The Economy's Large Shadow

TORONTO -- The annual meeting of the National Association of College and University Attorneys offered its usual eclectic mix of topical sessions, reflecting the increasingly broad portfolios for which the group's members are responsible on their campuses: academic misconduct, real estate, technology transfer, sports marketing contracts, and transgender issues, to name just a few.

June 29, 2009

TORONTO -- The annual meeting of the National Association of College and University Attorneys offered its usual eclectic mix of topical sessions, reflecting the increasingly broad portfolios for which the group's members are responsible on their campuses: academic misconduct, real estate, technology transfer, sports marketing contracts, and transgender issues, to name just a few.

Looming over the meeting here, though -- as it has over most such gatherings of college employees for the last year or more -- was the continuing economic downturn. The economy was front and center in some sessions, such as "I Feel Your Pain: Reductions in Force and Furloughs" and the opening address by William Jarvis of the Commonfund Institute on the state of the economy and its impact on higher education. But the potential impact of the recession lurked in the background and just beneath the surface of many others.

"The economy is the elephant in the room," Richard Paul, a lawyer at Paul, Plevin, Sullivan & Connaughton, said during a session on how colleges should review their tenure policies before they have a major crisis, like the one that befell Gulf Coast colleges when Hurricane Katrina hit in 2005. "Economic conditions drive and have driven changes in employment law, and the conditions we're seeing now are going to materially affect the number and outcomes of employment cases." Faculty members who are denied tenure will have fewer options for other jobs, Paul suggested, and colleges will have less latitude to offer unhappy professors other alternatives. The likely result, he said: more lawsuits.

"I think we're in for a storm, and the storm is upon us," Paul said.

That theme was repeated in an array of sessions related to the hiring, firing and employment of faculty and staff members, although some of the lawyers who spoke -- most of whom either worked at or otherwise represented colleges and therefore took a pro-administration stance on issues -- saw possibilities as well as peril in the challenging economic environment.

"I do think the economic situation we're in can be an opportunity," Nicholas DiGiovanni Jr., of Morgan, Brown, and Joy, said at a session on collective bargaining in a bad economy. "There is a unique opportunity to get costs under control, and to make the kind of changes [in employment policies] you can only dream about in flush times."

At many of the sessions, Rachel Levinson Waldman of the American Association of University Professors was called on to explain (or defend) the group's policies related to the circumstances under which colleges can (and can't) alter the employment status of faculty members because of financial issues. There was much discussion, for instance, of how differently the AAUP treats "program elimination" (when the association's standards give colleges and universities latitude to kill off faculty lines) and "program reduction" (shrinking but not ending a program), when AAUP rules preclude layoffs of tenured professors.

And the AAUP's sharp critique of the treatment of instructors by New Orleans colleges after Katrina -- when several of them, citing extreme financial duress, terminated faculty jobs in conflict with their own policies -- continued to be a divisive topic for lawyers trying to advise colleges on how they might handle duress of their own in the coming months.

Katrina offered "an important example of 'no good deed goes unpunished,' " said Steven Glenn Olswang, a Seattle lawyer who represents the University of Washington, among others. "If anybody thinks these institutions weren't doing their best ... but the AAUP damaged these institutions dramatically.... Despite everything good they did, it wasn't enough in the eyes of a third party examiner."

"They were in serious financial condition, but all of them, for different reasons, had process problems," countered Ellen Babbitt, a Chicago lawyer whose firm represents colleges. "In many respects, they did make decisions that, in hindsight, you would hope would be done differently. The lesson is that we need to make sure the policies do what we want them to, because you have to follow your rules."

If there was a common theme in the various sessions related to the economy's impact on employment issues, it was probably Babbitt's: that colleges run the greatest risk of legal trouble if they violate their own policies, and that those with the greatest flexibility would be best positioned to adapt amid economic turmoil.

Institutions with strong labor union representation are at a disadvantage in such an environment, because they do not have as much "freedom of movement," said DiGiovanni, who works with numerous public colleges in New England. He and other panelists at the session on collective bargaining in a bad economy discussed the pros and cons of reopening contracts with unions. The pros include helping a college solve the crisis at hand and avoid other painful decisions, such as massive tuition increases, but downsides include investing political capital and running the risk of opening up other, non-financial issues that may be divisive.

The AAUP's advice to its chapters, DiGiovanni noted, includes a list of areas on which faculty members should seek concessions from administrations in exchange for any financial concessions the unions decide to make when negotiations are reopened, including promises of no layoffs, job security for contingent faculty, and changes in grievance procedures.

DiGiovanni offered his own list of changes that campus administrators should seek in contracts to give themselves more flexibility for future economic crises, including language that allows a college to require furloughs (or at least offer them voluntarily), lifts caps on class sizes, the right to negotiate buyout provisions, and increases the ease with which contracts can be reopened in the future -- automatically when there is a rescission in the state budget, for instance.

Lawyers and others who negotiate on colleges' behalf should not "cry wolf too much" -- citing economic circumstances excessively in seeking concessions from unions, DiGiovanni said. "Labor relations in a long-term affair," and union leaders have long memories.

That was very much the experience encountered by Kristin Petersen, a lawyer for the Nebraska State College System, in labor negotiations last winter as the recession deepened, she recounted. Union leaders, having been told repeatedly in previous years (by previous administrations) that the colleges had insufficient funds for pay increases, "weren't interested in how this was different from past times," she said.

"We paid a significant price for the number of times when wolf was cried in the past," said Petersen. "I didn’t have any credibility with them. They had heard that too many times."

Short Term vs. Long Term

The central issue raised in the session most directly related to the economy ("Financial Distress and Faculty Issues") revolved around whether the downturn is likely to last a short time or a long time, and the implications for decision makers depending on how they answer that question. Jonathan Alger, vice president and general counsel at Rutgers University and the moderator of the session, said he and most college officials recognize that this is a "very serious short-term crisis," but are "hoping that it is temporary."

Most who view it that way, said Olswang, the Seattle lawyer, are taking the same sorts of short-term approaches to cut their salary levels and other personnel expenditures right now: reducing or eliminating travel expenses, freezing positions or pay, or limiting sabbaticals, for example. (He encouraged colleges to think a bit more creatively about some of those short-term approaches, too -- by setting Christmas or other holiday weeks as furlough weeks, for instance.)

But while many states are softening the impact of the current downturn with federal stimulus funds, Olswang said, "are those states going to replace that money" when it runs out in two years? The bleeding in endowments has slowed, but most analysts don't expect them to rebound fully for some time, he said. "I don't think we're in a short-term crisis," he said.

If not, institutions need to be contemplating much longer-term, structural changes that can affect their approach to employee relations, said Olswang and Babbitt. The AAUP may not recognize the right of colleges to eliminate faculty jobs when they reduce the size of programs, Olswang said, but "it shouldn’t be out of the quiver of institutions to think about," he argued. "No one’s doing this for nefarious reasons."

Institutions may be on more solid legal ground in dismissing faculty members because they declare financial exigency or eliminate programs, as the University of Southern California did when it ended its German program last year, said Babbitt. But "the fact that something is legal is just the beginning of the analysis," she said. "Just because something may be legal under the handbook doesn’t mean it isn’t going to cause enormous turmoil."


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