Legal Considerations

1.  Can my school legally furlough me or lay me off during these financially hard times?

This is a complex question, for which factual circumstances, institutional policies, and state law may all affect a legal evaluation. The following is a non-exhaustive list of factors relevant to such an evaluation:

  1. Do you have a collective bargaining contract?  If so, read the language of the contract carefully and consult with your union president or grievance officer. Does it contain language about furlough or financial exigency? Does it incorporate the AAUP’s Recommended Institutional Regulations on Academic Freedom and Tenure (RIR)?  Does it contain a “job security” provision (i.e., language specifically stating that unit members will not be laid off in the absence of unsatisfactory job performance)?
  2. Does your faculty handbook discuss furloughs or financial exigency? If there is such language in your faculty handbook, does your appointment letter refer to the handbook and incorporate it into your employment contract? The laws governing whether a faculty handbook constitutes a contract vary by state; a guidebook on faculty handbooks is available.
  3. Does your letter of appointment, letter of promotion in rank, or other letter specify an annual salary or a guaranteed percentage increase in salary?  While contract law varies greatly from state to state, letters from an employer specifying salary amounts or raises may be considered an enforceable contract under state law.  For example, in Karr v. Board of Trustees of Michigan State University, 119 Mich. App. 1, 325 N.W.2d 605 (Mich. Ct. App. 1982), the Michigan Court of Appeals held that a university could not furlough an assistant professor for 2 ½ days because the professor had a contract that specified his payment for the academic year, and the unpaid furlough therefore violated his contract by unilaterally reducing his salary for the year.   
  4. Do you hold a position that is funded through an outside source such as a government agency or a foundation? Does the grant agreement establishing your position dictate your annual salary? Teaching and research positions that are funded through outside grants may be exempt from furlough actions if the grant agreement or budget specifies a minimum salary for your position.  
  5. Does your state have a statute about financial exigency or furloughs? 
  6. If you are employed at a public university, does the method of furloughing or laying off faculty members comply with the minimal due process requirements of the U.S. Constitution, such as notice and an opportunity to be heard?

2.  Our university president isn’t mandating furloughs yet, but he has asked faculty members to take two days off this month voluntarily. Is this OK?

The answer to this question will depend upon state law and the language of your handbook or collective bargaining contract.  For instance, AFSCME recently filed suit against Iowa State University after the university president asked employees to take time off voluntarily to help with a budget deficit. AFSCME claims that the request was an “attempt to negotiate directly” with unit members in violation of Iowa’s collective bargaining law. No decision or settlement has been reached in the case. In the absence of a collective bargaining contract, simply asking for voluntary furloughs is less likely to pose a problem.

3.  If it is legal to furlough me, can my university furlough me just for a day? For half a day? For an entire semester?

As outlined above, whether or not a proposed furlough is legal depends on many factors, including institutional policy and state law. Federal law does dictate the minimum length of legal furloughs. Because faculty members are exempt employees under the Fair Labor Standards Act (FLSA), their pay may not be reduced in units of less than a full day. Furloughs in full-day units, however, would be permitted.

The propriety of a semester-long furlough would likely depend upon the specific circumstances and any governing contract or state law. Depending upon the circumstances, a semester-long furlough might resemble a layoff.  Again, federal law is relevant in that layoffs of more than six months may be governed by the WARN (Worker Adjustment and Retraining Notification) Act, 29 U.S.C. §§ 2101-2109, described in the answer to Question 9, below.

4.  I teach at a unionized public university.  The state is in the process of passing a law stating that all state employees will be furloughed for two days per month regardless of preexisting contracts.  Can they do this legally?

The answer to this question is unclear because case law on this point is somewhat unsettled.  In general terms, the “Contract Clause” of the United States Constitution says that no state shall pass a law “impairing the obligation of contracts.”  U.S. Const., art. I, § 10.  The Contract Clause is violated “when one alleges that he or she has a contract with the state, which the state, through its legislative authority, has attempted to impair.”  University of Hawaii Professional Assembly v. Cayetano, 183 F.3d 1096, 1101 (9th Cir. 1999) (citations omitted). 

In order to determine whether contract rights have been impaired, the courts ask three questions: “1) whether a contract exists as to the specific terms allegedly at issue, 2) whether the law in question impairs an obligation under that contract and 3) whether the discerned impairment can be fairly characterized as substantial.”  Gen. Motors Corp v. Romein, 503 U.S. 181 (1992); Robertson v. Kulongoski, 466 F.3d 1114, 1117 (9th Cir. 2006).  Furthermore, laws that substantially impair contract obligations can still be legal if they are determined to be “reasonable and necessary to serve an important public purpose.” U.S. Trust Co. v. N.J., 431 U.S. 1, 25 (1977).  For more information about gathering and assessing institutional financial information in order to address whether or not actions impairing contractual obligations are “reasonable and necessary,” see Understanding Institutional Finance.

For example, the Ninth Circuit recently ruled it was not a violation of the Constitution’s Contract Clause for a city to pass an ordinance lowering the amount of money contributed to a pension plan because courts have long recognized that “public employees have no vested rights to particular levels of compensation and salaries may be modified or reduced by the proper statutory authority.” San Diego Police Officers' Ass'n v. San Diego City Employees' Ret. Sys., 9th Cir., No. 07-56004, 6/10/09 citing Tirapelle v. Davis 26 Cal. Rptr. 666, 678 (Cal. Ct. App. 1993).

On the other hand, several states, including Hawaii, Massachusetts, New Hampshire, New York, and Washington State have tried to abrogate collective bargaining contracts by statute and those laws have been struck down.  (Note: not all of these cases arise in the higher education context.)

Hawaii: In University of Hawaii Professional Assembly v. Cayetano, 183 F.3d 1096 (9th Cir. 1999), individual University of Hawaii faculty members and their union sued the state for the imposition of a “pay lag” law that authorized six pay lags of between one and three days and excluded the subject from collective bargaining. The district court issued a preliminary injunction, halting the application of the law. The federal appellate court affirmed, ruling that the statute violated the Contract Clause of the U.S. Constitution. It reasoned that the state law violated the collective bargaining agreement, even when that agreement did not specify specific pay days, because the prior course of dealings established a contractual expectation that state employees would be paid the first and fifteenth day of every month. The court opined that the breach was substantial: 

Plaintiffs are wage earners, not volunteers. They have bills, child support obligations, mortgage payments, insurance premiums, and other responsibilities. Plaintiffs have the right to rely on the timely receipt of their paychecks. Even a brief delay in getting paid can cause financial embarrassment and displacement of varying degrees of magnitude.

The court found the legislative action not reasonable or necessary because “other options” existed, including “additional budget restrictions, the repeal of tax credits, and the raising of taxes.”

Massachusetts: In Massachusetts Community College v. Commonwealth of Massachusetts, 420 Mass. 126, 649 N.E.2d 708 (Mass. 1995), the state Supreme Court ruled that in the face of a valid collective bargaining agreement, the state violated the constitutional prohibition against impairing contracts when, to meet a budget deficit, it mandated unpaid furloughs for certain state employees. As the court held, “a unilateral reduction in contractually established, future state employee salary obligations constitutes substantial impairment for Contract Clause purposes.”

New Hampshire: In Opinion of the Justices (Furlough), 609 A.2d 1204 (N.H. 1992), the New Hampshire Supreme Court ruled that a furlough program that would force state employees to take non-paid days off violated the collective bargaining agreement.  The furlough program was not “reasonable and necessary” because “its impact would likely wreak havoc on the finances of many of the affected workers.”  The court reasoned: 

The legislature had many alternatives available to it, including reducing non-contractual state services and raising taxes and fees.  Although neither of these choices may be as politically feasible as the furlough program, the State cannot resort to contract violations to solve its financial problems. 

New York: In Condell v. Bress, 983 F.2d 415 (2d Cir. 1991), cert. denied, 113 S.Ct. 1849 (1993), unions sought injunctive relief after the New York state legislature enacted a law that imposed a five-day pay lag on executive branch employees; employees would receive only ninth-tenths of their salary for each of five bi-weekly pay periods. The lagged pay would be released upon the employee’s retirement, resignation, or death. The controlling collective bargaining agreement provided that paychecks were computed based on ten working days.  The court found the pay lag was not “reasonable and necessary” because “alternatives existed."  See also Association of Surrogates & Supreme Court Reporters v. State, 588 N.E.2d 51 (N.Y. 1992) (“[W]ithholding 10 percent of an employee’s expected wages each week over a period of ten weeks . . .  is not an insubstantial impairment to one confronted with monthly debt payments and daily expenses for food and the other necessities of life.”). 

Washington State (under state constitutional contract clause): In Carlstrom v. State, 694 P.2d 1 (Wash. 1985), the Washington Supreme Court ruled that “deferred” appropriation by the legislature for the bargained-for faculty salary increases violated the federal and state constitutional contract clauses: “Since the State was fully aware of its financial problems while negotiating and prior to signing the Agreement, it cannot now be permitted to avoid the Agreement based on those same economic circumstances. Although the financial situation worsened, it was a change in degree, not in kind.” 

Most courts construe the federal provision as persuasive in interpreting similarly worded state constitutional contract clause provisions.

The U.S. Court of Appeals for the Fourth Circuit, which makes federal law for Virginia, West Virginia, Maryland, North Carolina, and South Carolina, is an exception to the trend of finding that statutes abrogating collective bargaining agreements violate the Contract Clause. The Fourth Circuit has held that a “unilateral reduction in contractually established, future state employee salary obligations” does not constitute a “substantial impairment” under the Contract Clause. In Baltimore Teachers Union, AFT v. Mayor and City Council of Baltimore, 6 F.3d 1012 (4th Cir. 1993), cert. denied, 114 S.Ct. 1127 (1994), police and teachers sued the city of Baltimore, alleging that 1 percent salary reductions implemented to meet a budgetary shortfall violated the federal constitution’s Contract Clause.  he district court ruled in favor of the employees. On appeal, the Fourth Circuit recognized that the salary reduction imposed a substantial impairment of the employees’ contracts, observing: “there likely is no right both more central to the contract’s inducement and on the existence of which the parties more especially rely, than the right to compensation at the contractually specified level.” 

Nevertheless, the federal appellate court reversed the lower court, ruling that the city’s furlough program was “reasonable and necessary.” The court paid significant “deference” to the city, and emphasized that no evidence existed that it chose a more drastic impairment over a more moderate option.  In so reasoning, the court noted that the salary reduction was “but one of a number of measures taken by the City.” It further found that the furlough program “did not narrowly target specific classes of employees; it extended to all City employees.” The court conceded, however, that it “would be reluctant to hold that any decrease in annual salary beyond one that could fairly be terminated de minimis could be considered insubstantial.” This decision has been heavily criticized by a number of commentators.

5.  What type of notice and hearing is required before I am furloughed?

Courts have consistently applied a balancing test when reviewing government actions, such as furloughs and terminations, affecting employees, including actions taken by public colleges and universities. At public institutions, the court will generally consider the following factors in determining what level of process is due:

  1. The faculty member’s interest that will be affected by furlough (i.e., an interest in continued employment and his/her agreed-upon salary);
  2. The risk that the faculty member will be erroneously deprived of that interest (i.e., because of insufficient consideration of various factors, or because of pretext) and the potential value of other procedural safeguards; and 
  3. The state’s interest in the matter, including the type of employment function involved and any burdens (fiscal or administrative) that the additional or substitute procedures would impose.  Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 903, 47 L. Ed. 2d 18 (1976). 

Although this balancing test is used in both furlough and termination situations, courts appear to weigh the individual factors differently when comparing the situations, perhaps recognizing the difference between the interests involved (a day or more without pay versus loss of a job entirely).

For example, in Odynocki v. Southern University at New Orleans, 2006 U.S. Dist. LEXIS 80929 (E.D. La. Nov. 3, 2006), a case involving a tenured professor who was furloughed from SUNO after Hurricane Katrina, the federal district court weighed those three factors to determine whether he had received adequate process.  Odynocki did not receive a hearing before he was furloughed without pay but he did receive a post-furlough hearing, which the court held to be sufficient.  Although Odynocki had an interest in maintaining his position and continuing to receive his paycheck, “the governmental interest in reducing fiscal and administrative burdens when Hurricane Katrina devastated the City of New Orleans was substantial.” The governor had issued a variety of orders in response to the hurricane, including an order to reduce expenditures. In addition, Odynocki did not have a full course load (though that appeared to be in part the result of some administrative issues potentially out of his control). The court therefore concluded that “SUNO’s interest in safeguarding the future of the University by acting quickly in implementing procedures to relieve the fiscal and administrative burdens as ordered by the Governor following Hurricane Katrina outweigh Dr. Odynocki’s private interest that was affected by the Force Majeure policy and resulting furlough policy adopted by SUNO.”

6.  What factors may be used in determining financial exigency?

Declarations of financial exigency are likely to be reviewed on a case-by-case, fact-specific basis. As one court has observed, “exigency changes before our eyes. Its meaning varies with the light of circumstances.”  AAUP, Bloomfield Chapter  v. Bloomfield College, 322 A.2d 846 (N.J. Super. Ct. 1974), aff’d 346 A.2d 615 (App. Div. 1975). 

The factors that courts have considered in assessing whether a school has acted in good faith in declaring financial exigency include the following:  decline in enrollment, loss of revenue, ongoing or increasing deficits or decreasing operating funds, cuts in non-tenured lines, termination of non-tenured faculty members, elimination of nonessential programs and travel, and other reductions in non-salary expenses.  See, e.g., Krotkoff v. Goucher College, 585 F.2d 675 (4th Cir. 1978) (adding that financial exigency is determined on the basis of the operating fund, not considering land or other assets); Klein v. Board of Higher Education of City of New York, 434 F. Supp. 1113 (S.D.N.Y. 1977); Board of Community College Trustees v. Adams, 701 A.2d 1113 (Md. App. 1996); Polishook v. City University of New York, 234 A.D.2d 165 (N.Y. App. Div. 1996); AAUP, Bloomfield Chapter v. Bloomfield College, 322 A.2d 846 (N.J. Super. Ct. 1974), aff’d 346 A.2d 615 (App. Div. 1975). 

In AAUP, Bloomfield Chapter v. Bloomfield College, for example, the New Jersey Superior Court concluded that the school’s actions in terminating the services of some tenured faculty members and placing all others on terminal one-year contracts were not taken in good faith, on the basis of a number of factors:

  1. there was no clear financial benefit from putting all remaining faculty on one-year terminal contracts, which appeared to be a “gratuitous challenge to the principle of academic tenure”;
  2. the college failed to show that hiring twelve new faculty members during the period in which tenured faculty positions were terminated was justified by “extraordinary circumstances,” and it undertook that hiring without faculty consultation;
  3. the college had had liquidity problems for decades, and it was declining to sell a golf course, a significant asset that could significantly alleviate its cash shortage;
  4. internal documents suggested that the president’s hostility to tenure motivated some of the decisions;
  5. a report from the college’s Commission to Review Tenure and Retirement Policy indicated that the college’s primary goal was to abolish the tenure system; and
  6. the college failed to consider other cost-reducing measures like across-the-board salary reductions and non-renewal of contracts for teachers on probationary status. 

The court therefore ordered that the college reinstate all terminated faculty members and continue the tenured status of those who were tenured before termination.

By contrast, in Polishook v. City University of New York, 234 A.D.2d 165 (N.Y. App. Div. 1996), the court deferred to CUNY’s Board of Trustees on the grounds that the board acted in good faith. The court explained its presumption of deference:

With regard to the Board of Trustees’ declaration of a continued financial exigency in June 1995, and the subsequent faculty terminations and budgetary cuts, it has been held that where there is a showing that the administrative body, in exercising its judgment, acts from honest convictions and in good faith, based upon facts and circumstances which it believes are in the school’s best interests, and there is no showing that the acts “were arbitrary or generated by ill will, fraud, collusion or such other motives, it is not the province of a court to interfere and substitute its judgment for that of the administrative body.”

As noted by two commentators: “Allowing courts or faculty members to second guess the response of university administration to a bona fide financial crisis would serve to protect neither the financial stability of the institution nor the academic freedom of the faculty. The summary question must be one of causation and motive; if the institution's decision to terminate a tenured faculty member was caused by financial exigency and the university has no other improper motive for the termination, then the question of whether the termination was the best response under the circumstances is a purely administrative one.” 

(Bolger & Wilmoth, Dismissal of Tenured Faculty Members for Reasons of Financial Exigency, 65 Marq L Rev 346, 355-356, n 35 [1982]; see also, Refai v. Central Wash. Univ., 49 Wash. App. 1, 742 P2d 137.)

7.  Have courts recognized the connection between protecting tenure and limiting declarations of financial exigency?

Yes.  In AAUP, Bloomfield Chapter v. Bloomfield College, 322 A.2d 846 (N.J. Super. Ct. 1974), aff’d 346 A.2d 615 (App. Div. 1975), one of the most extensive judicial explorations of financial exigency in higher education, the court said:

[The adoption of tenure] is not merely a reflection of solicitude for the staffs of academic institutions, but of concern for the general welfare by providing for the benefits of uninhibited scholarship and its free dissemination. The security provided therefor by the consensus of learned authority should not be indifferently regarded. It should be vigilantly protected by a court of equity except where, under agreed standards stringent to the point suggested by phrases such as “financial exigency,” “drastic retrenchment,” “extraordinary circumstances” and “demonstrably bona fide,” the survival of the college is imperiled, and then only where the good faith of the administration in seeking the severance of tenured personnel has been clearly demonstrated as a measure reasonably calculated to preserve its existence as an academic institution.  It is not a sufficient justification only that the college acted on the belief that the measure would in some degree advance the financial fortunes of the institution. 

Conceding that the college is under financial stress, and that “something had to be done,” it does not follow that the college’s freedom of response extends to the unilateral revocation of a contractually protected employment status and the discharge of tenured teachers as a matter of unbridled discretion. [citations omitted]

8.  My school’s bylaws and faculty handbook do not mention financial exigency as a possible grounds for termination, but the school has invoked it anyway.  Is that legal?

Several courts have held that even without specific language on financial exigency, there is an implied right in higher education to terminate positions on the basis of a real, declared financial exigency.  In Krotkoff v. Goucher College, 585 F.2d 675 (4th Cir. 1978), the U.S. Court of Appeals for the Fourth Circuit upheld the termination of a tenured faculty member for reasons of financial exigency even though neither the faculty member’s appointment letter nor the university’s bylaws mentioned financial exigency as a possible ground for termination. The court opined that such a termination was legal so long as the decision due to financial reasons was “demonstrably bona fide.”  Similarly, the U.S. Court of Appeals for the First Circuit upheld the termination of two professors when the university discontinued their program.  The court ruled in Jimenez v. Almodovar, 650 F.2d 363 (1st Cir. 1981), that the terminations were legal even without prior notification that a change in academic program could be grounds for termination and regardless of whether the program discontinuation was based on educational or financial considerations. 

9.  How much notice should an administration provide a faculty member whose position will be terminated for financial exigency?  (Note:  AAUP-recommended standards on notice in cases of financial exigency are more stringent than those in some of the cases below.)
 
Generally, courts will use a balancing test to determine what due process is required when a public institution takes action affecting a faculty member’s employment. As discussed previously in a question related to furloughs, courts look at several factors in assessing what process is required, including

  1. The faculty member’s interest (i.e., an interest in continued employment); 
  2. The risk that the faculty member will be erroneously deprived of that interest (i.e., because of insufficient consideration of various factors, or because of pretext) and the potential value of other procedural safeguards; and 
  3. The state’s interest in the matter, including the type of employment function involved and any burdens (fiscal or administrative) that the additional or substitute procedures would impose.  Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 903, 47 L. Ed. 2d 18 (1976). 

Minimally, courts agree that when facing potential termination faculty members have the right to receive notice of termination and to have an opportunity to be heard.  How much notice and in what detail varies by court and factual circumstances.  For example, in Johnston-Taylor v. Gannon, No. 91-2398, 1992 U.S. App. LEXIS 22052 (6th Cir. Sept. 2, 1992), the U.S. Court of Appeals for the Sixth Circuit upheld a forty-five day notice period for termination of tenured faculty on the grounds of financial exigency.  Similarly, in Milbouer v. Keppler, 644 F. Supp. 201 (D. Idaho 1986), the Idaho federal district court ruled that the thirty day notice provided by the faculty handbook met due process requirements. 

Faculty at private institutions may also be entitled to a certain amount of notice, depending upon the contract between the faculty member and the university (including the faculty handbook, to the extent it is incorporated into the contract).  See, e.g., Linn v. Andover-Newton Theological School, 638 F. Supp. 1114 (D. Mass. 1986), and Scheuer v. Creighton University, 260 N.W.2d 595 (Neb. 1977).  

In addition, under some circumstances, the federal WARN (Worker Adjustment and Retraining Notification) Act, 29 U.S.C. §§ 2101-2109, may apply.  The WARN Act requires employers to give 60 days notice of an intended “mass layoff,” which means a layoff resulting in an “employment loss” of (a) at least 33 percent of the employees and at least 50 employees, or (b) at least 500 employees. An “employment loss” means a termination, a layoff exceeding 6 months, or a cut of more than 50 percent of the hours of work during each month of any six-month period. Part-time employees (those working fewer than 20 hours per week) and employees who have been employed for less than half of the year preceding the notice date are not included when calculating the number of employees affected, and only employers with 100 or more employees are required to comply with the statute. If an employer violates the WARN Act by giving too little notice, the employer will owe back pay and employee benefits. The employer will not, however, be ordered to rescind the layoff or reinstate employees. In addition, the law can be enforced only by private lawsuit; the Department of Labor has no enforcement authority.

See more information on the WARN Act on the Department of Labor’s website.

10.  My position was terminated as a result of a program elimination, and I protested. The university officials who made the program-elimination decisions were same the ones who judged my hearing.  Is that legal

In general, without a specific showing of bias by the decision-maker, courts will not overturn a hearing decision on that ground. For example, in Bignall v. North Idaho College, 538 F.2d 243 (9th Cir. 1976), the U.S. Court of Appeals for the Ninth Circuit ruled that a hearing before a school’s board of trustees was appropriate, even though the board had ordered the staff cuts, unless the faculty member could show that the board was biased against her. In reaching this conclusion, the court stated that “[w]hile the risk of error with a biased hearing panel is obvious, courts have balanced the need for an objective decision-maker against the cost of employing outside people, administrative efficiency and the body’s having some expertise in institutional structure.”  Furthermore, in Texas Faculty Association v. University of Texas at Dallas, 946 F.2d 379 (5th Cir. 1991), the U.S. Court of Appeals for the Fifth Circuit opined that a hearing concerning termination “is not rendered constitutionally inadequate solely because university administrators are asked to review their own decisions.” 

11.  I was told that at my termination hearing, I didn’t have “legal” rights like the right to an attorney, the right to cross-examine witnesses, the right to present evidence, or the right to a written record of the hearing. Is that accurate?

State law or institutional policy may require that a formal hearing be granted to the employee facing termination. At least one court has found that constitutional due process requirements, however, likely do not confer a right to counsel or the right to cross-examine witnesses, at least where the “decision to terminate faculty positions is incident to the decision to terminate an entire academic program.” Texas Faculty Association v. University of Texas at Dallas, 946 F.2d 379 (5th Cir. 1991). The court in Texas Faculty Association added, however, that allowing evidence and requiring a written record would “greatly encourage fundamental fairness and informed decision-making, and would aid in judicial review when a faculty member challenges the substance or procedure of a particular decision”; in addition, requiring those elements would not be too detrimental to the institutional interests in “autonomy and economy.”  (citations omitted)

12.  I am a tenured faculty member at a public institution.  What are my constitutional rights with respect to continued employment?

The U.S. Supreme Court has recognized that tenured faculty members have a property interest in continued employment, and this interest translates into certain due process rights.  Perry v. Sindermann, 408 U.S. 593 (1972) (“A written contract with an explicit tenure provision clearly is evidence of a formal understanding that supports a teacher’s claim of entitlement to continued employment.”).  Lower federal courts have recognized the same right; see, e.g., North Dakota State University v. United States, 255 F.3d 599 (8th Cir. 2001); Colburn v. Indiana University, 973 F.2d 581 (7th Cir. 1992); Johnston-Taylor v. Gannon, 907 F.2d 1577 (6th Cir. 1990); Johnson v. Board of Regents, 377 F. Supp. 227 (W.D. Wis. 1974), aff’d, 510 F.2d 975 (7th Cir. 1975).  That interest requires, at the very least, that the faculty member receive notice of termination and have an opportunity to be heard. 

The precise contours of the notice and hearing vary by court and by the circumstances involved.  See, e.g., Texas Faculty Association v. University of Texas at Dallas, 946 F.2d 379 (5th Cir. 1991) (faculty member must have written notice of reasons for termination and an opportunity to rebut those reasons); Russell v. Harrison, 736 F.2d 283 (5th Cir. 1984) (the right to rebut includes “the right to respond in writing . . . and to respond orally before the official charged with the responsibility of making the termination decision”); Johnson v. Board of Regents of University of Wisconsin, 377 F. Supp. 277 (W.D. Wis. 1974) (there must be a “reasonably adequate” written statement of the reason for the decision and the process by which it was made, as well as an opportunity to respond), aff’d without opinion, 510 F.2d 975 (7th Cir. 1975); Cleveland Bd. of Education v. Loudermill, 470 U.S. 523 (1985); Bignall v. North Idaho College, 538 F.2d 247 (9th Cir. 1976); Milbouer v. Keppler, 644 F. Supp. 201 (D. Idaho 1986); Klein v. Board of Higher Education, 434 F. Supp. 1113 (S.D.N.Y.1977).

13.  I think that my institution might be using financial exigency as a cover for getting rid of a number of older faculty members. Could we have a claim under the Age Discrimination in Employment Act (ADEA)?

You may have a claim of discrimination even if the university has declared financial exigency. Courts will look to see whether an otherwise appropriate basis for termination (i.e., bona fide financial exigency) is actually a “pretext” for discrimination on the basis of age, race, gender, or another protected category.  See, for instance, Linn v. Andover Newton Theological Sch., 874 F.2d 1 (1st Cir. Mass. 1989), in which the court upheld a jury decision that a tenured faculty member was terminated because of his age instead of on the stated grounds of financial exigency and therefore awarded damages to the professor for the school’s violation of the ADEA and the professor’s tenure contract. 

Analyses of whether a particular employment action violates the ADEA are complex. See more information on the ADEA.

14.  My position has just been terminated. I cannot get health insurance through my spouse, so the only way I can retain it is through COBRA, which is so expensive; is there any assistance available?

Yes; the Federal Government has agreed to subsidize 65 percent of the COBRA premium for up to 15 months for employees who are involuntarily terminated between September 1, 2008, and February 28, 2010 (passage of the 2010 Defense Appropriations Act in mid-December 2009 extended the end date for eligibility from December 31, 2009 to February 28, 2010 and extended the subsidy coverage period from 9 to 15 months). If you elected COBRA coverage before the date of enactment of the American Recovery and Reinvestment Act (ARRA)–February 17, 2009–you may still be able to take advantage of the premium reduction.  The Department of Labor’s website states:

If you were offered Federal COBRA continuation coverage as a result of an involuntary termination of employment that occurred at any time from September 1, 2008 through February 16, 2009, and you declined to take COBRA at that time, or elected COBRA and later discontinued it, you may have another opportunity to elect COBRA coverage and pay a reduced premium.

The Internal Revenue Service (IRS) defines “involuntary termination” as the severance from employment of an employee who is willing and able to continue performing services. An assessment of whether or not a termination of employment is “involuntary” is fact and circumstance specific but one example the IRS provides is retirement can be considered an “involuntary termination” for purposes of COBRA if the employee would have been terminated absent his/her retirement. Because a precondition of premium assistance is involuntary termination of employment, it does not appear that contingent faculty members who have lost health insurance because of a reduction in hours are eligible for premium assistance unless their hours have been reduced to zero.

Electing the premium reduction could have tax and other financial consequences. For example, an individual electing the premium reduction will become ineligible for the Health Coverage Tax Credit and the premium reduction subsidy may be taxable under state law. Therefore it is very important that you consult your tax preparer, or a DOL Employee Benefits Security Administration Benefits Advisor at 866-444-3272, for additional information.

See more information on the premium reduction subsidy on the DOL website or the IRS website

See information about the Health Coverage Tax Credit on the IRS website.

15.  My institution has offered early retirement or tenure buyouts; if I accept, will I be taxed on the buyout amount?

The answer depends on, among other things, the state you live in and the criteria used by your institution in determining the amount of the buyout. The answer, however, is most likely to be yes. Federal appeals courts have not been uniform in their treatment of this issue, but the decisions suggest that the buyout is likely to be taxed. 

The Internal Revenue Code provides that both employers and employees must pay Federal Insurance Contribution Act (FICA) taxes on all “wages” that are received by an employee “with respect to employment.” See 26 U.S.C. §§ 3101(a)-(b). The question, therefore, is whether early retirement payments or tenure buyouts constitute payments made “with respect to employment.”

In North Dakota State University v. United States, 255 F.3d 599 (8th Cir. 2001), the U.S. Court of Appeals for the Eighth Circuit held that early retirement payments to faculty in exchange for their relinquishment of tenure rights were not wages under FICA. The Internal Revenue Service responded to this decision by issuing a Revenue Ruling holding that “an amount paid to an employee as consideration for cancellation of an employment contract and relinquishment of contract rights is ordinary income, and wages for purposes of FICA, FUTA [the Federal Unemployment Tax Act], and Federal income tax withholding.”  Rev. Rul. 2004-110 (I.R.S. 2004). 

In Appoloni v. United States, 450 F.3d 185 (6th Cir. 2006), the U.S. Court of Appeals for the Sixth Circuit followed the IRS’s guidance and held that early retirement payments made to secondary public school teachers in exchange for statutory tenure rights were wages under FICA. 

The following year, in University of Pittsburgh v. United States, 507 F.3d 165, 171 (3d Cir. 2007), the Third Circuit concurred with the Appoloni line of analysis and concluded in a 2-1 decision that “the relinquishment of tenure rights – although a condition precedent to the payments – does not alter the . . . payments’ character as compensation for services, and therefore as wages.”  The University of Pittsburgh court observed that the amount of the payments was based on past services at the university, not relinquishment of tenure, because “eligibility for the [Early Retirement] Plans, for both tenured and non-tenured Plan participants, was based on the employee’s age and years of service. These requirements link the Plan payments to past services for the employer, not the specific rights being relinquished, and weigh heavily in favor of treating the payments as wages.”  (In North Dakota State, by contrast, “past performance and current salary” were only two of an unlimited number of factors that could be considered.) 

In addition, the Retirement Plans themselves appeared to view the payments as compensation for service by rewarding valued faculty members, and payments as a reward for service qualify as wages.  “[E]ven if the University made the payments in part to secure relinquishment of tenure rights, their main purpose was to provide for employees’ early retirement. In this way, they were indistinguishable from severance payments, which are generally taxed as wages.”  Even though the university otherwise had an obligation to protect the faculty member’s tenure, the fact that “the rights relinquished were gained through the employee’s past services to the employer” was dispositive for the court.  In addition, tenure itself was awarded on the basis of success in the employment relationship prior to tenure. 

It will not be surprising if the Supreme Court agrees to review the next case that raises this issue, in order to resolve the circuit split.  For now, however, the majority of courts that have considered this issue, and the IRS itself, have construed early retirement incentives and tenure buyout payments to constitute taxable wages.

16.  Does the AAUP provide legal assistance or a list of recommended lawyers?

No.  Because the legal office is counsel to the AAUP, we cannot provide legal advice or representation and we cannot recommend attorneys. We do, however, maintain an attorney referral list, which may be of use in finding an attorney with appropriate expertise for your situation.  If you would like an attorney referral, please email attorneyreferral@aaup.org and provide the name and city and state of your institution.

17. I am a contingent faculty member, and because of the economy, I have not been offered any courses this term. Am I entitled to unemployment benefits?

Though many contingent faculty members have no assurance of continued employment, they are often denied unemployment benefits between academic appointments. A guidebook titled Access to Unemployment Insurance Benefits for Contingent Faculty: A Manual for Applicants and a Strategy to Gain Full Rights to Benefits, published by the Chicago Coalition of Contingent Academic Labor with financial assistance from the AAUP, offers advice for individual contingent faculty members about filing for unemployment and discusses strategies that can be used by faculty organizations and their allies at the local, state, and national levels to make benefits more accessible to contingent faculty.  Its text can also be downloaded from the Chicago COCAL website: www.chicagococal.org.

Note:

The information on this website is intended as general guidance on matters of interest and does not constitute legal advice. While every attempt has been made to ensure the accuracy of the information provided, laws and factual circumstances may differ significantly depending on locality and other factors. If you have legal questions you should consult with an attorney in your area knowledgeable about these issues. Additionally, to ensure compliance with Treasury Department regulations, we advise you that, unless otherwise expressly indicated, any federal tax advice contained in these materials was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.