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The law specifically prohibits employment contracts for “Local Agency Executives” that contain built in salary increases of a specified amount from automatically “rolling over” without Board action.  Although the new law defines “Local Agency Executive” to include a school or community college district’s chief executive officer, it also includes in this definition “the head of a department of the local agency,” but explicitly excludes classified employees of school districts or community college districts from this definition.  Thus, it appears that this requirement would apply to an Assistant or Associate Superintendent of Personnel or Human Relations (providing the individual holding this position holds a teaching credential), while typically excluding positions such as Chief Financial Officer, or heads of Maintenance, Operations and Transportation, or Facilities.  With regard to community college districts, the law, on its face, appears to apply to “educational” (academic) administrators hired pursuant to Education Code section 72411.

A rollover provision in an employment contract typically acts to extend the term of the contract even without specific Board action on the contract itself.  Although there has been considerable debate regarding the appropriateness and even the legality of these rollover contract provisions, this new law does not ban such a provision.  Likewise, this law does not ban automatic compensation increases (for instance “step” increases) from being built into employment contracts of these individuals.  This new law does, however, effective January 1, 2012, prohibit the adoption or renewal by a Board of an employment contract for these designated “local agency executives” that contains an automatic rollover provision and compensation increase provisions that are greater than the California consumer price increase (“CPI”) for urban wage earners as determined by the California Department of Industrial Relations (not the “COLA” figure utilized to fund California state schools).

The first open question is what did the Legislature intend to be the “triggering” event for these contracts to be subject to these limitations?  The limitations apply to any contract that is “executed or renewed” by the Board.  We know what “executed” means, but what does “renewed” mean, especially in a contract that is automatically renewed without Board action?  A conservative and cautious interpretation would be that a contract is “renewed,” and thus subject to these limitations, any time that a contract, either pursuant to the terms or the contract itself or law, is extended for an additional year.  Thus if an administrator currently has an employment contract that has completed the initial term of the contract, as written, and has rolled over subsequently, and will roll over again automatically sometime after January 1, 2012, the date that the contract in question rolls over again will likely be viewed as a contract renewal which will trigger the requirements of this new legislation.

The second relevant question is when does the amount of the increase in compensation limitation apply—at the time the contract is initially executed or at the time it subsequently rolls over?  Since the CPI for the year that a contract is executed has no apparent relevance to the CPI for the year that the contract rolls over, it is logical to apply the limitation at the time the contract rolls over.

As no one can predict what the “CPI” will be in the year following a two, three, or four year employment contract, the practical impact of this new law is that although the employment contract in question may contain an automatic “rollover” provision and an automatic compensation increase provision, it cannot be determined whether the contract would violate this new prohibition until such time that the correct “rollover” occurs because we won’t know the CPI for the year in question until that time.  Accordingly, any employment contracts that contain “roll over” provisions and automatic compensation increases built in will be subject to legal scrutiny at the time of the “roll over” to determine whether they violate newly enacted Government Code section 3511.2.  If the built in compensation increases exceed the CPI at that time, then either the entire contract could be found to be illegal at that time, or just the compensation increase provision would be determined to be illegal if the contract contains a contract “severability” provision.  So, if the compensation increases in the contract exceed the CPI at the time of rollover, the result would be either that the administrator has no contract, or if the contract has a “severability” provision, the administrator will not be receiving any compensation increases following the effective date of the “roll over.”

This attempt at limiting roll over contracts with automatic pay increases is only one aspect of AB 1344.  There are several other new requirements and prohibitions put into place by this new law, including:

• Whereas existing employment contracts of certain designated administrators are required to have the “maximum eighteen (18) month” buyout provision (Gov. Code, §§ 53260 et seq.), this statute also requires that any contracts that contain provisions that provide for paid administrative leave pending investigations or for employer paid criminal defense, that after January 1, 2012, these contracts are required to include provisions that require the repayment of the paid investigatory administrative leave salary and/or the repayment of legal expenses spent in defending the administrator, if the administrator is ultimately convicted of specific crimes. In addition, the new contract is required to contain a provision providing that the administrator will fully reimburse the amount of any contract buyout if the administrator is convicted of one of the specified crimes.

• Amends the Brown Act to prohibit a Board from calling a special meeting regarding the compensation of executives as defined by this law.

• Requires Boards to post their agendas on their web sites in compliance with the normal posting time lines.

For more information, you can review our firms’ recent AALRR Alert on this new law.