[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Rules and Regulations]
[Pages 49125-49128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24885]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
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Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 /
Rules and Regulations
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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 payleave@opm.gov.
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
[[Page 49126]]
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;
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(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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