In this appeal from Erie County, the Commonwealth Court discusses the authority of a township’s Board of Auditors to set the compensation for township employees who concurrently serve as members of the Township Board of Supervisors.
The Appellants are three members of the Board of Auditors of McKean Township (“Auditors”) in Erie County, PA. The Appellees are three members of the Township’s Board of Supervisors (“Supervisors”). In addition to serving as Supervisors, the Supervisors also work in various capacities as employees of the Township. Generally, Supervisors set the pay rates for all Township employees. It therefore follows that Supervisors would decide and approve their own compensation as employees. To avoid any self-dealing that could occur under that scenario, the Second Class Township Code grants the Auditors authority to determine the compensation of the Supervisors when they also serve as Township employees. Under the Code, the Supervisors’ compensation “shall be comparable to compensation paid in the locality for similar services.”
In January of 2017, the Auditors reduced the Supervisors’ salaries for their employment with the Township, eliminated their compensation for overtime, and substantially reduced their benefits packages. The Supervisors appealed to the trial court, claiming that their new rate of compensation was not “comparable” to the compensation paid in the geographic locale, and that the Auditors acted arbitrarily, capriciously, with improper bias, and in bad faith. The Court conducted a non-jury trial, where the Court appointed an independent expert to review the Supervisors’ compensation.
The trial court found that the Auditors’ decisions to reduce the Supervisors’ compensation was arbitrary and capricious, and based on improper bias. In making this determination, the trial court criticized the methodology the Auditors used to reduce the Supervisors’ pay, and found that the Auditors failed to account for “comparable compensation” paid in the locality, as required by the Code. The trial court credited the testimony of the expert, who opined that the Supervisors were underpaid based on comparable compensation paid in the locale. The trial court also cited numerous instances of hostility between the Auditors and Supervisors, which led the trial court to conclude that the Auditors were motivated by improper bias. Accordingly, the trial court ordered to increase the Supervisors’ pay, that their benefits packages and overtime compensation be reinstated, and that the Auditors pay the Supervisors’ attorney’s fees. On appeal, the Commonwealth Court affirmed the trial court’s ruling. The Commonwealth Court found that there was sufficient evidence for the trial court to conclude that the Auditors failed to account for comparable compensation in the locale, and that the Auditors’ actions were the product of bad faith, improper bias, and arbitrary or capricious action.