September 6, 2006
Dear Sir:
You have two questions:
1. Can the city’s board of education enter into an employment contract with the director
(superintendent) of schools, which provides for a severance pay of $300,000?
2. Can the city’s school board enter into an employment contract with the director of
schools, which prohibits the board from assigning the director of schools to teaching duties?
Both Answers Depend Upon Whether the City’s Charter or the Educational
Improvement Act Control the Hiring ad Duties of the Director of Schools
A problem similar to the one that arises in connection with whether the city’s governing
body or the board of education fills vacancies on the board arises with respect to them: Does
Tennessee Code Annotated, title 49, Chapter 2, Part 2, apply to municipal school systems? In the
previous letter that I did for the City Attorney, a copy of which you have, I pointed out that the
Tennessee Attorney General has opined that the answer is yes. If that is so, the city’s charter
provisions on that point have been superceded by that statutory scheme.
Hiring and Duties Under the Educational Improvement Act
If it does, under Tennessee Code Annotated, ' 49-2-203(a)(14)(A), this is one of the
duties of the “local” board of education:
Not withstanding any other public or private act to the contrary,
employ a director of schools under a written contract of up to four
(4) years duration, which may be renewed. No school board,
however, may either terminate, without cause, or enter into a
contract with any director of schools during a period extending
from forty-five (45) days prior to the general school board election
until thirty (30) days following such election....
With respect to assigning teaching or any other duties to the director of schools,
Tennessee Code Annotated, ' 49-2-301, authorizes “Each local board of education” to hire a
director of schools [Subsection (a)], and provides that AIt is the duty of the board of education to
September 6, 2006
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assign to its director of schools the duty to [there follows a lengthy detailed list of duties of the
director of schools] [Subsection (b)(1)]. Among the duties the board must assign the director of
school is the duty to “Give the director’s fill time and attention to the duties of the director’s
position.” [subsection (b)(1)(X)] Teaching duties are not among the duties of the director of
schools under that statute. In fact, the same statute provides that:
It is a Class C misdemeanor for any director to take any other
contract under the board of education or to perform any other
service for additional compensation, or for any director to act as
principal or teacher in any school or to become the owner of a
school warrant other than that allowed for the director’s service as
director. A director who violates this subsection shall also be
dismissed from such director’s position. [Subsection (c)]
It can be argued that this provision, and all other provisions in Tennessee Code Annotated,
Title 49, Chapter 2, Part 2, apply to municipal boards of education, as well as county boards of
education. However, Tennessee Code Annotated, ' 49-2-203, which covers the duties of boards
of education, expressly makes purchasing laws outlined therein applicable to municipal school
systems. [Tennessee Code Annotated, ' 49-2-203(A)(3)(E)] Needless to say, that express
inclusion of municipal school systems creates an argument that the other provisions of that statute
do not apply to municipal school systems. In addition, Tennessee Code Annotated, ' 49-2-301,
which prescribes the duties of the director of schools is in Part 3, rather than Part 2 of Title 49,
Chapter 2.
Hiring and Duties Under the City’s Charter
Tennessee Code Annotated, ' 6-36-109 authorizes the board of education to hire a director
of schools, who serves at the will of the board. Tennessee Code Annotated, ' 6-36-110 contains a
list of duties of the director of schools, albeit considerably shorter than the one provided for
directors of schools under Tennessee Code Annotated, ' 49-2-301. But that list of duties likewise
does not appear to contemplate teaching duties. Indeed, Subsection (10) gives the director the
power and duty to “Exercise such other powers and perform other duties not inconsistent with this
charter or other general laws, as may be prescribed by the board of education.” It appears to me
that teaching duties would be inconsistent with the nine other duties prescribed by Tennessee
Code Annotated, ' 6-36-110.
Contract with the Director of Schools
Contract under Tennessee Code Annotated, ' 49-2-203
September 6, 2006
Page 3
Obviously, if Tennessee Code Annotated, ' 49-2-203 governs the selection by the school
board of a director of schools, the board can enter into a four year contract with the director of
schools, provided that it is not done within the prohibited time frame prescribed by that statute. If
Tennessee Code Annotated, ' 6-36-109 controls the selection by the school board of the director
of schools, the director of schools serves at the pleasure of the school board.
I will take up the issue of the $300,000 severance pay issue separately below.
Contract under the City’s Charter
If Tennessee Code Annotated, ' 6-36-109 controls the election of the director of schools,
the question of whether the board has the authority to enter into a multi-year contract with him is
probably answered by Arnwine v. Union County Board of Education, 130 S.W.3d 804 (Tenn.
2003). Ironically, that case addresses the question of whether the county board of education could
enter into a multi year contract with an assistant superintendent of schools under the Educational
Improvement Act. The Court decided that while Tennessee Code Annotated, ' 49-2203(a)(15(A), authorized such contracts with respect to the director (superintendent) of schools, it
did not authorize multi-year contracts for assistant superintendents. The court did conclude that
Arnwine was a “supervisor” and that by definition under Tennessee Code Annotated, ' 49-5501(10) was a “teacher,” and that school boards were statutorily authorized to enter into one year,
but not multi-year, contracts with teachers.
Arnwine also argued that Tennessee Code Annotated, ' 7-51-9-03 (1992) authorized the
school board to enter into long term contracts. That statute authorizes municipalities to enter into
long-term contracts that extend beyond the term of the siting board. The court conceded that in
Washington County Board of Education v. Marketmedia, Inc., 693 S.W.2d 344 (Tenn. 1985), it
had upheld a seven-year contract between the school board and a utility company. But it
distinguished that case by reasoning that it applied to an outside contract, and that the issue before
it involved employment contracts, which were controlled by specific statutes. Employment
contracts in education fell outside the reach of Tennessee Code Annotated, ' 7-51-903, the court
declared: “Because no express authority exists for a school board to enter into multi-year
contracts with a teacher, we concluded that the Board in this case didn’t have authority to enter
into a multi-year contract with Arnwine for the position of assistant superintendent.” [At 809]
What is not clear in Arnwine is the outcome of the case had the Educational Improvement
Act been silent as to employment contracts. The case’s heavy reliance on Dillon’s Rule suggests
the outcome of the case would have been the same:
Our court has held that in determining the authority of local school
boards, it is proper to apply Dillon’s rule to construe the intent of
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the General Assembly. S. Constructors, 58 S.W.2d at 714-15. AAt
its most basic level, Dillon’s Rule is a canon of judicial construction
that calls for the strict and narrow construction of local
governmental authority. Id. At 710. Dillon’s rule provides that a
municipal government has the authority to act only when:
(1) the power is granted in the “express words” of the statute,
private act, or charter creating the municipal corporation; (2) the
power is necessarily or fairly implied in, or incident to[,] the powers
expressly granted: or (3) the power is none that is neither expressly
granted nor fairly implied from the express grants of power, but is
otherwise implied as “essential to the declared objects and purposes
of the corporation” [At 807-08]
Further, said the Court, Dillon’s Rule “continues to reflect the constitutional realities of
local government in this state.” Id. At 711. We also emphasize that “[a]ny fair, reasonable doubt
concerning the existence of the power is resolved by the courts against the corporation and the
power is denied.” [Citation omitted by me.] [At 808]
Dillon’s Rule would seem to stand for the proposition that because Tennessee Code
Annotated, '' 6-36-109 and 110 do not expressly provide for an employment contract with the
director of schools, and that because employment contracts probably cannot be implied from those
statutes--indeed, the director of school serves at the will of the board of education under that
statuteBa contract of any term with the director of schools is not enforceable.
But is an employment contract with an at will employee that provides for severance pay
necessarily inconsistent with at will employment? As far as I can determine, there is no law in
Tennessee directly on that question. But in the unreported case of Walker v. City of Cookeville,
2003 WL 21918625 (Tenn. Ct. App.), an at will employee of a city hospital successfully sued the
hospital under the terms of her employment contract that provided her certain benefits if she were
terminated. The Court resolved the case by reference to the terms of the contract, and did not take
up the question of the city’s authority to enter into such a contract. The contract in that case was
for one year, and automatically renewed for a like period unless either party gave 60 days notice
prior to the end of the current term to the other of an intent not to renew.
Tennessee’s “parent” state of North Carolina has directly addressed that question. In
Myers v. Town of Plymouth, 522 S.E.2d 122 (N.C. App. 1999), North Carolina city managers by
statute serve at the will of their cities’ governing bodies. But the Court upheld the severance
payment provision of a city’s contract with its city manager, reasoning that it did not interfere with
his at will status. [Also see the unreported case of Iberis v. Mahoning Valley Sanitary District,
2001 WL 1647184 (Ohio App. 11 Dist.).]
September 6, 2006
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But Tennessee Attorney General’s Opinion 99-154, dated August 16, 1999, opined that
the City of Cleveland could not enter into a two year employment contract with the city manager.
However, the contract between the City of Mt. Juliet and Mr. Shearer is not for a “term,” but
provides a severance package to him if he is terminated.
It was also held in Hansell v. City of Long Beach, 401 N.Y.S.2d 271 (Sup. Ct. App. Div.
1978) that such a contract was unenforceable for four reasons: (1) the city manager’s appointment
was for an indefinite term; (2) there was no provision in the city charter for an employment
contract with the city manager; (3) the city manager was a public officer; and (4) the contractual
provision violated the New York Constitutional provision against gifts of public money.
It is likely that a director of schools in Tennessee under either Tennessee Code Annotated,
' 49-2-301 or Tennessee Code Annotated, ' 6-36-110 is also an officer.
The $300,000 Severance Provision of the Contract
The law in Tennessee is that public legislative bodies, have broad authority to provide
salaries and other forms of compensation to both elected officers and other officers and
employees, to the extent not limited by the Tennessee Constitution. In Peay v. Nolan, 7 S.W.2d
815 (Tenn. 1928), it was held that the General Assembly could authorize payment of expenses of
its members without violating Article 2, Section 23, of the Tennessee Constitution, which
prescribes the compensation of the General Assembly. The Court reasoned that the constitutional
prescription was a “salary” limitation and not a compensation limitation. Blackwell v. Quarterly
County Court, 622 S.W.2d 535 (Tenn. 1981) goes even further. In upholding the right of a county
to modify a pension plan the Court, in sweeping language, in effect declared that, within
constitutional limitations, governments at both state and local levels have broad authority relative
to salary and compensation adjustments of elected as well as appointed officials.
In fact, in upholding the constitutionality of a statute requiring a city to indemnify
policemen and firemen, the Tennessee Supreme court in City of Chattanooga v. Harris, 442
S.W.2d 602 (Tenn. 1969), spoke of the right of cities to provide such employees fringe benefits as
well as salaries:
It is not to be questioned at this stage of the development of
municipal activities that the maintenance of police and fire
departments are proper corporate activities and for a public and
corporate purpose. Nor, do we feel that, considering the difficulty
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encountered in filing and sustaining the ranks of these departments,
it can be questioned that the giving of certain “fringe benefits” as
well as salaries are necessary in order to effectuate these public
purposes. In recognition of the necessity of providing such benefits,
pension plans, tenure acts, retirement and vacation benefits have
been adopted by individual cities by resolution, changes in charters,
and often by acts of the Legislature. One method of approach in
considering the instant statute is to consider it as providing another
such fringe benefit. As it removes the burden from the individual of
carrying insurance coverage for, and defending against, suits which
arise out of his employment, it might even be said that it provides
an indirect pay raise for such employee. At the very least it makes
employment in these departments more attractive for both the
veterans and the recruit, just as other “fringe benefits” do. [At 606]
[Emphasis is mine.]
While that case dealt with policemen and firemen, it unquestionably spoke to and applies
to all municipal employees. Fringe benefits are an integral component of modern municipal
employee compensation, and can be the product of municipal resolution as well as charters and
legislative acts. Arguably, a severance pay provision of an employment contract is a fringe benefit.
There appears to be a difference between the right of a municipality to compensate
“employees,” and its right to compensate “officers,” through salaries and other forms of
compensation. Peay, above, says that:
Compensation attached to the office, whether ‘salary’ or ‘per diem’
[citation omitted] is not given to the incumbent because of any
supposed legal duty resting upon the public to pay for the service,
[citation omitted] and a law creating an office without any
provision for compensation carries with it the implication that the
services are to be rendered gratuitously.
Even more emphatic on that point is Bayless v. Knox County, 286 S.W.2d 579 (1955).
There it was argued that even in the absence of statutory authority for the county to pay certain
expenses of the county judge and county commissioners related to official county business, the
county had authority to pay those expenses. The Court rejected that argument, declaring that:
Considered as a principle, the decisions of this State are directly
September 6, 2006
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contrary, as this Court views it, to that assertion. In State ex rel.
Vance v. Dixie Portland Cement Company, 151 Tenn. 53, 60, 267
S.W. 595, 597, it said:
‘It is well settled policy of the state, determined by statute and
judicial decree, that public officers can receive no fees or costs
except as expressly authorized by law’....[At 587]
In all the cases involving the salary and compensation of officers, the salary and
compensation were supported by statute. Severance pay is not, as such, authorized by any statute.
I can find no reported case in Tennessee directly on the question of how much
compensation can be paid to municipal officers and employees before it is “excessive.” The rule
in Arizona appears to be that absent some constitutional or statutory provision that limits such
compensation, the municipal body authorized to set the compensation is subject to no limits.
[Gregory v. Thompson, 768 P.2d 674 (Ct. App., Div. 2, Dept. A 1989]
But 4 McQuillin, Municipal Corporations, ' 12.180, says that:
If compensation is not prescribed by law, the proper office or board
may in the exercise of sound discretion, determine such rate, and the
courts will not interfere with the exercise of that discretion in the
absence of abuse. Municipal authorities cannot abuse the discretion
vested in them.
The Tennessee cases above involving compensation of local government personnel imply
that the same rule applies in Tennessee. They suggest that absent any constitutional limitations on
compensation, the body authorized to set the compensation has broad, but not unlimited, authority
as to the amount of compensation. In addition, there is a line of Tennessee cases involving the
setting of the salaries of sheriff’s deputies and court personnel, that further indicates the abuse of
discretion rule applies to the courts where they set the salary. However, those cases involved a
Tennessee statutory scheme that allows the courts to determine such salaries. [See Boarman v.
Jaynes, 109 3d 286 (Tenn. 2003) and cases cited therein. Also see the unreported case of Grisham
v. Hackett, 1987 WL 30164 (Tenn. Ct. App.).] But it is difficult to find a reason why the same
rule would not apply to local governing bodies who have the statutory authority to set
compensation, but where the statute sets no limits on such compensation.
Unfortunately, it is extremely difficult to determine how that rule applies where:
- There is no statute that prescribes the salary or wage of a public officer or employee, but
there is an allegation that the salary or wage, or range of salary or wage, is excessive.
September 6, 2006
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- The salary or wage at issue is paid under a contract between a government and the officer
or employee.
- The severance package is substantial.
However, the two cases that appear the most instructive on the question of what an abuse
of discretion means with respect to excessive salaries and wages paid to government employees,
are the California cases of City and County of San Francisco v. Boyd, 22 Cal.2d 685 (1943), and
San Francisco Chamber of Commerce v. City and County of San Francisco, 275 Cal.App.2d 499
(1969). Both cases involve the question of whether wages paid to municipal employees under a
statute requiring the payment of such employees at the prevailing wage were excessive. In Boyd,
the Court declared that:
The determination whether proposed rates of compensation are in
accord or in harmony with generally prevailing rates is within the
discretion of the rate-making authority. The courts will not interfere
with that determination unless the action is fraudulent or so
palpably unreasonable and arbitrary as to indicate an abuse of
discretion as a matter of law. [Citations omitted.] [At 691]
[Emphasis is mine.]
City and County of San Francisco, pointed out the difficulty of finding cases in this area:
At the outset of appellate review, we find ourselves without
precedent to work with. Counsel tells us that no case is known
(even in the nation) in which taxpayers have succeeded in
preventing payment of municipal employees’ salaries on the ground
that they exceeded prevailing wages. Nor, indeed, have we been
cited any cases in which municipal employees have been successful
in challenging the discretionary acts of the legislative body....[At
502]
In neither case did the Court find an abuse of discretion where pay increases put
employees wages above the prevailing wage rate. But the wages after the pay raises were only
modestly above the prevailing wage rate.
When all the cases in this area are read, they point to the proposition that whether the
September 6, 2006
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salary or wage of a public officer or employee is excessive depends upon the specific facts in each
case, but that even then the discretion accorded to the legislative body that sets the salary or wage
is extremely broad. As I said above, it is difficult to find cases where an abuse of discretion is
found by the courts, and those cases generally involve excessively low salaries, or instances where
salaries or wages have been paid in excess of a clear constitutional or statutory cap.
But it does seem reasonable that under the abuse of discretion doctrine large severance pay
provisions in municipal employment contracts are more likely to be questionable than are regular
pay and salary agreements. I am not sure how the courts would see a $300,000 severance
provision in a contract with either a city or a county director of schools in Tennessee, but such an
amount would surely raise some judicial eyebrows.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/