For some time now, retirement payouts have been a hot topic at town council meetings. The most controversial of those was Abbott’s accumulated leave worth almost $800,000. But other questions have swirled, causing the Council to quibble over payments as small as $5.36.
The Council has the benefit of legal counsel to explain the finer points of the law to them, and that legal advice is typically not made public. Bits of it have leaked out in dribs and drabs, but the general public is largely kept in the dark. So it’s not surprising that people have questions – and misunderstandings – about the process.
But there are plenty of clues that have been made public and that paints a much clearer picture for someone who has worked in public employee labor relations. So let me answer some common questions and help put the clues together for you – so that you can understand what the problem is, what we can do about it, and what we can’t.
Questions:
- Why does the township have to make payments for accumulated leave?
- How big are these payments?
- Didn’t the state put limits on these payments?
- Is there a difference between employees who resign and those who retire?
- Do these benefits have to be clearly outlined in a contract or policy manual?
- What happens if the township refuses to pay?
- Is there anything we can do?
Why Does the Township Have to Make Payments for Accumulated Leave?
Throughout a public employees career, they accrue various kinds of leave. The most common are sick leave and vacation leave. But other forms of leave, like personal days, may also be accrued.
These forms of leave are negotiated in collective bargaining agreements and/or individual employee contracts. They are, essentially, forms of deferred compensation. The employee has been promised something of value and the town must make good on that. Either they give the employee the time when they request it – or they pay the employee the value of that time when they retire or resign. In some cases these payments are required by law (civil service law, state law, or federal law) and in other cases it’s governed by the contract.
There are some good reasons for this system. In the short term, it protects an employee who is unable to take time off because their department is understaffed. But it also helps the department – who may otherwise face staffing shortages if employees demanded to take all of their time. It’s also a method of encouraging good attendance, since employees who take little time off are rewarded at the end of their careers.
But this becomes problematic when it is taken to the extreme. The system can be gamed, and without proper constraints these payments can grow into massive liabilities. This is even more likely when budgetary pressures force departments to run lean and employees are discouraged from taking time off. It can also be exacerbated by generous contracts that grant more leave time than a person can reasonably take.
How Big Are These Payments?
These payments run the gamut, and the size of them depends on a variety of factors. The most important of those are a) the employees final salary and b) the amount of time banked. A third is when they were hired, because that drives certain limits on leave payments.
The final payout is a product of the amount of time accumulated and the final (payable) salary. A longtime employee may have a lot of time, but if their salary at retirement is low their payout will be as well. A highly paid employee that doesn’t stay long will not accrue a large payout, either. The largest payouts go to the longest serving employees who also end up with the highest salaries at the time of their retirement.
At their last meeting, the Council approved eight of these payments. Some of these payments were small ($5.36; $301.15). Some of them were moderate ($1,721.78; $2,703.08; $8,307.39). Two of them were large ($42,278,75; $64,484.65). Only one was very large ($267,650.85).
Six figure payouts are the exception – not the rule. The majority of employees see accumulated leave payouts in the hundreds or thousands of dollars.
Didn’t the State Put Limits On These Payments?
The state legislature passed a series of laws around 2007-2010 that placed certain limits on accumulated leave payouts. These laws were motivated by stories about the most egregious offenders, but they had far reaching consequences for rank and file employees.
These laws implemented three major reforms:
- Sick leave payouts would be capped at $15,000.
- Sick leave payouts could only be made at retirement.
- Vacation time could only be accrued for one year.
One caveat to this is that the sick leave cap only applied to employees hired on or after the effective date of the law. If an employee had already accrued a larger payout, it would still be legal. But more time could not be accrued and newer employees would be capped.
These laws did not impact other forms of accrued leave. The townships terminal leave reports include many other forms of leave, including personal time, seniority days, limited time due, snow days, and other categories. There is nothing in state law that would limit the townships liability for these categories.
These laws have also been undermined by interpretation over the years. For example, the State Comptroller’s office issued a report in 2022 surveying municipalities across the state to see whether these laws had been properly implemented. That report notes that in some cases, municipalities have avoided the caps on vacation time by converting it to another category – and that this conversion has been deemed legal by PERC.
Is There a Difference Between Employees Who Resign and Those Who Retire?
There is a minor difference in the way employees are treated based on whether they resigned their position to take other employment or retired from public employment altogether. This difference is with sick leave.
When an employee retirees, they are entitled to payment for their accumulated sick leave (up to the applicable statutory or negotiated cap). If they resign, they are not entitled to that payment – and that payment would be prohibited by law.
West Orange was cited in that 2022 State Comptroller’s report because its employee manual and collective bargaining agreements permitted payment for accumulated sick leave when an employee resigned. However, this no longer seems to be the case.
During discussion at the July 7 Council meeting, the administration confirmed that resigning employees are not eligible for payment for their sick leave. Of the four resignations processed at that meeting, none of those employees were paid for accumulated sick leave.
Note that “retirement” is defined as filing for retirement with the state pension plan covering their position (i.e. PERS or PFRS). An employee could retire, collect their pension, and later begin a job that is not covered by the pension plan (i.e. private employment or a part time public job).
Do These Benefits Have to Be Clearly Outlined in a Contract or Policy Manual?
It’s always helpful when benefits are clearly defined. But a benefit does not have to be outlined in a collective bargaining agreement, employee manual, or ordinance to be an enforceable contractual right.
There is a concept in labor law called “past practice.” When a particular benefit has been granted over a period of time, and there is a clear understanding between labor and management of how this benefit works, it essentially becomes part of the contract. If a form of accumulated leave fits the definition of past practice – and if this time is clearly documented in the township’s attendance and payroll system, it likely does – then the employee would have a contractual right to that time.
At the July 7 meeting, the administration discussed the use of “snow days” in a way that suggested it was a past practice. One Council person used the phrase “past practice” in the meeting, and another later discussed it on Facebook. While we’re not privy to the details of the labor and employment counsel’s legal advice, it seems like a plausible assumption that one or more of these categories fits the definition of past practice.
If that’s the case, the township can’t simply revoke those benefits after the fact. They may be able to cease the practice of granting this time moving forward, and the administration confirmed that no one is currently accruing snow days or limited time due. But what’s done is done – and the fact that these terms aren’t defined in a contract is not reason enough to void the benefit.
What Happens If the Township Refuses to Pay?
In short: we can’t.
If this time has been accumulated, it must be paid out subject to any statutory or contractual limits. The only question is whether that happens the easy way or the hard way.
If the Township refuses to pay an employee for time that they have accumulated, they can compel the Township to do so. The venue for doing so could vary depending on the particular circumstances. An employee governed by a collective bargaining agreement might pursue a grievance and arbitration. In other cases, employees would rely on the court system – subjecting the Township to (potentially expensive) litigation.
In years past, these payments were processed like any other bill. The Council approved the bills and the payments were made. More recently, they’ve demanded to have resolutions drafted for formal approval.
To the extent that this adds transparency and helps the public understand the process, this is a good thing. But it does cost money, in the form of legal fees for preparation of the resolutions and the legal memos justifying them. It also costs time, since discussions around these payments lengthen Council meetings that are already far too long.
And when the Council finds itself arguing over a $5.36 payout, it begs the question – is this transparency and good government? Or is this obstructionism and political theater?
Is There Anything We Can Do?
There is little if anything that the Township can do about past liabilities. Time that has been earned and accrued will come due. If it’s not paid, employees will compel payment through the appropriate avenue.
What we can and should be worried about is how to limit these liabilities moving forward. The state passed laws to try to limit the size of these payouts. But these laws have had a limited impact and there is more that we can implement and/or negotiate at the local level.
To that end, here are some specific policies we should pursue.
First, the township should review all categories of leave that are only defined in past practice. If any continue to be used, they should be reviewed and eliminated if possible. By consolidating forms of leave, we reduce the potential liability.
Second, limits should be established or negotiated for other forms of leave. A major component of Abbott’s payout was seniority days, and these accumulated without limit. While these days were negotiated away in 1996, there are still several employees who continue to accrue these days. This is another area that would specifically constrain large payouts to senior employees.
Third, the number of vacation days included in the employment contracts of senior employees should be reviewed and reduced in future contracts. Chief Abbott earned 34 vacation days per year. That’s more than can reasonably be taken in any given year. The net impact of these additional days is simply a greater retirement payout.
Fourth, limits should be negotiated on the hourly rate that can be used to calculate the value of accumulated leave. Because Chief Abbott’s salary increased dramatically from 2000 to 2025, the value of his retirement payout also increased. Limiting the hourly rate for leave payments leaves the flexibility for increasing salary due to extenuating circumstances without creating a ballooning retirement liability.
Fifth, payment schedules should be negotiated for particularly large payments. Splitting a payment across multiple years can be mutually beneficial, as it reduces the employee’s tax burden and allows the Township to budget more evenly.
Implementing one or more of these policies, especially with respect to individual employment contracts for senior employees, would have a meaningful impact on the size of future liabilities. These are the solutions we should be talking about.
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