CITIES AND TOWNS - MUNICIPAL CORPORATIONS - PUBLIC EMPLOYEES - COMPENSATION - AUTHORITY OF CITIES AND TOWNS TO ESTABLISH EMPLOYEE INCENTIVE PROGRAMS

CITIES AND TOWNS - MUNICIPAL CORPORATIONS - PUBLIC EMPLOYEES - COMPENSATION - AUTHORITY OF CITIES AND TOWNS TO ESTABLISH EMPLOYEE INCENTIVE PROGRAMS

Cities and towns of all classes have authority to establish and administer employee incentive programs for their employees, so long as the program and appropriately definite performance standards are established before the period covered by the program.

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                                                               November 27, 1995

The HonorableSteve Fuhrman
State Representative, District 7
710 Highway 395 North
Kettle Falls, WA   99141

                                                                                    Cite as:AGO 1995 No. 13

Dear Representative Fuhrman:

            By letter previously acknowledged, you have asked whether cities and counties have authority to establish employee incentive programs.  For the reasons and within the constraints noted below, we conclude that the answer to your inquiry is yes—cities and counties may establish employee incentive programs.

                                                                BACKGROUND

            We preface our legal analysis with a definition of “employee incentive programs”.  As used in this opinion, such programs are ones adopted by the appropriate legislative authority of the city or county, that establish employee awards (in the form of monetary payments or otherwise) as compensation in return for meeting identified performance standards or goals in excess of normal employee performance requirements.[1]

                                                                    ANALYSIS

            Your letter to us states that you intend your inquiry to be a broad one, applying to all cities and counties in the state.  Because of this, it is appropriate to note at the outset the various classifications of cities and counties authorized under Washington law.  Washington authorizes first class cities, second class cities, unclassified cities, code cities, and towns.[2]  These designations principally reflect differences in population and organizational structure.  Some of these cities may be organized as charter cities under article 11, section 10 (amendment 40) of the Washington Constitution, which provides:

            Any city containing a population of ten thousand inhabitants, or more, shall be permitted to frame a charter for its own government, consistent with and subject to the Constitution and laws of this state[.]^[[3]]

            Similarly, a county “may frame a ‘Home Rule’ charter for its own government subject to the Constitution and laws of this state” under article 11, section 4 (amendment 21) of the Washington Constitution.

            These differences in city and county classifications are important to your question because the legal authority of a particular city or county turns, in part, on its classification.  As explained in AGO 1991 No. 17, the authority of cities and counties is governed by the following general principles:

                        The general rule is that municipal corporations are limited to those powers expressly granted to them by the Legislature and to powers necessarily or fairly implied in or incident to the powers expressly granted.  Chemical Bank v. WPPSS, 99 Wn.2d 772, 792, 666 P.2d 329 (1983); City of Spokane v. J-R Distributors, Inc., 90 Wn.2d 722, 585 P.2d 784 (1978).

                        At least as to matters of local concern, however, this general rule does not apply to cities and counties that have adopted charters pursuant to article 11, sections 4 and 10, of the Washington Constitution, respectively, or to cities operating under the Optional Municipal Code, Title 35A RCW.  These cities and counties have legislative power akin to that of the state, except that their actions cannot contravene any constitutional provision or legislative enactment.  Thus, such a city or county has broad legislative power except when restricted by enactments of the state.  King Cy. Coun. v. Public Disclosure Comm'n, 93 Wn.2d 559, 562-63, 611 P.2d 1227 (1980);Winkenwerder v. Yakima, 52 Wn.2d 617, 622, 328 P.2d 873 (1958); La Mon v. Westport, 22 Wn. App. 215, 217-18, 588 P.2d 1205 (1978);Chemical Bank v. WPPSS, 99 Wn.2d 772, 792-93, 666 P.2d 329 (1983).

AGO 1991 No. 17, at 2.

            Under these principles, charter cities, code cities, and charter counties need not have express statutory authority to adopt employee incentive programs.  Instead, such entities may adopt such programs so long as they would not be contrary to any constitutional provision or statute.  We have located no statute or constitutional provision that prohibits these local governments from establishing employee incentive programs, as defined in this opinion.[4]  Accordingly, we conclude that charter cities, code cities, and charter counties have authority to establish such programs.

            We reach the same conclusion with respect to the other entities subject to your inquiry—second class cities, unclassified cities, towns, and non-charter counties, but for a different reason.  The Legislature has given each of these entities statutory authority sufficiently broad to include adopting employee incentive programs as defined in this opinion.  Under RCW 35.23.021, the city council of a second class city has authority to prescribe compensation of all city employees.  “Compensation” is a broad term, generally encompassing remuneration in whatever form given in return for services.  State ex rel. Funke v. Board of Comm'rs, 48 Wash. 461, 465-66, 93 P. 920 (1908); AGO 1974 No. 15, at 5-6; AGO 1988 No. 29, at 4-5.  Thus, compensation would include employee incentive awards.  Town councils have similar authority to fix the compensation of their employees under RCW 35.27.130.  The Legislature has given unclassified cities broad authority, including the power to make all ordinances, by-laws, and regulations not inconsistent with the constitution and laws of this state “as may be deemed expedient to maintain the peace, good government and welfare of the city”.  RCW 35.30.010(8).  In our opinion, such broad authority would encompass adopting an employee incentive program.  Finally, under RCW 36.16.070, the board of county commissioners is authorized to fix the compensation of county employees.  Again, this authority is sufficiently broad to include compensation under an employee incentive program.

            We conclude this opinion with a caveat.  Article 2, section 25 of the Washington Constitution prohibits granting extra compensation to public employees after the services for which the extra compensation is paid have been rendered.  Article 8, section 7 of the state constitution which prohibits municipalities, including counties and cities, from making a gift of public funds also likely would prohibit such payments.  SeeChristie v. Port of Olympia, 27 Wn.2d 534, 543-44, 179 P.2d 294 (1947) (where the state supreme court clearly suggests that purely retroactive increases in compensation to public employees would run afoul of these provisions).  To ensure that employee incentive programs are consistent with these constitutional restrictions, incentives and awards should be provided only for meeting established performance standards or goals that exceed normal employment requirements.  Such incentives and awards also should be structured as a component of the compensation in return for which city or county employees provide their services, in such a way that the employees have an expectation of earning the incentives or awards when they are performing their work.  This would preclude purely retroactive increases in compensation, including bonuses where the employer decides “after the fact” that one or more employees should receive extra compensation for past services.

            We trust this opinion will be of assistance to you.

                                                                        Sincerely,

                                                                        MAUREEN HART
                                                                        Sr. Assistant Attorney General
                                                                        (360) 753-2536