36:0894(85)NG - - AFGE Local 1857 and Air Force, Air Logistics Center, Sacramento, CA - - 1990 FLRAdec NG - - v36 p894



[ v36 p894 ]
36:0894(85)NG
The decision of the Authority follows:


36 FLRA No. 85

FEDERAL LABOR RELATIONS AUTHORITY

WASHINGTON, D.C.

AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES

LOCAL 1857

(Union)

and

U.S. DEPARTMENT OF THE AIR FORCE

AIR LOGISTICS CENTER

SACRAMENTO, CALIFORNIA

(Agency)

0-NG-1526

DECISION AND ORDER ON NEGOTIABILITY ISSUES

August 29, 1990

Before Chairman McKee and Members Talkin and Armendariz.

I. Statement of the Case

This case is before the Authority on a negotiability appeal filed under section 7105(a)(2)(D) and (E) of the Federal Service Labor-Management Relations Statute (the Statute). It concerns the negotiability of two proposals regarding a 19-percent increase in the cost of employee health benefits insurance premiums. The Union proposed that the Agency absorb the entire increase and reimburse employees for the portion of that increase that they have paid since its implementation in January 1987.

For the reasons discussed below, we find that the proposals concern conditions of employment, do not interfere with the Agency's right to determine its budget and do not conflict with an Agency regulation for which a compelling need exists. Therefore, we find that the proposals are within the duty to bargain.

II. The Proposals

Proposal 1

The employing NAFIs [Nonappropriated Fund Instrumentalities] will bear the entire burden of the 19 percent increase in the health portion of the premium rates.

Proposal 2

The employer will reimburse all employees who paid the increased health insurance since it was implemented 19 JAN 87. The amount of the reimbursement will be calculated in the following way:

A - B x C = D

A = premium paid after 19 JAN 87.

B = premium paid prior to 19 JAN 87.

C = number of pay periods increased premium was paid between 19 JAN 87 and the date this Memorandum of Agreement is effective.

D = total monies reimbursed to bargaining unit employees.

III. Background

In December 1986, the Agency notified the Union that the contribution rates for the Nonappropriated Fund (NAF) Employees Life and Health Insurance Program would increase by 19 percent effective January 11, 1987. Agency statement of position at 1. The Union requested negotiations over the increase in the health insurance premiums. The Agency took the position that it lacked the authority to negotiate over the substance of the increased contribution rates but was willing to negotiate over the impact and implementation of the change.

In July 1987, while negotiations were in process, the Air Force Manpower Center issued an amendment to Air Force Regulation (AFR) 34-3. The amendment established NAFI and employee contribution levels at 46 and 54 percent, respectively. The Agency asserted that AFR 34-3 constituted a regulation for which a compelling need existed. Based on the proposals' conflict with the contribution levels prescribed in the regulation, the Agency asserted that the proposals were nonnegotiable.

When impasse was reached in the negotiations, the assistance of the Federal Service Impasses Panel (FSIP) was invoked. A FSIP factfinder's report dated December 17, 1987, recommended that the Union withdraw its proposal that the Agency absorb the entire 19-percent increase. The factfinder's recommendation was based on the conclusion that the FSIP lacked jurisdiction over the dispute in the face of the Agency's "nonfrivolous assertion" of nonnegotiability. Union petition, attachment 2. The Union then filed the negotiability appeal in this case. (1)

IV. Positions of the Parties

A. Position of the Agency

The Agency contends that the proposals are nonnegotiable because the proposals: (1) concern fringe benefits, which are not conditions of employment within the meaning of the Statute; (2) interfere with management's right to determine its budget under section 7106(a)(1); and (3) conflict with an Agency regulation for which a compelling need exists.

In support of its first contention, the Agency argues that Congress did not intend wages and fringe benefits to be subject to collective bargaining under the Statute. The Agency claims that the legislative history of the Statute and recent court decisions support this position. It relies on the courts' decisions in Department of the Navy, Military Sealift Command v. FLRA, 836 F.2d 1409 (3d Cir. 1988); and Department of the Treasury, Bureau of Engraving and Printing v. FLRA, 838 F.2d 1341 (D.C. Cir. 1988). The Agency also cites United States Department of Defense Dependents Schools v. FLRA, No. 87-3061 (4th Cir. Feb. 3, 1988) vacated as moot 838 F.2d 129 (1988).(2)

The Agency provides the following statistics to support its budget and compelling need contentions. Within the Department of the Air Force there are approximately 1,188 separate NAFIs at more than 160 locations worldwide. There are 61 NAF bargaining units. Of the 44,295 NAF employees within Air Force, 19,165 are eligible for insurance coverage and 4,221 are actually enrolled. The Agency estimates that the proposals would result in an increase of $6,700 per year in the amount that it would be required to pay towards employee health premiums for the 10 NAFIs at McClellan Air Force Base. If the proposals were applied Air Force-wide, the Agency projects that the resulting increase in employer contributions would be $500,000 per year. If administrative costs are added, the Agency contends that the annual cost of the health benefits program would increase $39,000 at the McClellan Air Force Base and $2,000,000 Air Force-wide. The Agency states that administrative costs include "such cost elements as programming requirements, manual processing time, retroactive pay adjustments, and the increased costs to the employing NAFIs resulting from a . . . change in contribution rates." Agency statement of position at 26.

The Agency argues that the proposals would necessitate adjustments in its budgetary allocations. For example, the Agency asserts that to maintain the same overall budgetary level, the additional outlays that the proposals would require to be made for employee health benefits costs must be compensated for by reductions in expenditures for other programs. The Agency contends that because the proposals would have a "direct impact on a line item" in the budget, they conflict with its right to determine its budget under section 7106(a)(1). Agency statement of position at 22.

In specific support of its compelling need contention, the Agency asserts that its regulation, which prescribes how premium costs will be apportioned between the employee and the Agency, is essential to the accomplishment of the Agency's mission. The Agency contends that an agency's need for a regulation--rather than the effect of a particular proposal--should determine whether there is a compelling need for the regulation.

The Agency argues that the NAF system is self-financing and has the objectives of providing morale, welfare and recreational (MWR) activities for military personnel. The Agency contends that the increase in operational costs which would result from the proposals undermines those objectives. Moreover, the Agency maintains that any resulting increase in prices charged to its clientele will diminish the "use-appeal" of the MWR activities offered and, therefore, threaten the survival of the NAF system. The Agency argues that the uniformity prescribed by its regulation is essential to the preservation of an efficiently administered health benefits system and that its regulation is necessary to ensure equitable treatment of NAF employees and the existence of a viable health insurance program for NAF employees.

B. The Position of the Union

The Union asserts that the proposals: (1) concern a condition of employment of bargaining unit employees that is within the Agency's discretion, and (2) do not interfere with the Agency's right to determine budget. The Union relies on the Authority's decision in American Federation of Government Employees, AFL-CIO, Local 1897 and Department of the Air Force, Eglin Air Force Base, Florida, 24 FLRA 377 (1986) (Chairman Calhoun dissenting).

The Union states that the court decisions cited by the Agency must be accorded "appropriate deference." The Union argues, however, that the decisions in Military Sealift Command and Bureau of Engraving and Printing are distinguishable from this case because the proposals in this case do not address wages. Union reply brief at 29-31.

The Union contends that the Agency has not demonstrated that there is a compelling need for its regulation. The Union asserts that the Agency has merely made "general and conclusory connections" between the purpose of that regulation and the effectiveness and efficiency of the Agency's mission and function. The Union argues that the Agency's authorization of local Health Maintenance Organizations (HMOs), as an alternative option to the health benefits insurance program that it currently offers, undercuts the Agency's argument that a single system with uniform costs is essential.

As to the Agency's suggestion that local negotiations over employer contributions towards insurance premiums result in "inequitable" treatment of NAF employees, the Union contends that NAF employees are already subject to an "inequitable" compensation system in that their pay is set according to local wage surveys. The Union contends that the resulting "unequal" wages have produced no adverse effects and that, therefore, there is no basis for concluding that local variation in the amounts employees pay towards their health insurance premiums would produce adverse effects.

The Union asserts that the Agency has not demonstrated that uniform premium apportionment is essential to the continuation of the current centralized employee health insurance program. The Union contends that the Agency's argument concerning the financial viability of the NAF system suggests that any increase in costs threatens the viability of the NAF system. The Union argues that if the Authority accepts this argument, virtually all regulations will meet the compelling-need test. Additionally, the Union contends that previous increases in costs associated with health insurance premiums have not resulted in the "financial ruin" of the NAF system. Union reply brief at 26.

V. Analysis and Conclusions

A. The Proposals Concern Conditions of Employment

Under the Statute, parties are obligated to bargain over proposals concerning conditions of employment, provided that the proposals do not violate law, Government-wide regulation, or an agency regulation for which there is a compelling need. Conditions of employment are defined as personnel policies, practices, and matters--whether established by rule, regulation, or otherwise--affecting working conditions. 5 U.S.C. § 7103(a)(14). Matters that are specifically provided for by Federal statute are excluded from the definition of conditions of employment. 5 U.S.C. § 7103(a)(14)(C).

The Authority has applied this basic analytical framework to negotiability questions that are presented to it, including those that concern pay and fringe benefits. For example, American Federation of Government Employees, AFL-CIO, Local 1897 and Department of the Air Force, Eglin Air Force Base, Florida, 24 FLRA 377 (1986) (Chairman Calhoun dissenting) (Eglin). Recently, the Supreme Court upheld the Authority's conclusion that proposals concerning pay and fringe benefits concern "conditions of employment" in circumstances where pay and fringe benefits are not specifically provided for by statute. Fort Stewart Schools v. FLRA, 110 S. Ct. 2043 (1990) (No. 89-65) (Fort Stewart). In Fort Stewart, the Court held that the Authority's conclusion that a proposal concerning pay related to "conditions of employment" within the meaning of the Statute was a permissible construction of the Statute. The Court rejected contentions that (1) the term "conditions of employment," which is contained in the Statute, does not encompass pay and (2) statements in the legislative history of the Statute, on which the Agency in this case relies, warrant a conclusion that pay and fringe benefit proposals are not "conditions of employment" under the Statute. Thus, under Fort Stewart and Eglin, matters concerning pay and fringe benefits that are not specifically provided for by statute, but are left to the discretion of the agency, are conditions of employment within the meaning of section 7103(a)(14) of the Statute.

The Agency concedes that "[w]ith few exceptions (e.g., pay for prevailing rate employees, which is prescribed under Chapter 53 of Title 5 of the U.S. Code), personnel policies and procedures for [NAFI] employees are not provided by Federal statute or Government-wide regulation. However, DOD and Air Force regulations set forth a uniform employment system for the Air Force NAFI program." Agency statement of position at 5. Additionally, the Agency states that "[u]nder general guidelines promulgated by the DOD . . . the A[ir] F[orce] W[elfare] B[oard] established a comprehensive health insurance program for NAF employees . . . ." Agency statement of position at 7. Under the Agency's health insurance program, which is self-insured, "rates are established in conjunction with a private insurance carrier (AETNA) which also processes and pays claims." Id. According to the Agency, "[t]he AFWB . . . establishes the share of the premium to be paid by each, the employee and the Air Force (NAFI) on behalf of the employee." Id.

The AETNA-administered health benefits program is not provided for by Federal statute.(3) Therefore, it is not excepted from the definition of conditions of employment in section 7103(a)(14) of the Statute. Rather, contributions to premiums under the AETNA-administered health benefits program are matters within the Agency's discretion. See, for example, Eglin.

The proposal in Eglin, like the proposals in this case, concerned the amount of the employer's contribution to employee health insurance premiums. Based on the decisions in Fort Stewart and Eglin, we reject the Agency's contention that the proposals in this case do not concern conditions of employment.

B. The Agency Has Not Established That the Proposals Interfere with Its Right To Determine Its Budget

The Authority has established two separate tests for determining whether a proposal conflicts with an agency's right to determine its budget. These tests stem from the Authority's decision in American Federation of Government Employees, AFL-CIO and Air Force Logistics Command, Wright-Patterson Air Force Base, Ohio, 2 FLRA 604 (1980), aff'd as to other matters sub nom. Department of Defense v. FLRA, 659 F.2d 1140 (D.C. Cir. 1981), cert. denied, 455 U.S. 945 (1982) (hereinafter Wright-Patterson).

In Wright-Patterson, the Authority noted that neither the Statute nor the legislative history contains a definition of "budget." The Authority concluded, therefore, that it was appropriate to give the term "budget" its "common or dictionary definition." 2 FLRA at 607-08. Using the dictionary definition, the Authority found that an "agency's authority to determine its budget extends to the determination of the programs and operations which will be included in the estimate of proposed expenditures and the determination of the amounts required to fund them." Id. at 608. The first budget test stems from this finding. Under the first test, a proposal is nonnegotiable if it "prescribe[s] the particular programs or operations the agency would include in its budget or . . . prescribe[s] the amount to be allocated in the budget for them[.]" Id.

Even if a proposal does not require that an agency's budget include (1) specified programs or operations, or (2) specified amounts to be allocated to those programs, it may be nonnegotiable under the Authority's second test. The second test is used when an agency claims that a proposal conflicts with its right to determine its budget because the proposal would result in increased costs. In Wright-Patterson, the Authority noted the following about agency allegations that a proposal would result in increased costs:

[T]o one extent or another, most proposals would have the effect of imposing costs upon the agency which would require the expenditure of appropriated agency funds. Nothing in the relevant legislative history indicates that Congress intended the right of management to determine its budget to be so inclusive as to negate in this manner the obligation to bargain.

Id. at 607.

In view of the fact that most proposals would result in some increased costs, the Authority stated that "rather than basing a determination as to the negotiability of the proposal on increased cost alone, that one factor must be weighed against such factors as the potential for improved employee performance, increased productivity, reduced turnover, fewer grievances, and the like." Id. at 608. In order to balance increased costs against benefits, the Authority established the second budget test:

Only where an agency makes a substantial demonstration that an increase in costs is significant and unavoidable and is not offset by compensating benefits can an otherwise negotiable proposal be found to violate the agency's right to determine its budget under section 7106(a) of the Statute.

Id.

The second budget test has three parts. To establish that a proposal interferes with its right to determine its budget, an agency must make a substantial demonstration that the proposal would lead to increased costs that are:

        (1) significant, (2) unavoidable, and (3) not offset by compensating benefits.(4)

Under the first test, a union may not specify the programs to be included in an agency's budget or the amounts to be allocated to those programs. This test safeguards the agency's right to determine its budget under the literal or dictionary definition of budget.

Under the dictionary definition of "budget," the right to determine the budget could be limited to the first test. However, the second test was developed to provide an agency with an opportunity to demonstrate that even if a proposal does not explicitly prescribe budget programs or dollar amounts, the proposal is nevertheless nonnegotiable because the proposal would result in unavoidable increased costs of such a magnitude as to implicitly determine the agency's budget. The second test depends on balancing whatever increased costs would unavoidably result from the proposal against the benefits of the proposal to determine whether the "net" costs of the proposal are significant and would, in effect, determine the agency's budget.

We reject the Agency's argument that "any increase in costs must disrupt the budget" and that any proposal which requires management "to analyze costs versus expenses" necessarily interferes with the management right to determine budget. Agency statement of position at 18. Most bargaining proposals are subject to analysis for the purpose of determining their "cost" to an agency. The bargaining process inherently involves weighing "costs" against benefits.

If we construed section 7106 as the Agency suggests, we would be required to find nonnegotiable all proposals for which a "cost" can be determined. Adoption of the Agency's construction of section 7106 would sharply curtail the scope of collective bargaining, a result we believe to be inconsistent with congressional intent. See, for example, Subcommittee on Postal Personnel and Modernization of the House Committee on Post Office and Civil Service, 96th Cong., 1st Sess., Legislative History of the Federal Service Labor-Management Relations Statute, Title VII of the Civil Service Reform Act of 1978 at 931-34 (Comm. Print No. 96-7), where Congressman Clay, a supporter of the "Udall substitute," which formed the basis of the legislation enacted by Congress and signed into law, discussed the interplay between the obligation to bargain in good faith and the management rights provisions of section 7106. Congressman Clay stated that an essential element in adopting the "Udall compromise" was the understanding that the management rights provisions would be interpreted in a manner that "will not impair a genuine collective bargaining relationship over meaningful issues."

In sum, under Wright-Patterson, to establish that a proposal interferes with the right to determine its budget an agency must either: (1) demonstrate that the proposal prescribes the particular programs or operations the agency would include in its budget or prescribes the amount to be allocated in the budget for them; or (2) demonstrate substantially that the proposal entails an increase in costs that is significant and unavoidable and is not offset by compensating benefits.

1. The Agency Has Not Satisfied the First Budget Test

The first budget test is a narrow one. It withdraws from bargaining only those proposals addressed to the budget per se, not those that would result in expenditures by an agency and, consequently, have an impact on the budget process. See, for example, Fort Stewart, 110 S. Ct. at 2052-53 (Marshall, J., concurring). Proposals that simply have cost ramifications cannot be said to inject a union directly into the budget formulation process that is protected from bargaining under the first budget test.

The proposals in this case do not involve the Union in the budgetary process itself but are limited to specifying the portion of the employees' health benefits insurance premiums that will be paid by the Agency. They do not prescribe a program or operation to be included in the Agency's budget nor do they prescribe an amount to be included in the Agency's budget. The proposals leave to the Agency the judgment as to how the proposals will be accommodated in the budget. For example, the Agency is not foreclosed from seeking to offset the increases in costs that might otherwise result from the proposals by altering the existing program. Thus, although the proposals could affect the amount that the Agency budgets for the health insurance program, the proposals do not prescribe a specific amount to be allotted in the budget for the health benefits program. Consequently, the proposals do not meet the first budget test.

2. The Agency Has Not Satisfied the Second Budget Test

The Agency projects two sets of specific dollar increases that it contends will result from the proposals. The first set involves projections based on application of the proposal at McClellan Air Force Base. The second set involves projections based on application of the proposal Air Force-wide. These projections do not support a conclusion that the proposals would result in significant and unavoidable cost increases that would not be offset by compensating benefits.

First, the Agency has failed to provide any information placing its budget projections in perspective within the budget as a whole. Thus, no basis is presented for establishing that the dollar amounts provided are "significant." See, for example, Fort Stewart, 110 S. Ct. at 2050.

Second, the Agency has failed to make a substantial demonstration that all the cost increases that it projects are "unavoidable." For example, the Agency has not provided substantial factual support for its projections of the increases in administrative costs that will result from the proposals. Although the Agency lists various administrative actions involved, such as "programming requirements" and "manual processing time," and provides conclusions as to the number of hours required to implement the proposals, the Agency provides no details to support the dollar amounts projected for the administrative costs. Moreover, the Agency does not demonstrate that the projected increases could not be offset by (1) modifying the health benefits program, or (2) increasing efficiency in its administrative processes.

Finally, the Agency has failed to make a substantial demonstration that any cost increases would not be offset by compensating benefits. The Agency asserts that "the kind of employee benefit involved . . . will result in absolutely no compensating or offsetting benefits to the employing NAFIs." Agency statement of position at 26-27. However, elsewhere in its statement of position the Agency states that its health benefits program was "designed to promote the well being of [the] . . . employees eligible for participation." Agency statement of position at 7. The Agency acknowledges that "[t]he effective administration of [its mission and function] is highly dependent upon an efficient and responsive NAFI workforce. In recognition of the need for an efficient and responsive workforce, the A[ir] F[orce] W[elfare] B[oard] established . . . a comprehensive medical/health benefits program." Id. at 8. The Agency states that "[t]he efficiency and effectiveness of the NAF workforce is directly related to the state of its morale and the ability of management to secure the best qualified personnel to fill the most critical jobs." Id. at 29. Additionally, in the context of its compelling need arguments, the Agency asserts that non-uniform health benefits would undermine employee morale and, consequently, "lead to reduced productivity and increased turnover, all adding significantly to the expense side of the NAF system's financial picture." Id. at 28.

In our view, these statements effectively recognize that the health benefits program does indeed offer compensating benefits to the Agency. In particular, it is not unreasonable to assume that by promoting the "well being of employees" the health benefits program would contribute to reducing absenteeism and increasing productivity. By increasing the Agency's ability to attract and retain "the best qualified personnel" it is not unreasonable to assume, and the Agency concedes, that the health benefits program contributes to the "efficiency and effectiveness of the NAF workforce." See also, General Accounting Office, Health Insurance: Cost Increases Lead to Coverage Limitations and Cost Shifting (GAO/HRD-90-68, May 1990) at 23 ("benefit consultants indicate that firms in particularly competitive labor markets are adding or expanding [health] insurance coverage in these areas to attract and maintain their labor force"). As noted above, the Agency acknowledges that employee productivity and turnover "significantly" affect the NAF system's "financial picture." Consequently, we reject the Agency's proposition that a proposal that would make health insurance more affordable for employees would yield absolutely no compensating benefits to the Agency.

We note that the question before us is whether two proposals that apply only to a bargaining unit at McClellan Air Force Base conflict with the Agency's right to determine its budget. The likelihood that identical provisions would be adopted Air Force-wide is speculative and would be dependent on factors other than the proposals themselves. Such speculation does not provide a valid basis for determining whether these two proposals interfere with the right to determine budget. For this additional reason we reject the Agency's contentions that, based on its projections of Air Force-wide application, the two proposals conflict with its right to determine budget.

3. Conclusions

The Agency has failed to (1) demonstrate that the proposal prescribes a particular program or operation to be included in its budget or prescribes the amount to be allocated in the budget for such; or (2) make a substantial demonstration that the proposals entail an increase in costs that is significant, unavoidable, and would not be offset by compensating benefits. The parties bear the burden of creating a record upon which the Authority can make a decision. See, for example, National Federation of Federal Employees, Local 2050 and U.S. Environmental Protection Agency, 35 FLRA 706, 711-12 (1990); National Federation of Federal Employees, Local 1167 v. FLRA, 681 F.2d 886, 891 (D.C. Cir. 1982) aff'g National Federation of Federal Employees, Local 1167 and Department of the Air Force, Headquarters, 31st Combat Support Group (TAC), Homestead Air Force Base, Florida, 6 FLRA 574 (1981). A party failing to bear this burden acts at its peril.

Therefore, we conclude that the proposals do not conflict with the Agency's right to determine its budget.

C. The Agency Has Not Established That the Proposals Conflict with an Agency Regulation for Which a Compelling Need Exists

An agency asserting compelling need as a bar to negotiation of a proposal must demonstrate that there is an overriding need for the uniform application of the policies reflected in the agency regulation for which it asserts a compelling need. See, for example, American Federation of Government Employees, AFL-CIO, Local 3804 and Federal Deposit Insurance Corporation, Chicago Region, Illinois, 7 FLRA 217, 220 (1981). To establish a compelling need for an agency regulation, an agency must: (1) identify the Agency-wide regulation; (2) show that there is a conflict between its regulation and the proposal; and (3) demonstrate that its regulation is supported by a compelling need with reference to the standards set forth in section 2424.11 of the Authority's Regulations. See American Federation of Government Employees, AFL-CIO, Local 1928 and Department of the Navy, Naval Air Development Center, Warminster, Pennsylvania, 2 FLRA 451, 454-55 (1980). Generalized and conclusionary reasoning is not enough to support a finding of compelling need. American Federation of Government Employees, AFL-CIO, Local 3804 and Federal Deposit Insurance Corporation, Madison Region, 21 FLRA 870, 880-81 (1986).

The Agency asserts that the proposals in this case conflict with AFR 34-3. That regulation provides: "The enrolled employee contribution shall be 54 percent and the employing NAFI contribution shall be 46 percent of the cost of the options elected by the employee." Agency statement of position, attachment 2. The Agency contends that there is a compelling need for this provision. Although the Agency does not state which of the Authority's compelling need criteria it is relying on, all of the Agency's arguments relate to the criterion found at section 2424.11(a):

(a) The rule or regulation is essential, as distinguished from helpful or desirable, to the accomplishment of the mission or the execution of functions of the agency or primary national subdivision in a manner which is consistent with the requirements of an effective and efficient government.

Therefore, we assume that the Agency's arguments relate to section 2424.11(a).

To establish a compelling need under section 2424.11(a), an Agency must demonstrate that its regulation is essential, as distinguished from helpful or desirable, to the accomplishment of its mission or execution of its functions in a manner which is consistent with the requirements of an effective and efficient Government. The Agency has not met its burden in this case.

The Agency makes three interrelated arguments to support its contention that AFR 34-3 is essential to the continued efficiency and viability of the NAFI system. The Agency argues that the regulation is necessary to (1) control operating costs, (2) preserve administrative efficiency, and (3) maintain employee morale and mobility. In support of these arguments, the Agency argues that any increase in operating costs undermines the ability of the NAFI system to provide MWR activities to military personnel. The Agency asserts that requiring negotiation over the proposals creates the potential of over 100 separate rate structures for employee health benefits premiums throughout the Air Force. The Agency contends that administration of multiple rate structures would produce inefficiency and errors that would negatively affect employee morale and, consequently, the Agency's ability to retain employees. Finally, the Agency contends that the regulation is necessary to avoid morale and mobility problems that would result from similarly situated NAFI employees receiving different compensation.

For the following reasons, we reject each of the Agency's three arguments in support of its assertion of compelling need for AFR 34-3.

First, we reject the Agency's argument that there is a compelling need for AFR 34-3 because the regulation is necessary to control operating costs. The logical extension of the Agency's argument is that any agency regulation that allows an agency to control operating costs should bar negotiations over otherwise negotiable conditions of employment. As we discussed in conjunction with the Agency's budget arguments, many proposals concerning conditions of employment will affect an agency's "operating costs."

Financial considerations are relevant to determining whether an agency regulation satisfies the compelling need criterion set forth at section 2424.11(a). However, other considerations are also pertinent. The wording and legislative history of the Statute support our conclusion that a broad balancing of factors is appropriate in evaluating compelling need assertions. It is clear that Congress intended a regulation to bar negotiations only on narrow grounds. Cost factors alone do not justify finding a compelling need for an agency regulation. Lexington-Blue Grass Army Depot, Lexington, Kentucky and American Federation of Government Employees, AFL-CIO, Local 894, 24 FLRA 50 (1986).

Our conclusion that cost factors alone do not justify finding a compelling need for an agency regulation is consistent with the holding of the U.S. Court of Appeals for the District of Columbia Circuit in American Federation of Government Employees v. Federal Labor Relations Authority, 785 F.2d 333, 337-38 (D.C. Cir. 1986) (per curiam), where the court stated the following:

[E]conomic hardship is a fact of life in employment, for the public sector as well as the private. Such monetary considerations often necessitate substantial changes. If an employer was released from its duty to bargain whenever it had suffered economic hardship, the employer's duty to bargain would practically be non-existent in a large proportion of cases. Congress has not established a collective bargaining system in which the duty to bargain exists only at the agency's convenience or desire, or only when the employer is affluent.

Second, the Agency has not shown that AFR 34-3 is essential to the preservation of administrative efficiency. The provision for a local Health Maintenance Organization (HMO) option as an alternative to the single, existing group plan has introduced the potential for different rate structures into the Agency's health benefits system.(5) The Agency has offered no explanations as to why its administrative structure can accommodate variations resulting from the HMO option and not those that might result from negotiation of the instant proposals.

The Agency has provided nothing more than general and conclusionary reasoning to support its arguments that the proposals would result in errors in the administration of the employee health benefits system that would adversely affect employee morale and the Agency's ability to retain employees. Additionally, the Agency fails to take into account the potential that more affordable health insurance may have for positive effects on employee morale, retention, and productivity. Therefore, we reject the Agency's argument that AFR 34-3 is essential to the preservation of administrative efficiency.

Third, we reject the Agency's contention that uniformity in its health benefits plan is essential to employee morale and, consequently, to maintaining an efficient and effective work force. The Agency provides no support for its assertion that it is essential that unit and nonunit employees pay the same amounts for health benefits. In addition, the Agency's assertion that uniformity is essential is undercut by the local HMO option and the fact that NAFI employees are currently subject to the prevailing rate pay system. The HMO option is subject to differences based on locality in the health benefits plans available to NAFI employees. The prevailing rate pay system produces differences based on locality in the pay that NAFI employees receive. In view of these existing differences within the NAFI employee pay and benefits programs, the Agency has not demonstrated that its regulation is essential, as opposed to helpful and desirable, to the preservation of employee morale and mobility.

Based on the foregoing, we find that the Agency has failed to demonstrate that the provision of AFR 34-3 that mandates a uniform employer contribution toward employee health insurance premiums of 46 percent is essential, as distinguished from helpful or desirable, to the accomplishment of its mission or the execution of its functions in a manner consistent with the requirements of an effective and efficient Government.

D. Summary

The proposals concern conditions of employment and do not interfere with the Agency's right to determine its budget under section 7106(a)(1). In addition, while the proposals conflict with an Agency regulation, the Agency has not established that a compelling need exists for that regulation.

VI. Order

The Agency shall upon request, or as otherwise agreed to by the parties, bargain over the Union's proposals.(6)




FOOTNOTES:
(If blank, the decision does not have footnotes.)
 

1. In its statement of position, the Agency asserts that the Union failed to make the selection between the negotiability procedures and the unfair labor practice procedures that is required under the Authority's regulations. The Union has requested that processing of an unfair labor practice charge (Case No. 9-CA-70279) that it had filed concerning the implementation of the increase in the health insurance premiums be held in abeyance pending the processing of this negotiability appeal. Consequently, the necessary selection has been made.

2. The court's decision to vacate its prior order was made subsequent to the filing of the Agency's submission in this case.

3. In addition to the AETNA-administered program, which the Agency offers its employees, the Agency is required by the provisions of 42 U.S.C. § 300e-9 to offer employees, under certain circumstances, the "option of membership in qualified health maintenance organizations." The Agency's regulation, AFR 34-3, was amended to allow for membership in an HMO as an alternative to participation in the existing Air Force-sponsored group plan administered by AETNA. See Agency statement of position, attachment 2. The two proposals that are the subject of the dispute apply to the AETNA-administered health insurance program offered by the Agency and not to the HMO option. See Union petition, attachment 2.

4. We express no view on the continued viability of the second of these tests. See Fort Stewart, 110 S. Ct. at 2052-53 (Marshall, J., concurring). However, as we find below, the Agency has failed to satisfy either of the tests set forth in Wright-Patterson.

5. AFR 34-3 does not preclude local differences in the premium costs of HMOs, which would produce local variations in rate structures. Local variations in premium costs are typical of HMOs. See, for example, 1990 Enrollment Information Guide and Plan Comparison Chart (1989 Open Season), published by the Office of Personnel Management, which sets forth employee premium costs for Comprehensive Medical Plans/Health Maintenance Organizations (CMP/HMO) that participate in the Federal Employees