Pay Administration (General); Severance Pay for Panama Canal Commission Employees

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 550

RIN 3206-AF89

Pay Administration (General); Severance Pay for Panama Canal

Commission Employees

AGENCY: Office of Personnel Management.

ACTION: Final rule.

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SUMMARY: The Office of Personnel Management (OPM) is issuing final

regulations to exclude certain categories of employees of the Panama

Canal Commission (PCC) from entitlement to severance pay. On December

31, 1999, the Republic of Panama will take over operation of the Panama

Canal under the terms of the Panama Canal Treaty of 1977. The proposed

changes apply to PCC employees who receive an offer of reasonably

comparable employment with the successor Panamanian public entity

before separation, accept such employment within 30 days after

separation, or are hired by PCC 90 days or more after publication of

these regulations.

EFFECTIVE DATE: October 20, 1997.

FOR FURTHER INFORMATION CONTACT: D. Bryce Baker, (202) 606-2858, FAX

(202) 606-0824, or email to [email protected].

SUPPLEMENTARY INFORMATION: On July 7, 1995, the Office of Personnel

Management published proposed regulations (60 FR 35342) barring

severance pay for certain PCC employees who continue in their positions

when the Panama Canal is transferred to Panamanian control as a result

of the Panama Canal Treaty of 1977. The changes will affect PCC

employees who are offered reasonably comparable employment with the

successor Panamanian public entity before separation from PCC

employment or who accept such employment within 30 days after

separation. Individuals hired by the Panama Canal Commission on or

after the 90th day following publication of these regulations will also

be excluded from severance pay eligibility.

Severance pay was intended as a transition benefit for Federal

employees who lost their jobs involuntarily. Severance pay was intended

to ``help tide Federal employees over difficult transition periods''

and to ``help cushion the readjustment'' associated with the loss of

employment. (See H.R. Rep. No. 792, 89th Cong., 1st Sess., at 11, 30

(1965).)

The severance pay law lists certain categories of employees who are

excluded from coverage and provides that additional categories of

employees may be excluded by regulation (5 U.S.C. 5595(a)(2)). OPM's

regulations exclude certain groups and individual employees because of

the nature of their appointment, type of work schedule, circumstances

of separation, etc. For example, the regulations bar entitlement to

severance pay for any employee who declines a ``reasonable offer'' of

another Federal position before separation. (See 5 CFR 550.701-704.)

Severance payments are discontinued if the recipient is reemployed by

the United States Government (5 U.S.C. 5595(d)).

Prior to 1990, OPM's severance pay regulations provided that an

employee involuntarily separated due to transfer of a Federal function

to a non-Federal (private or public) successor organization could be

denied severance pay based on the offer of ``comparable employment''

with the successor organization, or on acceptance of any employment

with such successor organization within 90 days of transfer. (These

provisions were formerly located at 5 CFR 550.701(b) (5) and (6) and

were in effect when the Panama Canal Treaty of 1977 was signed and

entered into force.) OPM deleted those regulatory provisions in 1990

(54 FR 23215 and 55 FR 6591). This change was made to make contracting

out (i.e., privatization) of Federal functions more attractive to

Federal employees. It also was intended to address the problem of some

employees not being offered comparable jobs by private contractors

before transfer and then delaying acceptance of jobs until after the

expiration of the 90-day restriction period. We note that the driving

purpose of encouraging contracting out, which was behind the deletion

of the above severance pay restrictions, is not relevant to the Panama

Canal situation. We also note that the rule OPM is adopting in these

regulations differs in several respects from the above former rules--

e.g., a 30-day period instead of a 90-day period--as explained in the

notice of proposed rulemaking (60 FR 35342) and in this notice.

OPM believes it is appropriate, and consistent with the original

purpose of the severance pay law, to deny severance pay eligibility for

PCC employees who have the opportunity to maintain the same job, or a

reasonably comparable one, with the successor Panamanian public entity

and who furthermore have legally guaranteed protections with respect to

benefits and working conditions while employed by that entity. We also

believe that it is reasonable to deny severance pay eligibility for

employees hired by PCC during the final years of United States control

of the Canal, since the long-scheduled transfer is now imminent and

these employees will know when they are hired that their tenure with

PCC will be of short duration. We believe the Panama Canal transfer

presents a unique situation that requires special treatment.

PCC estimates that, without these changes in OPM's severance pay

regulations, $68 million in severance pay costs would be incurred, of

which only $7 million is currently funded. PCC states that the

remaining $61 million would need to be prefunded by a reduction in

operating expenses and the capital program, and possibly a modest toll

increase in fiscal years 1998, 1999, and the first quarter of fiscal

year 2000. PCC believes that these measures would have a negative

impact on the Canal's competitive and fiscal position. Since, under the

Panama Canal Treaty of 1977, the Canal operation must be transferred to

the Republic of Panama in December 1999 free of any debt or

encumbrances, preventing severance payments to the employees in

question would help PCC meet its treaty obligations.

Comments on the proposed regulations were received from 6 labor

organizations (14 letters), 5 groups of employees (648 individuals), 10

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individual employees, 2 agencies, and 1 Member of Congress.

Comments from one labor organization included a letter transmitting

certain resolutions adopted at a February 1996 conference of trade

union representatives dealing with the transfer of the Panama Canal.

One of the resolutions requested that OPM withdraw the proposed

regulations. Although OPM declines to withdraw the proposed

regulations, we are making certain changes in response to the comments

we received, as described below.

Some commenters questioned whether the proposed limitations on

severance pay for Panama Canal Commission employees were in keeping

with the United States Government's treaty obligations under the Panama

Canal Treaty of 1977. OPM conferred with the Department of State, which

confirmed that our proposed regulatory changes do not violate the

provisions of the Panama Canal Treaty and also expressed the view that

the proposed regulations do not conflict with foreign policy concerns.

By the terms of the Panama Canal Treaty, ``pre-Treaty hires'' --

i.e., employees who were employed by the Panama Canal Company or the

Canal Zone Government before the Treaty took effect in October 1979 and

who were transferred to the newly established PCC--were entitled to the

protection of certain pre-Treaty employment conditions and benefits,

including severance pay (as applicable), during their PCC employment.

(See Article X of the Panama Canal Treaty of 1977 and section 1231(a)

of Public Law 96-70.) There are no similar treaty provisions for post-

Treaty hires--employees who knew when they were first hired that the

United States Government would cease to be their employer no later than

December 31, 1999.

We quote from the letter to OPM from the Acting Assistant Secretary

of State for Inter-American Affairs regarding this matter:

``The Department of State concurs with the view that the Panama

Canal Treaty of 1977 and related agreements do not prohibit the United

States from adopting the proposed regulation on severance pay * * *. We

understand that pre-Treaty employees who are the subject of Article X

will not be affected at all by the proposed regulations. Because these

employees will all be eligible for an immediate annuity under U.S. law

on or before December 31, 1999, they are and will be ineligible for any

severance pay benefits, whether or not the proposed regulations go into

effect. Thus, pre-Treaty employees will not be adversely affected by

the proposed new regulations. The United States, therefore, will be in

full compliance with its obligations under Article X of the Panama

Canal Treaty.

``In addition, Article X of the Treaty does not require the United

States to guarantee severance pay to post-Treaty employees under all

circumstances. Thus, as a legal matter, the Treaty and related

agreements do not prohibit the United States from adopting the proposed

regulations which realign the severance pay benefit with its intended

purpose of protecting federal employees who lose their jobs.''

As indicated in the Department of State letter, since all pre-

Treaty hires are or will be eligible for immediate retirement benefits

prior to the December 1999 Canal transfer and are excluded from

severance pay on that basis (5 U.S.C. 5595(a)(2)(iv)), these

regulations affect only post-Treaty hires. Thus, there is no issue with

regard to compliance with the Panama Canal Treaty terms applicable to

pre-Treaty employees.

Some commenters pointed out that severance pay was paid to certain

PCC employees whose functions were transferred some years ago. OPM has

authority to revise the regulations regarding severance pay coverage (5

U.S.C. 5595(a)(viii)). We believe it is appropriate for OPM to change

the regulations regarding severance pay coverage based on periodic

reassessments of personnel policies or in response to new information

or circumstances. We also note that most of the employees involved in

these earlier severance pay cases were pre-Treaty hires.

A number of commenters addressed the estimated costs that would be

incurred by PCC for severance pay if the proposed regulations were not

adopted. Several commenters argued that any such costs could be covered

by increases in future tolls and that the failure to prefund these

costs at an earlier time should not serve as the basis for denying

severance pay in the future. While PCC's cost concerns are a relevant

factor, OPM's decision to adopt restrictions on severance pay for PCC

employees is based primarily on our judgment that payment of severance

pay in these circumstances would be inappropriate and contrary to the

purpose of the severance pay benefit.

Several commenters stated that the proposed limitation on severance

pay would have an adverse impact on Canal operations before and after

the transfer. Concerns were expressed that the proposed severance pay

changes would interfere with the goal of a smooth and seamless

transition of the operation of the Panama Canal or that they would in

some way undermine the efficient operation of the Panama Canal.

Specifically, possible staffing-up problems at the time of transfer

were cited--e.g., the possibility that individual employees may wait 30

days after separation to accept employment with the successor agency in

order to qualify for severance pay. However, any employee who has

already received an offer of reasonably comparable employment before

separation from PCC employment would already be ineligible for

severance pay and would have no incentive to postpone accepting a job.

Furthermore, an employee who does not receive an offer until after

separation would be at risk of being passed over and not securing a

position at all should he or she delay accepting the offer.

Accordingly, we do not believe the regulations will cause problems in

staffing up the successor entity.

We believe that not providing severance pay to employees who retain

their positions after transfer is consistent with the goal of a

seamless transition. These employees will be treated as if there were

no interruption in their public employment, which is in fact the

reality of the situation.

Some commenters referred to the adverse effect the proposed

severance pay limitation would have on the Panamanian economy. We do

not believe this regulation will have a significant impact on the

general economy of the Republic of Panama. Any individual who would be

denied severance pay because of an offer of reasonably comparable

employment will continue to receive a paycheck in his or her new

position unless he or she chooses to reject that offer. Thus, the

income received by affected employees should remain at about the same

level when Panama Canal operations are transferred to the Republic of

Panama.

Some commenters characterized the proposed changes as an unfair

labor practice (ULP) because conditions of employment were changed

without consultation. The labor organizations have brought that issue

before the Federal Labor Relations Authority for adjudication. We do

not believe the Office of Personnel Management's legal authority to

regulate severance pay entitlement is in any way affected by the

dispute between PCC and the labor organizations.

One labor organization commented that employees already employed by

the PCC should be grandfathered into severance pay entitlement. Such a

grandfathering approach would defeat the primary purposes of the

regulatory

[[Page 49127]]

changes--namely, to prevent severance payments to employees who

maintain the same or comparable jobs with the successor Panamanian

authority and to ensure that the Canal operation can be transferred in

a healthy fiscal condition, free of debts and encumbrances.

Several commenters expressed their belief that the successor entity

will be unable to make a ``reasonably comparable offer'' of continued

employment. The commenters cited the Panamanian economy, wage

structure, past treatment of transferred employees, and inequality of

benefits (including severance pay). Two commenters also listed a number

of fringe benefits and employment protections which they maintain are

not available under Panamanian law. In addition, two commenters cited

the treatment of PCC Ports and Railroad employees whose wages were

frozen after their transfer in 1979. For these reasons, they contend

that there can be no comparability of employment.

A number of commenters also pointed out that the United States can

offer no guarantees to former PCC employees after December 31, 1999.

Therefore, they contend that ``reasonably comparable'' employment

cannot be offered beyond the date of transfer. However, on November 25,

1994, the Panamanian Constitutional Assembly approved a new Panamanian

Constitutional Title, which, among other things, subjects the ``Panama

Canal Authority'' to a special merit-based employment regime under

which permanent employees are to maintain, at a minimum, the same

benefits and working conditions they enjoy up to December 31, 1999.

(See Article 316 of Title XIV, ``The Panama Canal,'' of the Political

Constitution of Panama.) The PCC, in its comments, characterized this

new constitutional provision as a ``substantial commitment on the part

of Panama, made expressly to assure PCC employees continuity of the

terms of their employment across the transition.''

In addition, on June 11, 1997, the government of the Republic of

Panama enacted an organic law creating the basic legal framework under

which the Panama Canal Authority will operate. (This organic law, Law

19, was passed by the Republic of Panama Legislative Assembly on May

14, 1997, by unanimous vote and signed by Panama President Ernesto

Perez Balladares on June 11, 1997.) The law implements the

constitutional title approved in 1994 and specifically reaffirms the

protection of current PCC employees' working conditions and benefits.

(See Chapter V of Law 19.) The Panama Canal Authority will promulgate

detailed regulations to ensure that specific employment provisions and

protections applicable to PCC employees on December 31, 1999, will be

carried over into the new system.

Several commenters brought up a perception that non-U.S. citizen

employees of PCC would be treated differently from U.S. citizen

employees under the proposed regulations. PCC informs us that, in

conformance with the terms of the Canal treaty, almost all employees

hired after October 1, 1979, are Panamanian citizens and that the

workforce is now over approximately 90 percent Panamanian. Therefore,

it is unavoidable that the regulatory change will affect primarily

Panamanian citizens.

We are making changes in the proposed definition of the term

``reasonably comparable employment'' in section 550.714(b) of the

regulations. PCC recommended that the requirement that the offered

position be within 20 percent of the employee's PCC basic pay be

changed to within 10 percent of PCC basic pay. The reasoning is that

the change will reduce employee apprehension concerning post-transfer

employment, thereby enhancing the orderly transfer of the Canal in

1999. We have adopted that suggestion and revised Sec. 550.714(b)(2)

accordingly.

In addition, questions were raised about the reference to a

``private entity'' in the proposed Sec. 550.714(b)(1). After requesting

clarification from PCC staff, we learned that, under the new

Constitutional Title, responsibility for Panama Canal operations will

be assumed by a single public agency of the government of Panama

referred to as the ``Panama Canal Authority.'' We believe severance pay

should not be payable to those employees who are offered or accept

reasonably comparable employment with the Panamanian public entity that

is replacing the PCC, since the Panamanian Constitutional Title

guaranteeing special employment protections applies only to employees

of that entity. Therefore, we have revised the proposed regulations to

delete any reference to private successor entities and to clarify that

the rule applies only to the Panamanian public agency responsible for

managing, operating, and maintaining the Panama Canal after its

transfer under the Panama Canal Treaty.

E.O. 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget

in accordance with E.O. 12866.

Regulatory Flexibility Act

I certify that these regulations will not have a significant

economic impact on a substantial number of small entities because they

will apply only to Federal agencies and employees.

List of Subjects in 5 CFR Part 550

Administrative practice and procedure, Claims, Government

employees, Wages.

Office of Personnel Management.

Janice R. Lachance,

Acting Director.

Accordingly, OPM is amending part 550 of title 5, Code of Federal

Regulations, as follows:

PART 550--PAY ADMINISTRATION (GENERAL)

Subpart G--Severance Pay

1. The authority citation for subpart G continues to read as

follows:

Authority: 5 U.S.C. 5595; E.O. 11257, 3 CFR, 1964-1965 Comp., p.

357.

2. Section 550.714 is added to read as follows:

Sec. 550.714 Panama Canal Commission employees.

(a) Notwithstanding any other provisions of this subpart, an

employee separated from employment with the Panama Canal Commission as

a result of the implementation of any provision of the Panama Canal

Treaty of 1977 and related agreements shall not be entitled to

severance pay if he or she--

(1) Receives a written offer of reasonably comparable employment

when such offer is made before separation from Commission employment;

(2) Accepts reasonably comparable employment within 30 days after

separation from Commission employment; or

(3) Was hired by the Commission on or after December 18, 1997.

(b) The term reasonably comparable employment means a position that

meets all the following conditions:

(1) The position is with the Panamanian public entity that assumes

the functions of managing, operating, and maintaining the Panama Canal

as a result of the Panama Canal Treaty of 1977;

(2) The rate of basic pay of the position is not more than 10

percent below the employee's rate of basic pay as a Panama Canal

Commission employee;

(3) The position is within the employee's commuting area;

[[Page 49128]]

(4) The position carries no fixed time limitation as to length of

appointment; and

(5) The work schedule (that is, part-time or full-time) of the

position is the same as that of the position held by the employee at

the Panama Canal Commission.

(c) A Panama Canal Commission employee who resigns prior to

receiving an official written notice that he or she will not be offered

reasonably comparable employment shall be considered to be voluntarily

separated. Section 550.706(a) shall be applied, as appropriate, to any

employee who resigns after receiving such notice.

(d) Except as otherwise provided by paragraphs (a) through (c) of

this section, the provisions of this subpart remain applicable to

Panama Canal Commission employees.

[FR Doc. 97-24885 Filed 9-18-97; 8:45 am]

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