1. Richard A. Schwartz Schwartz & Shaw PLLC 19 W. Hargett Street, Suite 1000 Raleigh, NC 27601 (919) 821-9011 © 2015 Schwartz & Shaw, P.L.L.C PANC FALL CONFERENCE OCTOBER 7, 2015 TEACHER TENURE AND TEACHER CONTRACTS UPDATE

2. 2 TENURE LAW PROVIDED Teachers served probationary period Probationary teachers protected during contract year Could be renewed (nonrenewed) annually Awarded career status or not renewed at end of probation 15 potential grounds for dismissal/demotion Extensive due process rights

3. 3 TENURE LAW PROVIDED At its essence, tenure law provides a way to earn a property interest (career status) and the method by which it can be removed. 14th Amendment – no person shall be deprived of property without due process of law.

4. 4 2013 GENERAL ASSEMBLY Massive changes to tenure law included in 2013 Appropriations Act (S.L. 2013-360, sec. 9.6).  Ineligible to earn tenure on or after August 1, 2013.  All tenure eliminated June 30, 2018.  25% selection process for teachers to relinquish any interest in tenure and get 4-year contract with $500 annual salary increases.  Created new system of employment (G.S. §115C-325.1 to -325.13) for non-tenured teachers now and for all teachers after 6/30/18  Tenure law (G.S. §115C-325) repealed effective 6/30/18  Beginning 7/1/18, all teachers employed on 1, 2 or 4- year contracts.

5. 5 LEGAL CHALLENGES 2013 – NCAE and individual teachers file lawsuit vs. State of N.C. in Wake County claiming violations of constitutional and contract rights of teachers (the “NCAE Case”)

6. 6 LEGAL CHALLENGES 2014 – Guilford Board of Education and its Superintendent Mo Green and Durham Board of Education file lawsuit vs. State of N.C. claiming violations of their contract rights and constitutional rights (the “Guilford case”)

7. 7 LEGAL CHALLENGES Guilford Case – injunction has been issued and the case is still pending, awaiting trial in superior court. NCAE Case – The Order for Summary Judgment was appealed by both sides to the N.C. Court of Appeals.

8. 8 SO…… What happened next?

9. 9 SINCE THE INJUNCTIONS Although it considered many options, the 2014 General Assembly ultimately took no direct action dealing with the injunctions. Neither did the 2015 General Assembly.

10. 10 SINCE THE INJUNCTIONS While the NCAE lawsuit was on appeal this is what was left of the Act:  Tenure remains for those who earned it prior to 8/1/13 and will not be abolished in 2018.

11. 11 SINCE THE INJUNCTIONS While the NCAE lawsuit was on appeal this is what was left of the Act:  Tenure remains for those who earned it prior to 8/1/13 and will not be abolished in 2018. But, this was appealed to the N.C. Court of Appeals.

12. 12 SINCE THE INJUNCTIONS While the NCAE lawsuit was on appeal this is what was left of the Act:  Tenure remains for those who earned it prior to 8/1/13 and will not be abolished in 2018. But, this was appealed to the N.C. Court of Appeals.  Those probationary teachers who thought they were on the tenure track are no longer eligible for tenure.

13. 13 SINCE THE INJUNCTIONS While the NCAE lawsuit was on appeal this is what was left of the Act:  Tenure remained for those who earned it prior to 8/1/13 and will not be abolished in 2018. But, this was appealed to the N.C. Court of Appeals.  Those probationary teachers who thought they were on the tenure track are no longer eligible for tenure. But, this was appealed to the N.C. Court of Appeals.

14. 14 SINCE THE INJUNCTIONS  The 25% selection process, four-year contracts and corresponding $500 annual raises are out.

15. 15 SINCE THE INJUNCTIONS  The 25% selection process, four-year contracts and corresponding $500 annual raises are out. But, this was appealed to the N.C. Court of Appeals.

16. 16 SINCE THE INJUNCTIONS  The 25% selection process, four-year contracts and corresponding $500 annual raises are out. But, this was appealed to the N.C. Court of Appeals.  Probationary teachers who thought they were on the tenure track are currently one- year contract teachers (under sec. 9.6(f) of the Act) and on July 1, 2014, became subject to the new “non-tenure laws” in G.S. 115C-325.1 to -325.13 (under sec. 9.6(i) and (j)).

17. 17 SINCE THE INJUNCTIONS  The 25% selection process, four-year contracts and corresponding $500 annual raises are out. But, this was appealed to the N.C. Court of Appeals.  Probationary teachers who thought they were on the tenure track are currently one- year contract teachers (under sec. 9.6(f) of the Act) and on July 1, 2014, became subject to the new “non-tenure laws” in G.S. 115C-325.1 to -325.13 (under sec. 9.6(i) and (j)). But, this was appealed to the N.C. Court of Appeals.

18. 18 N.C. COURT OF APPEALS DECISION On June 2, 2015, in a split 2-1 decision, the N.C. Court of Appeals issued its decision upholding Judge Hobgood’s rulings, and finding no error. NCAE v. State of North Carolina, ____ N.C. App. ____, ____ S.E.2d ____, 2015 WL 3466263 (2015) BUT, it was a split (2-1) decision, with Judge Dillon concurring in part and dissenting in part. This means that there is a right to appeal to the N.C. Supreme Court.

19. 19 N.C. COURT OF APPEALS DECISION The crux of the case was whether career status teachers have contractual rights protected by the Contract Clause of the United States Constitution.

20. 20 N.C. COURT OF APPEALS DECISION Contract Clause The Contract Clause, Article I, Section 10 of the United States Constitution, is facially absolute: “[n]o State shall … pass any … Law impairing the Obligation of Contracts…” However, the Supreme Court has long held that this prohibition must be accommodated to the inherent police power of the state to safeguard the vital interests of the people. Where a state’s action does impair a contract, the court determines (1) whether the statute substantially impaired the contract, and if so, (2) whether the impairment was “reasonable and necessary to serve an important public purpose.”

21. 21 N.C. COURT OF APPEALS DECISION Contract Clause Although Plaintiffs have individual employment contracts with local school boards, their Contract Clause claim asserts a contract with the State based on the “Career Status Law,” G.S. §115C-325.

22. 22 N.C. COURT OF APPEALS DECISION Contract Clause The Court of Appeals accepted Plaintiffs’ argument that the Career Status Repeal substantially impaired contractual rights of teachers with career status. The State had argued that career status was a legislative policy, not a contract, and as a policy could be changed by a subsequent legislature. The Court of Appeals disagreed.

23. 23 N.C. COURT OF APPEALS DECISION Contract Clause Relying primarily on case law involving public employee pension benefits. The court held that “when the General Assembly revokes valuable employment benefits that are obtained in reliance on a statute and that offset the relatively low salaries of public employees, it violates the Contract Clause.”

24. 24 N.C. COURT OF APPEALS DECISION Contract Clause The Court of Appeals found highly persuasive an affidavit from Plaintiff’s labor economist expert who stated that there was a useful parallel between job security that derives from career status and the economic value of retirement benefits. The Court of Appeals gave weight to teachers’ affidavits describing how they relied on the availability of career status protection when they chose to work as teachers, and to the fact that the State reaped benefits by using the Career Status Law as an inducement to attract and retain public school teachers in spite of relatively low wages.

25. 25 N.C. COURT OF APPEALS DECISION Contract Clause The Court of Appeals then agreed with the trial court that the Career Status Repeal substantially impaired contractual obligations. The State’s argument that repeal of career status was just a permitted “reasonable modification” was unconvincing.

26. 26 N.C. COURT OF APPEALS DECISION Contract Clause The State could avoid a contract clause violation if it could establish that the Career Status Repeal was a “reasonable and necessary means of furthering an important public purpose.” Based on affidavits to the effect that school boards have the ability to dismiss low performing teachers notwithstanding career status, the Court of Appeals upheld the trial court’s findings that the Career Status Repeal “serves no public purpose whatsoever.”

27. 27 N.C. COURT OF APPEALS DECISION Contract Clause In any event, even assuming arguendo that making it easier to dismiss ineffective teachers was an important public purpose, the Court of Appeals held that Career Status Repeal was not a “reasonable and necessary” means of doing so. The court noted that the record was replete with evidence of less drastic available alternatives relating to teacher evaluation standards and teacher performance ratings.

28. 28 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon dissented to the Contract Clause holding. He disagreed that the Career Status Law created a contractual right to continued employment. Judge Dillon cited the presumption that a statute is generally to be considered a declaration of policy which subsequent legislatures can amend, rather than the creation of vested contractual rights, unless the obligation is clearly and unequivocally expressed.

29. 29 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon cited a U.S. Supreme Court case, Phelps v. Board of Education, 300 U.S. 319 (1937), which held that a New Jersey teacher tenure statute established a legislative status for teachers, rather than a contractual one which the legislature may not modify. He found Phelps extremely persuasive, if not controlling, in deciding the Contract Clause issue. The majority opinion in response stated that because the Phelps case was not cited by the State in its briefs, to accept it now would be to make an argument for the State. Judge Dillon countered that the State did make the argument that repeal did not violate the Contract Clause, and it was appropriate for the Court of Appeals to consider United States Supreme Court opinions addressing an issue argued by the State even if not cited in the State’s brief.

30. 30 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon argues that case relied upon by the majority, Indiana ex rel. Anderson v. Brand, 303 U.S. 95 (1938), is an outlier. Brand held that the Indiana tenure statute created contract rights for teachers who had earned tenure, and that its repeal was an unconstitutional violation of the Contracts Clause. Judge Dillon distinguished Brand on the grounds that the particular language of the Indiana statute showed a clear intent to create contract rights, as the statute was “couched in terms of contract.” In contrast, the language of the N.C. Career Status Law, which employs the phrase “career status” throughout, is more analogous to the statute in Phelps – which established a “legislative status” for teachers -- than to the statute in Brand.

31. 31 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon also distinguished the cases cited by the majority holding that statutes allowing public employees to earn deferred compensation benefits such as pensions and disability benefits created contract rights. In those cases, the public employees’ statutory right to deferred compensation had vested, based on worked performed. In contrast, under the Career Status Law, statutory tenure status gives teachers the right to continue to work in the future and earn additional compensation for that future work. In other words, “teachers did not ‘earn’ a benefit of continued employment by completing four years of service. They only became eligible to be elected to ‘career status’ at the end of four years.”

32. 32 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon concluded that the plaintiffs failed to overcome the presumption that the tenure law was intended to be a declaration of policy and not intended to create private contractual or vested rights, and, therefore, the General Assembly was not restricted by the Contract Clause from modifying the statute.

33. 33 N.C. COURT OF APPEALS DECISION Contract Clause Judge Dillon also was persuaded by the near-consensus view in reported cases from other states, that statutes establishing tenure for public employees do not create constitutionally protected contract rights.

34. 34 N.C. COURT OF APPEALS DECISION Due Process / Law of the Land Clause The Court of Appeals held that the Career Status Repeal violates the Law of the Land clause in the North Carolina Constitution. Career teachers’ contractual right is also a property right, and the Career Status Repeal violates the Law of the Land clause by taking property without compensation.

35. 35 N.C. COURT OF APPEALS DECISION Due Process / Law of the Land Clause Judge Dillon agreed with the majority to some extent. He focused not on the taking of property, but on the need for due process (i.e., a hearing) prior to the taking. Judge Dillon noted that the North Carolina Supreme Court has held that a career teacher has a property interest in continued employment. Crump v. Board of Education, 326 N.C. 603 (1990). Accordingly, in his view the Career Status Repeal was unconstitutional to the extent (and only to the extent) it granted local school boards discretion on whether to conduct a hearing. In his view a career teacher has a right to a hearing before the school board can make a non-retention decision.

36. 36 N.C. COURT OF APPEALS DECISION Teachers Who Have Not Yet Achieved Career Status The Court of Appeals unanimously agreed with the trial court that teachers who had not achieved career status had no viable claim. Their rights had not yet vested. So, probationary teachers who had not yet attained career status did not have constitutionally protected contractual rights and, therefore, could not sue.

37. 37 N.C. COURT OF APPEALS DECISION Will this case be appealed to the N.C. Supreme Court?  Yes. On July 7, 2015, the State gave notice of its appeal.  This case will now be decided by the N.C. Supreme Court

38. 38 N.C. SUPREME COURT Based on the dissent by Judge Dillon in the Court of Appeals decision, the State is appealing on the following issue: Whether the Career Status Law created a Constitutionally protected contractual right to continued employment for career teachers that is impermissibly impaired by the Career Status Repeal?

39. 39 N.C. SUPREME COURT The State also asked the Supreme Court to consider the following additional issues: I.Whether the Career Status Repeal violates Article I, Section 10 of the United States Constitution where the contracts at issue contained conditional language anticipating alteration, including early termination.

40. 40 N.C. SUPREME COURT The State also asked the Supreme Court to consider the following additional issues: II.Whether any possible impairment of contract resulting from the Career Status Repeal is reasonable and necessary to serve an important public purpose

41. 41 N.C. SUPREME COURT The State also asked the Supreme Court to consider the following additional issues: III.Whether the Career Status Repeal violates Article I, Section 19 of the North Carolina Constitution.

42. 42 N.C. SUPREME COURT On August 20, 2015, the N.C. Supreme Court entered an Order allowing all 3 additional issues to be considered.

43. 43 SINCE THE INJUNCTIONS  Currently we have only 2 types of full-time teachers:  Tenured teachers who earned career status prior to 8/1/13 and are subject to G.S. 115C-325 (tenure law).  Teachers on one-year contracts whose employment is governed by new G.S. 115C- 325.1 to -325.13, which became effective July 1, 2014.

44. 44 APPLYING THE NEW LAWS For Contract Teachers: The definition of “year” is now July 1 – June 30 (G.S. 115C-325.1(7)). Personnel files requirements in new G.S. 115C.325.2 are the same as in tenure law (G.S. 115C-325(b)).

45. 45 APPLYING THE NEW LAWS For Contract Teachers: Teacher contracts and renewals – despite the language in new G.S. 115C-325.3(a) allowing contracts or renewals to be for terms of one, two or four school years for those teachers employed by the local board “for three years or more,” and despite the language in new G.S. 115C-325.3(b) allowing the superintendent to recommend renewed contracts for a term longer than one school year “if the teacher has shown effectiveness by proficiency on the evaluation instrument,” and despite language in new G.S. 115C-325.3(b) that would allow board to offer renewed contract for a different term than recommended by superintendent, these provisions are overriden by sec. 9.6(f) of the Act (S.L. 2013-360) which still applies to all teachers who did not have career status prior to 8/1/13. These teachers may now only be offered one-year contracts until the 2018-19 school year. Thereafter, these provisions will take effect.

46. 46 APPLYING THE NEW LAWS For Contract Teachers: Query: What does “year” mean as applied to those teachers employed “for three years or more”? Query: What does “shown effectiveness by proficiency on the evaluation instrument” mean, and how is it applied?

47. 47 APPLYING THE NEW LAWS For Contract Teachers: Nonrenewals (G.S. 115C-325.3(d)(e)(f)): Superintendent gives notice to teacher by June 1 of decision not to recommend a new contract. No reasons are required to be provided. (G.S. 115C-325.3(d)). Teacher has the right to petition board for a hearing within 10 days of receipt of superintendent’s notice. Board has complete discretion whether or not to grant hearing and must notify teacher. There is no right to a hearing or to appeal to court.

48. 48 APPLYING THE NEW LAWS For Contract Teachers: Nonrenewals (G.S. 115C-325.3(d)(e)(f)): Board shall notify teacher of decision to not renew by June 15, unless it decides to grant a hearing. If board grants a hearing it is conducted under G.S. 115C-45(c) and board must notify teacher of its decision within 10 days of hearing or later date agreed to in writing by superintendent and teacher.

49. 49 APPLYING THE NEW LAWS For Contract Teachers: Nonrenewals (G.S. 115C-325.3(d)(e)(f)): Decision (by superintendent or the board) not to offer renewed contract may not be arbitrary, capricious, personal, political, discriminatory, or on any basis prohibited by state or federal law.

50. 50 APPLYING THE NEW LAWS For Contract Teachers: Nonrenewals (G.S. 115C-325.3(d)(e)(f)): If teacher does not receive a new contract offer or notice of nonrenewal and continues to teach without a contract, the board, upon discovery of this, shall either:  Offer a contract expiring no later than June 30 of the current school year; or  Dismiss the teacher without a hearing or appeal (this teacher is “considered an at-will employee”) and provide one additional month of pay.

51. 51 APPLYING THE NEW LAWS For Contract Teachers: Dismisssal or Demotion (G.S. 115C-325.3(c). -325.4, -325.6 and -325.7): Same 15 grounds as in tenure law, but in different order. Inadequate performance is defined in G.S. 115C- 325.4(a)(1):  Still must look to evaluation data and local board standards  Failure to be proficient “on any standard” of the evaluation  Otherwise performing below standard

52. 52 APPLYING THE NEW LAWS For Contract Teachers: Procedure for Notice of intent to recommend dismissal or demotion under G.S. 115C-325.6 is essentially the same as under tenure law. Hearing is only before school board under G.S. 115C-325.7. No option for separate hearing before state- appointed hearing officer, as under tenure law.

53. 53 APPLYING THE NEW LAWS For Contract Teachers: New G.S. 115C-325.8 provides for appeal to superior court only on grounds that the decision was:  In violation of constitutional provisions;  In excess of board’s authority or jurisdiction.  Made upon unlawful procedure.  Affected by other error of law.  Unsupported by substantial evidence.  Arbitrary or capricious.

54. 54 APPLYING THE NEW LAWS For Contract Teachers: Superior court may affirm or reverse board’s decision or send the case back to the board, but it “shall not” award monetary damages or direct the board to enter into an employment contract of more than one year ending June 30.

55. 55 APPLYING THE NEW LAWS For Contract Teachers: Low Performing Schools: New laws provide separate procedures for dismissals of principals and teachers and other professionals in low performing schools.  Principals – G.S. 115C-325.12  Teachers, asst. principals, directors – G.S. 115C- 325.13 Right to hearing. Proceedings are before State Board of Education.

56. 56 APPLYING THE NEW LAWS Classified Employees Dismissal or Demotion New law essentially established two classes of classified employees with different rights regarding employment (sec. 9.6(k) of Act). HOWEVER, the General Assembly fixed/changed that in the 2014 Technical Corrections Act (S.L. 2014-115, sec. 65) by rewriting sec. 9.6(K) of the 2013 Appropriations Act (S.L. 2013-360).

57. 57 APPLYING THE NEW LAWS Classified Employees Dismissal or Demotion Employees employed as of 7/1/14 and any hired or reemployed after that date will no longer be “super employees not quite at-will.”

58. 58 APPLYING THE NEW LAWS Classified Employees Dismissal or Demotion Employees employed as of 7/1/14, and any hired or reemployed after that date, have no “super powers” and are now employees at will. They are not entitled to written notice of reasons for dismissal, demotion or suspension without pay, but may still appeal “final administrative decision” on these matters to BOE, but not beyond.

59. 59 APPLYING THE NEW LAWS Administrators (sec. 9.6(d) and 9.6(k) of the Act, as amended by sec. 65 of S.L. 2014-115) For employees employed “as of” 7/1/14, and any “hired or reemployed on or after that date,” G.S. 115C-287.1 (the contract administrator law) is revised as follows:  Dismissal/demotion is under new G.S. 115C-325.4.  Nonrenewal – written notice by May 1, but no longer any right to receive reasons.  Right to BOE hearing on nonrenewal, but not appeal. Decision to nonrenew may not be arbitrary, capricious, personal, political, discriminatory or in violation of state or federal law.

60. 60 APPLYING THE NEW LAWS No right to return to teaching position if held career status as a teacher prior to administrator contract. Query: Does Judge Hobgood’s order or the ruling by the N.C. Court of Appeals restore career teacher status/rights to administrators?

61. 61 APPLYING THE NEW LAWS For administrators employed as of 7/1/14, G.S. 115C-287.1 is amended to eliminate administrator tenure and career teacher status (in same LEA) upon expiration of contract. NOTE: Questions remain as to whether Judge Hobgood’s order and the Court of Appeals decision apply to (those few) administrators who still have tenure as administrators or to administrators who had career teacher status when they became administrators.

62. 62 2014 GENERAL ASSEMBLY After considering a variety of proposals to address/respond to the problems with 25% provision, tenure and injunctions, the 2014 General Assembly did nothing to alter what is in the 2013 Appropriations Act.

63. 63 2015 GENERAL ASSEMBLY 2015 General Assembly did not amend these provisions, and appears to be waiting to see what the N.C. Supreme Court will do.

64. 64 2015 Appropriations Act – S.L. 2015-241 (H.B. 97), sec. 8.38 – PERFORMANCE-BASED RIF SCHOOL POLICY Included as part of the 2015 budget. Requires local BOEs to adopt reduction in force (RIF) policies for contract (non-career status) teachers and would change existing law and board policy requirement for RIF of career status teachers. In determining which positions to reduce, requires LEA to consider: Structural considerations, such as identifying positions, departments, courses, programs, operations, and other areas where there are (i) less essential, duplicative, or excess personnel; (ii) job responsibility and position inefficiencies; (iii) opportunities for combined work functions; and (iv) decreased student or other demands for curriculum, programs, operations, or other services; and Organizational considerations, such as anticipated organizational needs of the school system and program or school enrollment. In identifying which teachers to RIF, requires LEA to consider work performance and teacher evaluations.

65. 65 THE NEW MODEL TEACHER CONTRACT S.L. 2013-360 (S.B. 402), The Appropriations Act, sec. 9.6.(e) provides: SBE shall develop, by rule under the Administrative Procedures Act, a model contract for use by local boards of education in awarding teacher contracts. SBE may adopt a temporary rule by “no later than January 1, 2014,” but shall replace the temporary rule with a permanent rule “as soon as practicable.”

66. 66 THE NEW MODEL TEACHER CONTRACT SBE did not adopt the model contract until its meeting on February 6, 2014, and “temporary rule” was rejected by the Rules Review Commission (RRC) because it was after the deadline in the law. SBE will now have to go through normal rule-making process, which can take 18 months.

67. 67 THE NEW MODEL TEACHER CONTRACT NOTE: Whether the SBE is even subject to the authority of the Rules Review Commission (RRC) at all is a matter currently on appeal. On July 2, 2015, a superior court judge ruled in favor of the State Board of Education, holding that, as a separate constitutional entity, the SBE is not subject to the rule-making process established by the General Assembly. It has constitutional authority to make “all needed rules and regulations” dealing with the free public schools, subject to “laws enacted by the General Assembly.” The State has appealed this ruling.

68. 68 THE NEW MODEL TEACHER CONTRACT See copy of “Model Employment Contract for Teachers” as adopted by SBE on February 6, 2014, on next two slides.

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70. 70

71. 71 THE NEW MODEL TEACHER CONTRACT You may still choose whether or not to use the “Model Employment Contract for Teachers,” with or without changes. Get your local attorney’s advice. You are not required to use the model contract.

72. 72 THE NEW MODEL TEACHER CONTRACT Provisions in the model contract: Preamble – lists the position the teacher shall hold, while section 4, “Duties,” states that the contract “creates no right to any particular assignment or school site.” Consider whether you want to keep the sentence in the preamble or add to it so that it might say, “subject to section 4 below,…” The model contract would be used for any teacher who does not retain career status after June 30, 2014.

73. 73 THE NEW MODEL TEACHER CONTRACT Term Compensation Qualifications Duties Extra or Special Duties – consider whether to include this in the contract. This provision states that special duties or assignments “will be described in a separate agreement and the additional compensation will not be considered salary for the purposes of computing” the Teacher’s salary, and that any return to regular duties “is not a demotion” as defined by the new [non-tenure] law (G.S. §§115C- 325.1 et seq.).

74. 74 THE NEW MODEL TEACHER CONTRACT Benefits Termination of Contract by Teacher – will be under the provisions and procedures of new G.S. §§115C-325.1 et seq. Termination of Contract by Board – provides that the Board may alter the terms or terminate the contract pursuant to G.S. §§115C-325.1 et seq. Boilerplate Provisions – modification, severability, governing law.

75. 75 THE END