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Legal Watch: Academic Hard Times
By Donna R. Euben
Current state budget shortfalls, which some estimate at $85 billion, are hitting public colleges and universities hard. Private colleges and universities are not immune, with the average endowment in 2001-02 posting a negative return of 6 percent. In tough times, many institutions—both public and private—are forced to explore how to reduce expenses and generate more income, while seeking to avoid more draconian options. A brief review of existing case law about campus belt-tightening initiatives, although limited, might be helpful as we face hard times.
In an effort to increase income, a number of institutions enacted mid-year tuition increases. Recently seven students challenged a mid-semester tuition increase of 5 percent in Maryland, which the state imposed in response to a $67 million reduction in 2003 state appropriations. The students claimed that the tuition increase breached the university's contract with them, because the institution changed the published terms of 2002-03 tuition rates. The students also claimed that the mid-year tuition surcharge constituted deceptive state trade practices, because they had selected the school relying on the tuition rate. In April 2003 a state trial judge dismissed the suit. While the court ruled the student handbook a "quasi-contract," it found no breach, because most of the campuses had written students that tuition was subject to change. Nevertheless, the court was "keenly aware of the significant hardship imposed on students" by the tuition increase. The students are appealing the ruling.
In an effort to cut costs, some state legislatures have sought to reduce faculty salaries, with mixed results. In 1998, for example, unionized faculty at the University of Hawaii successfully challenged a "pay lag" law, which authorized six pay lags of between one and three days each, and which excluded the topic from collective bargaining negotiations. The federal appellate court ruled that the state had violated the contract clause of the U.S. Constitution, which, as one court explained, allows for redress when an individual "has a contract with the state, which the state, through its legislative authority, has attempted to impair."
In this case, the court found unreasonable the state's attempt to reduce faculty salaries by impairing its contract with the faculty, because the budget constraints had already existed when the collective bargaining agreement was entered. It also ruled the impairment unnecessary because, "[a]lthough perhaps politically more difficult, numerous other alternatives exist[ed] which would have more effectively and equitably raise[d] revenues," including "additional budget restrictions, the repeal of tax credits, and the raising of taxes." The court opined that professors "have bills, child support obligations, mortgage payments, insurance premiums, and other responsibilities . . . . [And they] have the right to rely on the timely receipt of their paychecks."
Similar challenges to such legislative action have not all been successful, however. In 1993, for example, another federal appellate court ruled that a "unilateral reduction in contractually established, future state employee salary obligations" of 1 percent to meet a budgetary shortfall, which would have affected faculty at state schools, failed to constitute a "substantial impairment" under the contract clause because, in part, the 1 percent salary reduction was minimal compared to permanent layoffs.
Legal challenges to mid-year salary reductions because of state budget shortfalls have also arisen as individual breach-of-contract claims. So, for example, a Michigan state appellate court ruled in 1982 that the administration at Michigan State University breached its contract with Jon Karr, an assistant professor of criminal justice, when it furloughed him for 2.5 days without pay. The administration argued that "the layoff was necessitated by a $30 million cutback in state appropriations to the university." The professor contended that his 1980-81 appointment letter required the university to pay him a "fixed sum." The court found that the administration had breached its contract with the professor. The court noted that such contracts benefit not only faculty, but also the administration, by "insur[ing] that the university will be able to obtain qualified instructors whose decision whether to accept employment with the university will not be adversely affected by concern that the agreement they enter into in good faith at the time that they accept employment will be subject to unilateral change any time thereafter that the Legislature decides to cut appropriations."
During these hard times, faculty and administrators should work together both to identify potential cost-savings inside the institution that do not compromise educational offerings, and to communicate better with state legislators, alumni, parents, and donors about the importance of a stable faculty and the need to provide students access to a quality education.
Donna Euben is AAUP counsel.
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