CITIES AND TOWNS; OFFICERS ‑- CITIES; INCENTIVE AWARD PROGRAMS

CITIES AND TOWNS; OFFICERS ‑- CITIES; INCENTIVE AWARD PROGRAMS

Cities, by ordinance, may make incentive awards to employees for suggestions of merit which might, or could, aid in service to the public, or reduce costs.  As a budget item, such awards are properly "Operating and maintenance expenses."

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                                                                    May 6, 1957

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington                                                                                                                Cite as:  AGO 57-58 No. 59

Attention:  !ttMr. A. E. Hankins, Chief Examiner

            Division of Municipal Corporations

Dear Sir:

            You have asked our opinion with respect to the following question concerning incentive award programs established by municipal corporations:

            "Is there statutory authority for a municipal corporation to pay gratuities, bonuses or cash awards to employees for suggestions that might or could improve the services of a municipal corporation to the public, or result in reduced costs?"

            There is no specific statutory authority for incentive awards; however, we are of the opinion that, under specific circumstances, awards may be made under existing law.

                                                                     ANALYSIS

            We confine our discussion to incentive awards made to employees for suggestions that might improve the service of a municipal corporation to the public, or result in reduced costs.  Gratuities, being in the nature of a gift of public funds, would be violative of the state constitution.  A suggestion, to come within the purview of this discussion, must be substantial and meritorious in character.

             [[Orig. Op. Page 2]]

            Your question did not specify the class of municipal corporation to which your problem applied.  We have therefore considered all classes of cities with respect to this issue.

            An affirmative answer to your question does not conflict with Article XI, section 8 of the Washington State Constitution which provides, in part:

            "The salary of any county, city, town, or municipal officer shall not be increased * * * after his election, or during his term of office * * *"

            The language of your question is limited to "employees" and, as such, they are not within the constitutional prohibition.

            With respect to the above provision, and Article II, section 25, no violation of the constitution would occur when the payment of an incentive award was for a suggestion extrinsic to the duties required or contemplated by the individual's employment.  The succeeding paragraphs also relate to this constitutional question.

            We have found no case or text authority precisely in point on this subject.  A discussion of the problem of payment of incentive awards involves two questions:  first, the propriety of making an award, and second, the proper category in which it should be placed for budget purposes.

            Employees of the municipal corporations perform services in accordance with their contract of hire, and they are recompensed for that service by payment of wages or salaries.  We think the payment of a sum for the creation of a time or money-saving plan which provides either convenience or service to the public, and to the municipal corporation, may not be considered in the nature of salary or wages.  Such a payment is, in broad terms, a sale of the product of the inventive genius of the individual submitting the suggestion.  A corollary situation is that in which an employee invents a new machine or a refinement of existing equipment while using the employer's materials.  Lest there be a question as to whether the employer then owns the invention, the general rule with respect to the property right in the device or invention is set forth in 35 Am.Jur. 518:

            "It is a well-settled general rule that the mere fact of the  [[Orig. Op. Page 3]] relationship of employer and employee does not necessarily entitle the former to inventions made by the latter along the line of or related to the particular employment; and a contract to assign or transfer to the employer the patent, or whatever other rights the employee may have in the invention, as distinguished from a mere license to use the same, is not to be implied in law merely from the relation of the parties."

            There seems to be little difference between the situation where an employee receives an incentive award and that presented in an Attorney General's Opinion to your office dated April 7, 1949, which considered the problem of an individual being on two state payrolls at the same time.  In that opinion, reference was made to an opinion of March 1, 1941, to the Division of Municipal Corporations pertaining to county officers, wherein we said:

            "'It is our opinion that where the duties of one office are not incompatible with the other, one person may serve two or more employing officers and receive separate compensations for each service.  * * *'"

            The powers granted to cities of the various classes are set forth in Title 35, RCW.  After specifying the individual acts which may be performed, an omnibus provision permits action of the type here under consideration.  A typical statute provides:

            "RCW 35.24.290.  Specific powers enumerated.  The city council of each third class city shall have power:

            "(1) To pass ordinances not in conflict with the Constitution and laws of this state or of the United States;

            " * * *

            "(18) To make all such ordinances, bylaws, rules, regulations and resolutions, not inconsistent with the Constitution and laws of the state of Washington, as may be deemed expedient to maintain the peace, good government and welfare of the corporation and its trade, commerce and manufactures, and to do and perform any and all other  [[Orig. Op. Page 4]] acts and things necessary or proper to carry out the provisions of this chapter, and to enact and enforce within the limits of such city all other local, police, sanitary and other regulations as do not conflict with general laws;"

            See also RCW 35.23.440, RCW 35.22.570, and RCW 35.27.370.

            The Washington Supreme Court in Ayers v. City of Tacoma, 6 Wn. (2d) 545, 108 P. (2d) 348, discussed the broad powers of municipal corporations with respect to the establishment of a city pension system.  The court quotedState ex rel. Ennis v. Superior Court, 153 Wash. 139, 279 Pac. 601 as follows:

            "'It is evident from the constitution of this state and legislative enactments that, in Washington, cities of the first class are vested with very extensive powers, and that, under Rem. Comp. Stat., § 8982, supra, the statutes of this state concerning the same must be liberally construed by the courts for the purpose of carrying out the manifest intent of the legislature to establish cities of the first class as self-governing bodies, only "subject to and controlled by general laws."  (Walker v. Spokane [62 Wash. 312, 113 Pac. 775],supra.)'"

            The court also stated on page 554:

            "Undoubtedly, in the absence of legislative expression to the contrary, cities of the first class, under pertinent charter provisions, have power to establish by ordinance lawful pension systems for their employees.  It is essentially a governmental function directed toward more effective public service, which is to the benefit of the city.  While we admit the express power to establish pension systems is not granted to first-class cities, we are satisfied such power is necessarily implied from the broad powers expressly conferred on cities of the first class by § 10, Art. XI, of the state constitution, and the statutory provisions hereinbefore referred to."

            The object of the payment contemplated by your request inures to the benefit of the public and the municipal corporation.  More effective public service is expected to result.

             [[Orig. Op. Page 5]]

            We feel that it is proper in the writing of this opinion to state that the proper means by which an incentive program should be established is through city ordinance.  This is clearly indicated in Ayers v. City of Tacoma,supra.  To insure the propriety of such payments, we would suggest that specific requirements be imposed such as hereinbefore mentioned.

            Also inherent in your question is the determination as to the proper classification of such an expenditure in the municipal budget.  The statutes provide as follows:

            "RCW 35.32.040.  Budget estimates‑-Classification and segregation.  The annual budget estimates shall be designated, grouped, and assembled under classifications to be prescribed by the state auditor under the following segregations:

            "(1) Operating and maintenance expenses;

            "(2) Capital and betterment outlays; and

            "(3) Emergency expenditures."

            "RCW 35.33.040.  Budget estimates‑-Classification and segregation ‑-Transfer.  All estimates, appropriations and expenditures shall be classified under the general classes of:

            "(1) Salaries and wages;

            "(2) Maintenance and operations;

            "(3) Capital outlay;

            "(4) Interest and debt redemption;

            "(5) Expenditures proposed to be made from bond or warrant issues not yet authorized.

            "* * * Expenditures coming under the general class of 'maintenance and operation' shall be classified according to the  [[Orig. Op. Page 6]] standard classification established by said division of municipal corporations."

            It is our opinion that the category "Operating and maintenance expenses" in the statute first quoted, and "Maintenance and operations" in the latter statute, are the proper classifications for the costs of incentive awards.  That such payments are not salary or wages seems clear.  As previously indicated, they are akin to the sale of a copyright or invention.  The designation within this category, insofar as it concerns second and third class cities and first class cities under 300,000 should be made in accordance with the standard classifications established by the Division of Municipal Corporations.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

H. E. WIELAND
Assistant Attorney General