Prior to the enactment of Public Act 54, after a collective bargaining contract expired, if there were any premium increases in health insurance1, the public employer had to absorb 100% of the cost until the next agreement was negotiated. Further, if there were any scheduled wage step increases for employees after a contract expired, the public employer was required to implement those step increases. However, since June 8, 2011, when Public Act 54 took effect, the exact opposite is now the law in most public sector collective bargaining situations.

Act 54 (MCL 423.215b) states that upon expiration of a collective bargaining agreement, and until a successor contract is in place, a public employer shall pay and provide wages and benefits at levels and amounts that are no greater than those in effect on the expiration date of the collective bargaining agreement. The statute prohibits payment of step increases and provides that employees bear the increased costs of health, dental, vision, prescription, or other insurance benefits after expiration of the collective bargaining agreement. Increased cost is defined as the difference between the prior year and the current coverage year. Further, Act 54 provides that the parties shall not agree to, and an arbitration panel shall not order, any retroactive wage or benefit levels greater than those in effect on the expiration date of the collective bargaining agreement. The statute defines “expiration date” to mean the date set in the collective bargaining agreement without regard to any agreements of the parties to extend or honor the collective bargaining agreement during negotiations.
Since the law passed in 2011, several significant changes have occurred through both legislative action and court interpretation impacting the application of the law. In 2014, the law was amended via Public Act 322 [see MCL 423.215b(4)(a)-(c)] to exclude police and fire employees from Act 54. Additionally, the Michigan Employment Relations Commission (MERC) and the Michigan Court of Appeals have rendered several decisions interpreting PA 54.

The Michigan Court of Appeals ruled that “lane changes” or salary increases based on academic achievements were properly declined to employees based on Act 54 after the expiration of the contract. Bedford Public Schools v Bedford Ed Ass’n, 305 Mich App 558 (2014). Similarly, in Waverly Community Schools and Ingham County Education Ass’n/Waverly Education Ass’n, the Court of Appeals in an unpublished opinion (Court of Appeals No. 314173, August 26, 2014) affirmed MERC’s ruling that the school district had no obligation to pay salary increases for educational achievements after the contract has expired. [MERC Case No. C11 K-206 (December 14, 2012).]

MERC in Schoolcraft County and the Schoolcraft County Sheriff and Schoolcraft County Deputy Sheriff’s Ass’n, Case No. C12-L-12 (November 24, 2014), ruled that Act 54 only allowed
employers to pass on increased costs of insurance benefits, not increased costs to pension benefits.

MERC also ruled an employer, based on Act 54, did not have to pay step increases after a collective bargaining agreement expired, even where a Memorandum of Understanding (MOU) providing for across-the-board wage increases between the parties remain unexpired. MERC found step increases were still governed by the expired agreement since the MOU did not specifically govern step increases. Michigan State University and Capitol City Lodge #141, Fraternal Order of Police, Case No. C11-H-126 (September 17, 2014).

Consequently, the following principles now apply to collective bargaining in the public sector, excluding police and fire bargaining units2:
1. After the expiration date of a collective bargaining contract and until a successor agreement is in place, public employees are required to pay any increase in health insurance costs until a new agreement is in force and effect. Any increased costs in any health, dental, vision, prescription or other insurance benefits shall be paid for by the employees. Pension cost increases, however, cannot be passed to the employee.
2. Step increases cannot be given after the expiration of a collective bargaining contract, nor can “lane changes” or any increases related to academic achievements.
3. The Employer is authorized to make payroll deductions to pay for any such increased costs in maintaining those benefits.
4. The statute specifies that the parties to a collective bargaining contract are not allowed to agree and an arbitration panel is not permitted to order any retroactive wage or benefit level or amounts that are greater than those in effect after the contract expired.
5. Expiration date is specifically defined as a date set forth in the agreement and must exclude any agreement of the parties to extend or honor the collective bargaining contract pending negotiations.

1 This is subject to 2011 PA 152 health insurance maximums for public employers.
2 See MCL 423.215b(4)(a)-(c).