fully taxed." Id. at (a)(2).
Because Pryor returned to work on January 8, 2008, and he received benefits under the Act "until [he] returned to work," Opinion and Award at 2, the ultimate Award or statement of relief is somewhat confusing in that it provides: "Claimant's appeal to stop the City from deducting City wage taxes from his Heart & Lung wage indemnity payments is denied." Id. at 7. Based upon the apparently undisputed facts, Pryor was no longer receiving benefits under the Act when the Award was entered.
Thereafter, the Union petitioned common pleas to vacate the award, contending that it mandated an illegal act because it allowed "the City to violate Pennsylvania law by permitting the City to deduct City wage tax from Heart and Lung benefits in violation of the Heart and Lung Act." Brief in Support of Petition to Set Aside Arbitration Award at 5, Reproduced Record (R.R.) at 5. Common pleas agreed that the award mandated an illegal act, stating: "After due consideration, this Court determined that because the Award permits the City to violate the Act, which, by its express language, prohibits tax deductions, including City wage tax, from Act benefits, the [Union's] Petition to Set Aside the Award was granted . . . ." Opinion at 4. Explaining its rationale, the court noted that it interpreted the phrase "full rate of salary" in Section 637 of the Act to provide that Act recipients are entitled to receive their entire compensation without any deductions, including deductions for taxes. Id. at 7. The court found additional support for its construction in City of Philadelphia, 723 A.2d 747, noting that this court had rejected a construction that would have construed "salary" as used in the Act to mean net salary after deductions, specifically concluding instead that the Act's use of the term "salary" denoted "gross salary." Id. at 9 (discussing City of Philadelphia, 723 A.2d at 751-52). This appeal followed.
Interestingly, the court also characterized the award as contrary to law. See Opinion at 10 and 12.
Common pleas also opined that inasmuch as payments under the Act are in the nature of disability benefits, Pryor's benefits were not subject to the City's wage tax because the City wage tax ordinance expressly excluded "periodic payments for sick or disability benefits" from the ordinance's definition of "salary, wages, commissions and other compensation." See Phila. Code § 19-1501(10(a). --------
While the City maintains on appeal that the arbitration panel correctly decided the grievance, concluding that the City properly withheld wage tax from Pryor's benefits, it also argues, inter alia, that if the panel erred in construing the Act and rendering the Award, such error was at most an error of law, which cannot be remedied under the narrow certiorari scope of review. The City further maintains that the panel lacked jurisdiction to hear a claim seeking a refund of taxes and that the matter properly belonged before the Department of Revenue. While we find no merit to the contention that the panel lacked jurisdiction, we agree that if a refund was improperly denied, the error was only an error of law, which cannot be remedied within the limited confines of our judicial review.
Initially, we note that judicial review of a grievance arbitration award issued pursuant to Act 111 is limited to narrow certiorari. City of Beaver Falls v. Beaver Falls Pol. Ass'n, 77 A.3d 75, 81 (Pa. Cmwlth.), appeal denied, 89 A.3d 662 (Pa. 2013).
The narrow certiorari scope of review limits courts to reviewing questions concerning: (1) the jurisdiction of the arbitrators; (2) the regularity of the proceedings; (3)
an excess of the arbitrator's powers; and (4) deprivation of constitutional rights. An arbitrator may not mandate that an illegal act [be] carried out or require a public employer to do that which the employer could not do voluntarily. A mere error of law will not support a finding that an arbitrator exceeded his powers.Id. (internal quotations and citations omitted).
The issue of jurisdiction needs little discussion. The dispute clearly fell within that general class of controversies that the law empowers an Act 111 panel to consider. See City of Philadelphia v. Internat'l Ass'n of Firefighters, Local 22, 999 A.2d 555, 564 (Pa. 2010) (opining that jurisdiction "relates to the competency of the particular [decision-maker] to determine controversies of the general class to which the case presented for its consideration belonged;" "[t]herefore, . . . the assertion that an arbitration board considered a controversy that [does not arise out of the collective bargaining process] raises a question of jurisdiction."). As the Union notes, Act 111 gives fire fighters and the City the right to bargain over terms and conditions of employment, which includes issues involving compensation, and to resolve their disputes over such matters through the bargaining process. Section 1 of Act 111, 43 P.S. § 217.1. Disputes regarding entitlement to benefits under the Act or the amount of such benefits an employee is entitled to receive, fall within the broad category of "terms and conditions of employment." Moreover, it is undisputed that pursuant to the parties' Memorandum of Understanding, disagreements regarding entitlement to Act benefits are to be resolved through the grievance process. Thus, we conclude that the panel had jurisdiction to determine whether Pryor received the correct amount of benefits under the Act.
Regarding the underlying merits, both parties devote a fair portion of their appellate briefs to discussing whether the City may continue to withhold wage taxes from an employee's Heart and Lung Act benefits in light of this court's holding in City of Philadelphia, 723 A.2d 747. However, that is an issue that is not properly before us. While the propriety of the City's tax withholding led to the instant grievance, the panel was essentially presented with a request for a refund of improperly withheld tax or, viewed another way, a claim for additional benefits. Consequently, while the panel analyzed the propriety of the City's withholding, the award itself was simply the denial of a tax refund or additional benefits. This action does not mandate an illegal act; the panel acted within its power and awarded, via a denial of monetary relief, a type of relief within its authority to give. See City of Philadelphia, 999 A.2d at 564-55 (stating that an arbitrator's award must fall within the boundaries of any restrictions on its powers and, if any portion of an award falls beyond such restrictions, the action would be illegal in that it would constitute an excess of powers). If the panel majority misconstrued the law, it committed an error of law only, a matter outside the confines of both this court's and common pleas's review. Accordingly, the court's order must be reversed.
/s/_________
BONNIE BRIGANCE LEADBETTER,
Judge ORDER
AND NOW, this 19th day of December, 2014, the order of the Court of Common Pleas of Philadelphia County, First Judicial District, is hereby REVERSED.
/s/_________
BONNIE BRIGANCE LEADBETTER,
Judge BEFORE: HONORABLE BERNARD L. McGINLEY, Judge HONORABLE BONNIE BRIGANCE LEADBETTER, Judge HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
DISSENTING OPINION BY JUDGE McGINLEY
I must respectfully dissent. I do not agree with the Majority's conclusion that Pryor's grievance was nothing more than a request to the City for reimbursement/refund of City Wage Taxes. The fact that the taxes were "already withheld" from Pryor's indemnity payments is not a basis to deprive Pryor from his right to have the Arbitration Panel determine whether the City paid Pryor his "full rate of salary" under the Heart and Lung Act.
Respectfully, I believe the Majority loses focus. The simple fact is that this is a dispute between an Employer and a City firefighter. It is not a dispute between a taxpayer and taxing authority.
What constitutes "full rate of salary" under the Heart and Lung Act presents a different legal issue than whether Pryor was entitled to a tax refund from the City.
When a taxing authority considers a "request for a tax refund" the taxing authority considers and applies its taxing laws.
Pryor's claim was never that the City violated its taxing laws. Rather, Pryor's claim was that the City, as his Employer, illegally withheld City Wage Taxes in violation of the Heart and Lung Act. The resolution of that issue hinged on the Arbitration Panel's interpretation of the Heart and Lung Act. That resolution of Pryor's claim did not depend on a local taxing review board's interpretation and application of a local tax ordinance as the City contends.
The City muddied the waters by claiming that the real issue was the application of its taxing laws. If this was a claim for a tax refund, that would be the case. But here, Pryor claimed that the City violated the Heart and Lung Act - not the City's taxing laws.
To couch the issue as a "request for a tax refund" erroneously eliminates the Heart and Lung Act from the equation and that results in a distortion of the real issue before the Arbitration Panel.
The resolution of the issue before the Arbitration Panel was dependent upon the Panel's determination of the meaning and application of this State's Heart and Lung Act as guided by the judicial opinions interpreting it. In City of Philadelphia, this Court interpreted the Heart and Lung Act to mean that an employee is to receive his full rate of salary which means that no taxes are to be deducted. Our decision in City of Philadelphia did not depend on the federal or state taxing statutes. It was based on the express language of the Heart and Lung Act which requires that a Heart and Lung Act benefit recipient receive his "full rate of salary."
The Arbitrator's Award allowed the City to retain or keep funds it illegally withheld from Pryor's Heart and Lung Act benefits. That was outside the powers of the Arbitration Panel, and within this Court's narrow certiorari standard of review.
I would affirm the trial court.
/s/_________
BERNARD L. McGINLEY, Judge