Opinion 89-56


This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.


LOCAL LAWS -- Compensation (authority to make incentive payments to employees who report health care services billed but not provided)
COLLECTIVE BARGAINING -- Compensation (payments to employees who report health care services billed but not provided)
PUBLIC OFFICERS AND EMPLOYEES -- Compensation (payments to employees who report health care services billed but not provided)

MUNICIPAL HOME RULE LAW, §10(1)(ii)(a), (d)(3); TOWN LAW, §27; CIVIL SERVICE LAW, §200, et seq.: A town which has established a self-insured health insurance plan may provide, by local law or pursuant to a collective bargaining agreement, for cash incentive payments to employees who identify health care services which are billed to the town but were not rendered.

This is in reply to your letter concerning certain payments proposed to be made to town employees. You state that the town has established a self-insured health insurance plan. As an incentive for employees to help identify charges made by health care providers for services not rendered, the town proposes to offer any employee who reports such a charge, a cash payment equal to one-half of the amount billed. You inquire whether this proposed incentive payment constitutes a gift of town funds in violation of Article VIII, §1 of the State Constitution.

Town Law, §27(1) provides that salaries of town officers and employees shall be in lieu of all fees, charges or compensation for all services rendered to the town. Accordingly, in the absence of proper statutory or home rule authorization, a town could not make the proposed cash payment to employees who identify health care services billed but not actually provided. In this regard, we note that General Municipal Law, §88-a, which authorizes municipalities to provide merit awards for suggestions which result in a more efficient or economical operation of their government, would not be applicable to the proposed program because the incentives would not be made for employee suggestions.

Although we are aware of no state statute authorizing the proposed incentive payments, we note that Municipal Home Rule Law, §10(1)(ii)(a)(1) authorizes local governments to enact local laws, not inconsistent with any general law or the Constitution, relating to the compensation and welfare of their employees. In addition, Municipal Home Rule Law, §10(1)(ii)(d)(3) authorizes towns, with certain exceptions not applicable here, to adopt local laws superseding or amending the Town Law in its application to the town, so long as the local laws relate to the property, affairs and government of the town or to a matter specifically enumerated in section 10. We have previously concluded that, pursuant to these provisions, a municipality could adopt local laws authorizing cash payments as incentives to employees who have no sick leave absences during a fixed period (1981 Opns St Comp No. 81-107, p 108), and as safety awards (1986 Opns St Comp No. 86-11, p 18). We reasoned that such payments would not constitute unconstitutional gifts because they would be paid as part of the employee's overall compensation package (see also 1985 Opns St Comp No. 85-44, p 59).

Similarly, in the instant case, it is our opinion that the town may enact a local law providing for cash incentive payments to town employees for reporting improper billing by health service providers under the town's self-insurance plan. Since such payments would be an inducement to employees to actively aid the town in identifying improper billings andwould be part of the employee's compensation, the payment would not, in our view, constitute gifts in contravention of Article VIII, §1.

It is also our opinion that, in a collective bargaining agreement, the town may provide cash payments to employees who report improper billing for health care services. It is well-established that an item may be included in a collective bargaining agreement, whether or not it involves a term or condition of employment subject to mandatory bargaining, unless there is a plain and clear prohibition against such inclusion in the State or Federal Constitution, a statute, decisional law or restrictive public policy (Board of Education v Yonkers Federation of Teachers, 40 NY2d 268, 386 NYS2d 657; Board of Education v Associated Teachers of Huntington, Inc., 30 NY2d 122, 331 NYS2d 17). In this regard, we note that there is no prohibition against including a provision in a collective bargaining agreement for the proposed cash payment program. Further, such a provision would not contravene Article VIII, §1 because benefits provided under a collective bargaining agreement are generally held not to be unconstitutional gifts but, rather, legally enforceable contractual rights supported by consideration under contract (Antonopoulou v Beame, 32 NY2d 126, 343 NYS2d 346; AFSCME v City of Plattsburgh, 72 Misc 2d 744, 340 NYS2d 18; Opn No. 85-44, supra).

Although it is our opinion that the incentive payment program would be legally permissible pursuant to local law or a collective bargaining agreement, the town should carefully evaluate the advisability and cost-effectiveness of this program. In connection with this evaluation, we suggest that the town take into consideration its normal audit process by which the town should be able generally to detect services billed but not rendered (see Town Law, §§118, 119).

December 27, 1989
James A. Schondebare, Esq., Town Attorney
Town of Southold