text:
    [674 NE2d 292, 651 NYS2d 362]
    David Ballentine et al., Appellants, v Edward I. Koch, Individually and as Mayor of the City of New York, et al., Respondents.
    Argued September 12, 1996;
    decided October 22, 1996

      POINTS OF COUNSEL

      William F. Smith, Garnerville, and Christopher J. Aventuro for appellants.

      Paul A. Crotty, Corporation Counsel of New York City (James J. Dwyer, Ellen B. Fishman, Susan Sanders and Alan Beckoff of counsel), for respondents.

      Ronald Podolsky, Hauppauge, for Variable Supplement Committee, amicus curiae.

   OPINION OF THE COURT

Levine, J.

Plaintiffs, retired New York City police officers who receive or are eligible to receive payments from the Police Officer’s Variable Supplements Fund (POVSF), challenge chapter 247 of the Laws of 1988, which changed the funding and benefit structure of the POVSF, as an unconstitutional impairment of contractual pension rights in violation of article V, § 7 of the New York Constitution and the Federal Contract Clause (US Const, art I, § 10, cl [1]).

The POVSF was created (as the Patrolmen’s Variable Supplements Fund) in 1970 as a result of collective bargaining negotiations between New York City and the Patrolmen’s Benevolent Association (PBA). As originally implemented, the POVSF was funded by a formula based on the extent to which the earnings of the Police Pension Fund from investments in equities exceeded the hypothetical earnings from fixed income securities. Additionally, the board of trustees created to administer the POVSF was given broad discretion concerning the manner and amount of disbursements of POVSF funds to eligible beneficiaries (see generally, Poggi v City of New York, 109 AD2d 265, affd 67 NY2d,794; see also, Gagliardo v Dinkins, 89 NY2d 62 [decided herewith]).

In 1988, however, legislation was passed changing both the funding method and payment structure of the POVSF: the board of trustees’ discretion over disbursements was eliminated and replaced with a schedule for defined annual payments and the method for funding the POVSF was changed from a formula based on the Police Pension Fund’s investment equity earnings to a requirement that amounts be transferred from the Police Pension Fund only as needed to finance the defined POVSF payments (see, L 1988, ch 247, §§ 9, 15, 17, 18 [amending Administrative Code of City of NY §§ 13-271, 13-232 and creating § 13-232.1]). Additionally, the 1988 legislation provided for a one-time transfer of 15% of the assets of the POVSF (up to $75 million) to the City (L 1988, ch 247, § 14) and specifically made the defined annual benefits a guaranteed obligation of the City (L 1988, ch 247, § 9, enacting cl [v] of Administrative Code § 13-271 [b] [1]).

In 1989, plaintiffs commenced an action in Federal District Court alleging that these changes to the POVSF violated their due process rights and constituted an unconstitutional impairment of their Federal and State contract rights. That court dismissed the due process claims on the merits and subsequently dismissed the remainder of the action on abstention grounds, holding that the Federal Contract Clause claim would require the court to determine whether the original legislative enactment created a contractual obligation under State law, an issue that the Federal court recognized had not yet been decided by this Court (see, Ballentine v Koch, 1991 WL 107810 [SD NY, June 7,1991, 89 Civ 2317]). Plaintiffs then commenced this action, asserting, as pertains to this appeal, claims under the Federal Contract Clause and the Pension Impairment Clause (art V, § 7) of the State Constitution and seeking a declaration that the 1970 legislation establishing the POVSF created a pension or retirement system and a declaration that the provisions of the 1988 legislation which changed the funding and payment structure of the POVSF, and authorized a transfer of funds from the POVSF to the City, were unconstitutional and unenforceable. In addition, plaintiffs sought injunctive relief directing the City to return the $75 million transferred from the POVSF pursuant to the 1988 enactment.

After joinder of issue, defendants moved to dismiss the complaint for failure to state a claim (which the court treated as a motion for summary judgment) and plaintiffs cross-moved for an order dismissing defendants’ affirmative defenses and granting summary judgment in their favor. Supreme Court granted defendants’ motion and dismissed the complaint in its entirety, holding, in pertinent part, that the POVSF payments are not benefits of any retirement or pension system and thus, are not subject to article V, § 7 of the State Constitution. The Appellate Division affirmed (224 AD2d 320). Plaintiffs have appealed as of right pursuant to CPLR 5601 (b) (1) and we now affirm.

Article V, § 7 of the NY Constitution protects as "a contractual relationship” the benefits of membership in a public pension or retirement system against diminishment and impairment. The provision "fix[es] the rights of the employees at the time of commencement of membership in [a pension or retirement] system, rather than as previously at retirement” (Matter of Guzman v New York City Employees’ Retirement Sys., 45 NY2d 186, 190-191, citing Birnbaum v New York State Teachers Retirement Sys., 5 NY2d 1, 9), and thus prohibits unilateral action by either the employer or the Legislature that impairs or diminishes the rights established by the employee’s membership (Matter of Village of Fairport v Newman, 90 AD2d 293, 295, appeal dismissed 58 NY2d 1112).

In enacting the provisions creating and governing the POVSF, the Legislature declared that the fund "shall not be, and shall not be construed to constitute, a pension or retirement system or fund” (Administrative Code § 13-269 [b]) and that the supplemental payments authorized "shall not create or constitute membership in a pension or retirement system and shall not create or constitute a contract with any pension fund beneficiary or with any member of [the Police Pension Funds]” (Administrative Code § 13-271 [b] [2] [i]). The express purpose of these disclaimers was to "reserve! ] to the state of New York and [the Legislature] the right and power to amend, modify or repeal any or all of the provisions of [the Administrative Code governing the POVSF]” (Administrative Code § 13-269 [b]).

Thus, by defining the POVSF as not a pension or retirement system, and by reserving to the Legislature the unilateral right to amend or repeal the POVSF statutory provisions, the 1970 legislation established a benefit scheme expressly outside the purview of article V, § 7.

Plaintiffs nonetheless contend that despite the unequivocal legislative intent that the POVSF not be restricted by those constitutional limitations, public policy demands that we declare their POVSF benefits to be within the scope of article V, § 7. To support their argument, plaintiffs rely on evidence of the negotiating process that led to the 1970 legislation which they maintain demonstrates that the POVSF was originally intended to be, and was represented to PBA members as, a protected pension fund. However, neither the history of the 1970 legislation, nor public policy, provides support for plaintiffs’ claim.

The POVSF grew out of contract negotiations between the City and plaintiffs’ bargaining representative, the Police Benevolent Association, over the collective bargaining agreement for the 1968-1970 contract period. A special panel that was convened to assist with negotiations following an impasse in the collective bargaining process proposed that a separate fund be created which would be funded from the investment earnings of the existing pension fund and which would provide supplemental benefits to some Police Pension Fund members. The City and the PBA eventually agreed to establish such a fund. (See generally, Castellano v Board of Trustees, 937 F2d 752, 754.) This initial agreement led to proposed implementing legislation submitted as a negotiated bill to the Legislature in 1969 (see, Veto Jacket, 1969 Assembly Bill A 6887, at 21 [letter from PBA President stating "(t)his bill * * * is the result of a collective bargaining procedure"] [emphasis in original]; see also, id., at 20 [letter from Mayor]). Although that initial proposal was vetoed by the Governor because it failed to provide for sufficient State oversight of the variable supplements fund (VSF) (see, Governor’s Mem vetoing 1969 Assembly Bill A 6887, Veto Jacket, at 1-2), it contained the statements now found in Administrative Code § 13-269 (b) and § 13-271 (b) (2), declaring the VSF not to be a pension or retirement system, and reserving to the Legislature the right to amend or repeal the affected Administrative Code provisions (see, 1969 Assembly Bill A 6887). Moreover, the next year, two different versions of the implementing legislation were passed by the Legislature, differing in aspects not relevant to this appeal. The City supported one version of the implementing legislation (1970 Assembly Bill A 6508, the version eventually enacted into law) and the PBA supported the other (1970 Assembly Bill A 3798, which was vetoed by the Governor for essentially the same reason the 1969 enactment had been vetoed), and the union and the City disagreed as to which version was in fact the negotiated bill (see, Bill Jacket, L 1970, ch 876, at 3, 7; Veto Jacket, 1970 Assembly Bill A 3798, at 5, 8-9, 13, 14-15, 18). However, both versions again contained these same declarations of legislative intent as found in the original proposal and as ultimately enacted into law (compare, 1970 Assembly Bill A 6508 [City supported bill], with 1970 Assembly Bill A 3798 [PBA supported bill]). Accordingly, the evidence demonstrates that the union and the City agreed to the implementing language that effectively took the POVSF outside the scope of article V, § 7’s protections.

Plaintiffs’ attempt to demonstrate that the enacted language at issue here did not in fact represent the negotiated agreement is unavailing. The evidence upon which plaintiffs rely (such as a collective bargaining proposal submitted to PBA members in which the contemplated fund was labeled a "supplemental pension fund”) does no more than indicate that there may have been a lack of clarity on this issue in the collective bargaining documents. However, the suggestion that this demonstrates ambiguity as to the bargaining parties’ actual intent is dispelled by the subsequent legislative developments (see, Matter of Di Giacomo v City of New York, 58 AD2d 347, 359-360 [Silverman, J., dissenting] [amendment enacted immediately following nonspecific collective bargaining agreement provides evidence of parties’ interpretation of their agreement], revd on dissenting opn of Silverman, J., 46 NY2d 894).

Furthermore, although plaintiffs contend that they never specifically ratified the pertinent language in approving the contract, they have failed to demonstrate on this record that the PBA was acting outside the scope of its representational authority in agreeing to the statutory provisions at issue. Accordingly, because plaintiffs designated the PBA as their agent for the collective bargaining negotiations at issue here and were thus bound by its actions taken on their behalf during the negotiation process (see, Schacht v City of New York, 39 NY2d 28, 32), the PBA’s waiver of the constitutional protections of article V, § 7 is valid as to plaintiffs, and bars their present claim, unless enforcement of that waiver otherwise violates public policy (id.; Matter of Carroll v Grumet, 281 App Div 35, 37, mot to dismiss appeal granted and lv denied 305 NY 692).

We perceive of no public policy barring enforcement of the waiver in this case. We have previously held that a waiver of article V, § 7’s protections, as to funds ordinarily included in the calculation of pension benefits, does not in itself violate public policy, and that such a waiver may be implied from the plaintiffs’ course of conduct (Rosen v New York City Teachers’ Retirement Bd., 282 App Div 216, affd 306 NY 625; see also, Matter of Carroll v Grumet, supra).

Nor is there any general prohibition preventing the creation of benefits for retired public employees that exist separately from the applicable pension or retirement system (see, Matter of Lippman v Board of Educ., 66 NY2d 313 [employer funded health insurance benefits payable to retirees are not pension benefits within protection of article V, § 7]; see also, Board of Educ. v Associated Teachers, 30 NY2d 122, 128 [salary increment available for declaring intention to retire prior to last year of service is a term and condition of employment and not a benefit of the retirement plan]; New York Pub. Interest Research Group v City of New York, 89 Misc 2d 262 [fixed annuity payments held not to be retirement payments within the meaning of Retirement and Social Security Law § 113], affd 63 AD2d 926, affd for reasons stated in Sup Ct opn 48 NY2d 917).

Moreover, given the parties’ intent that the supplemental payments would derive from the Pension Fund’s investment earnings, defendants cogently make the point that it was necessary to designate the POVSF as a nonpension benefit in order to foreclose a constitutional challenge whenever the members’ regular Pension Fund benefits were increased. Since an increase in the Pension Fund’s disbursements necessarily would affect that Fund’s assets, an increase in regular pension benefits disbursed from the Pension Fund would cause a decrease in the amount of money available for investment— the source of the earnings available for transfer to the POVSF. Thus, it is apparent that any regular pension increase would be subject to challenge as impairing the integrity of the POV-SF’s funding source in violation of article V, § 7 (cf., McDermott v Regan, 82 NY2d 354). It follows that, had the POVSF been designated part of the Pension Fund or as a separate pension or retirement system, it may have had the effect of freezing the members’ Pension Fund benefits, a result, to say the least, which would not have been within the willing contemplation of plaintiffs and the other members of the bargaining unit represented by the PBA in the POVSF negotiations.

Against this background, the contradiction underlying plaintiffs’ challenge becomes evident: plaintiffs claim they are entitled to the benefits established by the collective bargaining agreement and the 1970 legislation, but in doing so, they attack as unenforceable an aspect of the legislation that was necessary to the creation of the rights they seek to enforce (cf., Schacht v City of New York, supra, 39 NY2d, at 32).

Furthermore, the characteristics of the fund created by the 1970 legislation, particularly the absence of a guaranteed fund-

ing source and the virtually unlimited discretion regarding disbursements to eligible beneficiaries, 3**are inconsistent with the generally recognized characteristics of pension and retirement funds (see generally, 1 Proskauer, Rose, Goetz & Mendelsohn, New York Employment Law § 18.02). Nor is there any merit to plaintiffs’ claim that the VSF must be designated a retirement or pension benefit to avoid being found an unconstitutional gift of municipal funds (see, Gagliardo v Dinkins, supra, at 74-75).

In sum, because the PBA, on plaintiffs’ behalf, validly waived the protections of article V, § 7 in agreeing to the creation of POVSF benefits as nonpension benefits and to the Legislature’s unrestricted right to amend or repeal the statutory provisions governing the fund, plaintiffs may not now claim the protection of the Pension Impairment Clause.

Finally, we reject plaintiffs’ claim premised on the Federal Contract Clause (US Const, art I, § 10, cl [1] ["No State shall * * * pass any * * * law impairing the obligation of contracts”]). Plaintiffs contend that the changes made by the 1988 legislation to the funding and payment structure of the POVSF unconstitutionally impaired the contractual rights established by the original implementing legislation.

Analysis of a Contract Clause claim begins with a determination of " 'whether the state law has, in fact, operated as a substantial impairment of a contractual relationship’ ” (Energy Reserves Group v Kansas Power & Light, 459 US 400, 411, quoting Allied Structural Steel Co. v Spannaus, 438 US 234, 244). However, where there is no existing contractual agreement regarding the terms changed by the legislation, there is no need to consider whether there was in fact an impairment and whether it was substantial (General Motors Corp. v Romein, 503 US 181, 186 [enactment changing aspects of workers’ compensation formula did not violate Federal Contract Clause because there was no contractual agreement regarding the specific terms affected]).

As previously noted, under the original implementing legislation, the receipt of POVSF payments was made contingent on the existence of excess Pension Fund investment earnings and on the POVSF trustees’ exercise of discretion with respect to disbursements from the supplemental fund (see, supra, at 54, 60, n 2). Consequently, under this benefit scheme, plaintiffs were not assured that funds for supplemental payments would be available, or that the payments, if made, would be of a certain amount or continue for any specified duration, and in fact, no payments were made during the first five years of the POVSF’s existence. Moreover, the statute itself expressly stipulated that it did not create any contractual rights as to the POVSF payments. Given the highly conditional and discretionary nature of the original benefit scheme, and the express statutory repudiation of any right to disbursements, plaintiffs are unable to demonstrate that the 1988 legislation changed any terms of an existing contractual relationship.

Accordingly, the order of the Appellate Division, affirming Supreme Court’s dismissal of the complaint, should be affirmed, with costs.

Chief Judge Kaye and Judges Simons, Titone, Smith and Ciparick concur; Judge Bellacosa concurs on constraint of Poggi v City of New York (109 AD2d 265, affd 67 NY2d 794) insofar as it controls the rationale and result in this case.

Order affirmed, with costs.

      . There are actually two Police Pension Funds, a subchapter 1 fund for police officers who were members of the police force before March 29, 1940, and a subchapter 2 fund for officers whose service began after that date (formerly known as the article 1 and article 2 funds). The POVSF is funded by transfers from the subchapter 2 fund, but its payments are available to eligible beneficiaries of both Police Pension Funds.

      . As originally enacted, the Administrative Code provisions governing the POVSF stated: "No pension fund beneficiary shall have a right to receive variable supplements except to the extent, in the manner and for the period authorized by the [POVSF board of trustees] in the exercise of its discretion pursuant to this article and any such supplements granted may at any time be discontinued by the board in the exercise of such discretion” (Administrative Code former § B18-63.0 [b] [1]). The only limitation on the trustees’ broad discretion was the requirement that in exercising its discretion it consider "equity, fairness and principles of prudent management” (Administrative Code former § B18-63.0 [a]).

      . Plaintiffs do not argue that the collective bargaining agreement established any different or additional rights to the POVSF; nor is there anything in the record before us to support such a claim.

      . Administrative Code § 13-271 (b) (2) (i) (the granting and receipt of VSF payments "shall not create or constitute a contract with any pension fund beneficiary or with any member of [the Police Pension Funds]”).


source: Caselaw Access Project

author: Levine, J.

license: Public Domain

text:
    [674 NE2d 298, 651 NYS2d 368]
    Joseph A. Gagliardo et al., Appellants, v David Dinkins, as Mayor of the City of New York and as a Member of the Board of Trustees of the New York City Housing Police Officer’s Variable Supplements Fund and New York City Housing Police Superior Officers’ Variable Supplements Fund, et al., Respondents. Edward Ranieri et al., Appellants, v David Dinkins, as Mayor of the City of New York and as a Member of the Board of Trustees of the Transit Police Officer’s Variable Supplements Fund and Transit Police Superior Officers’ Variable Supplements Fund, et al., Respondents.
    Argued September 12, 1996;
    decided October 22, 1996

      POINTS OF COUNSEL

      Ward, Eugene & Rowley, New York City (Rodney C. Ward, III, of counsel), for appellants in the first above-entitled action.

      Paul A. Grotty, Corporation Counsel of New York City (James J Dwyer, Pamela Seider Dolgow, Susan Sanders and John Hogrogian of counsel), for respondents in the first above-entitled action.

      Kevin P. Fitzpatrick, P. C., Williston Park (Kevin P. Fitzpatrick of counsel), for appellants in the second above-entitled action.

      Paul A. Crotty, Corporation Counsel of New York City (James J. Dwyer, Pamela Seider Dolgow, Susan Sanders and John Hogrogian of counsel), for respondents in the second above-entitled action.
   OPINION OF THE COURT

Levine, J.

These cases involve challenges to the statutory scheme that created variable supplements funds (VSFs) to provide additional financial benefits to certain retirees of the New York City Housing Police and the New York City Transit Police, based on attainment of a statutorily defined period of service. Plaintiffs in Gagliardo v Dinkins are retired New York City Housing Police Officers or Housing Police Superior Officers who receive New York City Employees’ Retirement System (NYCERS) pension benefits but are statutorily ineligible for Housing Police VSF benefits. Similarly, in Ranieri v Dinkins, plaintiffs are retired New York City Transit Police Officers or Transit Police Superior Officers who receive NYCERS pension benefits and who are ineligible for Transit Police VSF benefits.

In major part, the challenges to the Housing and Transit Police VSFs replicate and require us to revisit a similar challenge to the VSFs earlier created for New York City Police Department retirees in Poggi v City of New York (109 AD2d 265, affd 67 NY2d 794). First created in 1970 as a result of collective bargaining negotiations between the City of New York and union representatives for the City’s police officers, the VSF implementing legislation authorized the trustees of the Police Pension Fund, in their discretion, to invest assets of the pension fund in common stock rather than exclusively in high-grade fixed income debt securities (L 1970, ch 876, § 4 [amending former Administrative Code § B18-28.0]; see also, Ballentine v Koch, 89 NY2d 51 [decided herewith]; Poggi v City of New York, 109 AD2d, at 267-268, supra). As implemented, any net increase in investment earnings generated by such a change would be subject to distribution to service retirees, thereby providing supplemental benefits to these retirees without endangering the pension fund reserves that would have existed absent the legislative change (L 1970, ch 876; Poggi v City of New York, supra, at 268-272).

Thus, by legislative design, the New York City Police VSFs were created and funded from the excess investment earnings of the Police Pension Fund. A statutory formula essentially defined as excess earnings those earnings from pension fund equity investments that, in any given year, exceeded the hypothetical earnings that would have resulted if the funds invested in equities had instead been invested in fixed income securities. Those excess earnings were then transferred to the Police VSFs, subject to offsets from losses in those years in which equity earnings did not exceed the hypothetical earnings and no transfer occurred (see, Administrative Code § 13-232; Poggi v City of New York, supra, at 267-268, 268, n 1).

In 1987, similar systems were agreed to by the City and union representatives and then enacted to establish VSFs for eligible for service retirees of the New York City Housing and Transit Police Departments. Under these arrangements, the Housing and Transit VSFs would, like the Police VSFs, receive funds in any year in which earnings from their NYCERS investments in stocks exceeded the hypothetical earnings from an equivalent amount of fixed income securities.

Thus, to the extent that the challenges here are based on the contention that the transfers of excess NYCERS investment earnings determined under the statutory formulas constitute a violation of the Pension Impairment Clause of the New York State Constitution (NY Const, art V, § 7), they parallel the issue necessarily decided in Poggi as to virtually identical legislation. In Poggi, the plaintiffs claimed that the allocation of transferable excess earnings, as set forth in section B18-27.1 (d) (1) of the (former) Administrative Code, diminished and impaired their pension contract benefits protected under article V, § 7. The Appellate Division held that their objection was invalid because none of the preexisting contractual benefits paid by the Police Pension Fund fluctuated or depended in any way upon the transferred excess investment earnings (109 AD2d, at 269-272, supra). This Court affirmed, agreeing with the reasoning of the Appellate Division that the VSF scheme did not violate the Impairment Clause. We noted in Poggi that this ruling rendered it unnecessary to reach the question whether these "[VSF] funds constitute a pension or retirement benefit” (Poggi v City of New York, 67 NY2d, at 796, supra).

In 1988, subsequent to the decision in Poggi, the New York City Police Department VSFs were converted to statutorily defined mandated benefit plans requiring payments to each eligible beneficiary on a fixed schedule beginning with a minimum amount and increasing annually until the year 2007. The legislation also guaranteed payment of the VSF benefits by the City of New York regardless of the performance of the Police Pension Fund investments and authorized the transfer of $75 million dollars from the New York City Police Officer’s VSF to the City of New York.

In 1992 and 1993, similar legislation amended the Administrative Code to establish a schedule of defined VSF benefits to eligible for service New York City Housing and Transit Police retirees. As enacted, however, the defined benefit payments were not guaranteed and depended upon the existence of sufficient funds in the Housing and Transit Police VSFs. The legislation provided that only upon certification by the City Actuary that sufficient funds existed in the VSFs to make all annual payments through the year 2007, would the City of New York guarantee such payments. In return for that guarantee, 15% of the VSFs’ assets were to be transferred to the City on a one-time basis. Subsequently, the City Actuary made the respective determinations that sufficient funds existed for future payments through calendar year 2007, and 15% of the Transit Police VSF assets were transferred to the City of New York. However, as to the Housing Police VSF, in 1994, the contingent guarantee provision and the 15% transfer provision were eliminated and the City of New York made an express guarantee of all payments to Housing Police VSF beneficiaries in consideration of a one-time transfer of $2,770,000 from the Housing Police VSF to the City.

In 1992, the Ranieri plaintiffs commenced one of these actions in Supreme Court seeking, inter alia, injunctive and declaratory relief. Plaintiffs then moved for partial summary judgment and defendants answered thé complaint and subsequently cross-moved for summary judgment in their favor on all claims. Supreme Court granted summary judgment to defendants and dismissed the complaint.

In 1993, plaintiffs in Gagliardo commenced their action. Plaintiffs sought a preliminary injunction by order to show cause to enjoin defendants from making any defined benefit supplemental payments from the VSFs. Defendants raised defenses similar to those in the Ranieri action and cross-moved for summary judgment. Supreme Court granted defendants’ motion for summary judgment and dismissed the complaint.

Plaintiffs in Ranieri and Gagliardo separately appealed the Supreme Court decisions and the Appellate Division consolidated the cases and unanimously affirmed (223 AD2d 371). This appeal as of right followed (see, CPLR 5601 [b] [1]).

On appeal, the Ranieri plaintiffs argue that the legislative mandate to transfer excess earnings from the NYCERS pension fund into the Transit Police VSFs and the later transfer of 15% of the VSFs assets to the City impaired the integrity of the NYCERS pension system and divested the NYCERS Board of Trustees of its autonomous judgment and discretion with regard to NYCERS investments and earnings in violation of article V, § 7 of the State Constitution. Plaintiffs in Ranieri further allege that the payment of VSF benefits to eligible Transit Police retirees constituted an unconstitutional gift under article VIII, § 1 of the New York State Constitution.

The Gagliardo plaintiffs allege, inter alia, that the transfer of assets from the Housing Police VSFs to the City of New York unconstitutionally impaired and diminished the NYCERS pension funds in violation of article V, § 7, and the limítations on eligibility for VSF benefits unconstitutionally discriminated against older or disabled retirees in violation of the Equal Protection Clause of the United States Constitution (US Const 14th Amend), the Americans with Disabilities Act (42 USC § 12101 et seq.), and the New York State Human Rights Law (Executive Law § 296 [1] [a]).

We now affirm.

I

In Ranieri, plaintiffs maintain, inter alia, that the transfer of excess investment earnings from the NYCERS pension fund into the VSFs constitutes a violation of the New York State Constitution’s Pension Impairment Clause. To this extent, the issue raised by plaintiffs is governed by the rationale adopted in Poggi v City of New York (supra) as the basis for rejecting the plaintiffs’ objection to the VSF legislation in that case.

The Pension Impairment Clause provides,

"[a]fter July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired” (NY Const, art V, §7).

As was explained in Justice Sullivan’s majority opinion at the Appellate Division in Poggi, article V, § 7 merely "preserves the benefits of the pension contract relationship rather than 'naked pension rights qua rights’ ” (109 AD2d, at 269, supra, quoting Mutterperl v Levitt, 89 Misc 2d 428, 431, affd 41 NY2d 956). As held in Poggi, for the Ranieri plaintiffs to prevail on this claim, they must show that by reason of the formula-based transfer of excess investment earnings from the NYCERS pension fund to the VSFs "some benefit set forth in the pension contract of the Administrative Code is diminished or impaired” (Poggi v City of New York, 109 AD2d 265, 269, supra). Here, as in Poggi, the statutory formula used to identify surplus investment earnings guaranteed that the pension fund corpus would not be impaired (see, id., at 270-271). In fact, no provision of the statutory NYCERS pension contractual relationship requires the pension fund to pass on excess investment earnings to its members. Hence, the subsequent transfer of surplus earnings had no impairment effect whatsoever on the Ranieri plaintiffs’ retirement benefits by way of reducing the employers’ statutory liability for contributions to the pension fund or in any other manner undermining the ability of NYCERS to meet plaintiffs’ retirement benefits or pension payment obligations to any other retirees (see, Administrative Code §§ 13-127, 13-133; Poggi v City of New York, supra, at 270-271).

Plaintiffs, however, contend that the Poggi decision is not controlling here in light of our decisions in Sgaglione v Levitt (37 NY2d 507, rearg denied 37 NY2d 924) and McDermott v Regan (82 NY2d 354). We disagree. Sgaglione v Levitt (supra), was decided before Poggi, and the Court in Poggi correctly concluded that Sgaglione did not require that formula-based transfers of excess investment earnings to VSFs be found unconstitutional. Nor does McDermott v Regan (supra). McDermott, in following Sgaglione, identified the critical inquiries as being whether the pension fund trustees’ discretion was eliminated in some material respect and whether that loss of discretion resulted in the danger of impairment of any reserve funds necessary to pay retirement benefits such as immediately reducing employers’ contributions which may later be essential to maintain the necessary level of pension benefits (see, McDermott v Regan, 82 NY2d, at 360-362, supra).

Sgaglione and McDermott hold that close judicial scrutiny is required of any radical alterations in the means chosen "to maintain the integrity and security of the sources from which the * * * protected benefits are to be paid” (id., at 361, quoting Sgaglione v Levitt, 37 NY2d, at 512, supra). Thus, in Sgaglione, we determined that the legislative mandate directing the investment of reserve funds in low investment grade municipal paper usurped the discretion of the State Comptroller (as sole trustee of the pension fund) and resulted in the impairment of the integrity of the pension fund (Sgaglione v Levitt, supra, at 511-513). Similarly, in McDermott, the legislative mandate that the State Comptroller adopt a radical funding method thereby permitting employers to deplete years of accrued assets in existing reserves in the State retirement system by reducing the amount of their contributions violated article V, § 7 of the State Constitution (McDermott v Regan, supra, at 360-363).

There is no similar restriction on the trustees’ discretion or their autonomous judgment resulting in any possible impairment of the pension fund reserves here. Under the VSF legislation, the NYCERS trustees are not required, but are merely permitted, to invest in equity securities. Most notably, the amount of employer contributions to the NYCERS fund is totally unaffected by the legislation either directly or indirectly, and the statutory formula for the transfers of excess investment earnings guarantees that reserve funds will be maintained at a level equivalent to what would exist in the pension fund if all assets were invested in high-grade fixed income debt securities. In these ways, the financial integrity of the NYCERS pension reserves to assure the fund’s ability to meet its pension obligations is protected. Indeed, the legislation enacted in 1992 and 1993 is even more favorable to the accretion of NYC-ERS pension fund reserves, because no longer is the pension fund required to transfer all net excess investment earnings to the VSFs.

II

Plaintiffs in Ranieri also argue that the transfer of VSF assets to New York City and the VSF benefit payments to those deemed eligible is an unconstitutional gift under article VIII, § 1 of the New York State Constitution. Plaintiffs base this assertion on two statutory provisions: the VSF legislation itself which expressly declares that the variable supplements are not to be construed as pension fund or retirement system benefits; and Civil Service Law § 201 (4) which excludes from the definition of " 'terms and conditions of employment’ * * * any benefits provided by or to be provided by a public retirement system, or payments to a fund or insurer to provide an income for retirees, or payment to retirees or their beneficiaries” (Civil Service Law § 201 [4]). Plaintiffs arguments are unpersuasive.

The variable supplements fund payments at issue here were created through collective bargaining as additional future compensation for services actually rendered by police officers within the bargaining unit during the life of the agreement. In addition, these supplemental benefit payments also serve the important purpose of attracting and retaining qualified candidate-officers and providing an inducement to remain in active police service. Therefore, under settled principles, these payments do not constitute a gift in violation of article VIII, § 1 (see, e.g., Matter of Antonopoulou v Beame, 32 NY2d 126, 131 [public moneys used to meet collective bargaining agreement obligations to officers and employees in the civil service are not an unconstitutional gift]; Board of Educ. v Associated Teachers, 30 NY2d 122, 128 [collective bargaining agreement to provide a salary increase to teachers in their final year of employment prior to retirement serves legitimate purpose of inducing experienced teachers to remain in service]; Hoyt v County of Broome, 285 NY 402, 406-407 [continuation of salaries to government or municipal employees while in military service is a permissible incentive for public service]).

Moreover, the constitutional prohibition on gifts of public funds is not necessarily subject to statutory definitions of terms or conditions of employment for purposes of governing labor-management relations between civil service employees and public or governmental employers under the Taylor Law (Civil Service Law § 200 et seq.). (See also, Board of Educ. v Associated Teachers, 30 NY2d 122, supra; New York Pub. Interest Research Group v City of New York, 89 Misc 2d 262, 268, affd 63 AD2d 926, affd on Sup Ct opn 48 NY2d 917.) Thus, because the for service retirees receiving the supplemental payments have furnished a corresponding benefit to the City of New York, the compensatory VSF payments in consideration for those benefits to the municipality do not constitute an impermissible gift within the meaning of the Constitution.

Ill

Plaintiffs in Gagliardo also argue that the limitation on VSF eligibility to for service retirees improperly excludes officers who have retired as a result of disabilities, in violation of the Americans with Disabilities Act (42 USC § 12101 et seq.) and the State Human Rights Law (Executive Law § 296 [1] [a]).

To fall within the protection of the Americans with Disabilities Act (ADA), an individual must be otherwise qualified for participation in the benefit program of the public entity (see, 42 USC § 12132). The term "qualified individual with a disability” is defined as an individual with a disability

"who, with or without reasonable modifications to rules, policies, or practices, * * * meets the essential eligibility requirements for the receipt of services or the participation in programs or activities provided by a public entity” (42 USC § 12131 [2] [emphasis supplied]).

Therefore, each of the plaintiffs can only invoke the protection of the ADA if they are qualified individuals who meet the essential eligibility requirements but were "excluded from participation in” or "denied the benefits of the services, programs, or activities of a public entity * * * by any such entity” because of their disability (42 USC § 12132). Plaintiffs meet neither of these criteria.

Eligibility for the benefits of VSF membership require a minimum of 20 years accredited service. Such a requirement precludes from benefits only officers with less than 20 years of credited service, not those who retired because of a disability. Consequently, the for service eligibility requirement does not discriminate against or burden disabled individuals in a manner different from or greater than the burdens it places on nondisabled individuals (see, Castellano v Board of Trustees, 937 F2d 752, 755 [2d Cirj, cert denied 502 US 941 [1991]; see also, Traynor v Turnage, 485 US 535, 548-550 [1988]).

Under similar reasoning, we held that providing a disability pension program separate from a service pension does not violate the Human Rights Law’s prohibition against discrimination based on disability (Kuhnle v New York State Div. of Human Rights, 40 NY2d 720, appeal dismissed sub nom. Kuhnle v O’Hagan, 434 US 898 [1977]). Given the different needs of service and disability retirees and the unique benefits offered to each retirement classification, we cannot say that the for service limitation on VSF eligibility wrongly excludes disabled officers in violation of State law (see, Kuhnle, supra, at 723).

IV

Finally to be considered is plaintiffs’ contention that the subsequent transfer of a portion of the VSFs to the City of New York in exchange for its guarantee of definite VSF payments under the 1992 and 1993 legislation unconstitutionally impairs their NYCERS fund retirement benefits in contravention of article V, § 7. Initially, we note that plaintiffs concededly are not themselves eligible for payments from any VSF funds and, as already held, their constitutionally protected statutory retirement benefits are not impaired by the transfer of excess pension fund earnings to the VSFs. Thus, plaintiffs are not aggrieved by and lack standing to challenge the transfer of assets from the VSFs to the City of New York.

To overcome the standing objection, plaintiffs argue that the combined 1987 and 1992-1993 VSF legislation is an unlawful scheme to divert pension funds to the City. First, as noted above, in the matter before us the City and participating employers are required by statute to maintain the NYCERS fund, through annual contributions, at a level which is actuarially sufficient to meet anticipated pension benefit payments irrespective of whether there are transfers of any excess investment earnings. Thus, employer contributions remain unaffected by this legislation. We underscore that independent of any transfer of excess investment earnings to the VSFs, NYCERS can and must maintain a level of employer contributions sufficient to meet existing and anticipated pension fund obligations.

Second, the record incontestably shows that the 1987 legislation which created the VSFs out of surplus investment earnings of NYCERS funds was entirely separate from and unrelated to the 1992 and 1993 modifications whereby VSF benefits from the already created VSFs were converted from discretionary payments to definite benefits on a fixed payment schedule. Were there a statutory arrangement involving a simultaneous or sequential transfer of pension fund assets to a VSF and then a transfer of a portion thereof to the City of New York in exchange for some guarantee of VSF benefits, far graver questions would be presented, concerning the integrity of the pension fund assets and whether such a statutory scheme would work an effective reduction in employer contributions. Such a legislative arrangement would invoke serious concerns that it represented an attempt to achieve indirectly that which we have previously held in McDermott v Regan (supra) to be invalid when sought to be accomplished directly. We are not, however, called upon to address such concerns in this case. We have considered the plaintiffs’ remaining contentions and find them to be equally unpersuasive.

Accordingly, in each action the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Simons, Titone, Smith and Ciparick concur; Judge Bellacosa concurs on constraint of Poggi v City of New York (109 AD2d 265, affd 67 NY2d 794) insofar as it controls the rationale and result in these actions.

In each action: Order affirmed, with costs.

      . These retirees are statutorily termed "for service” retirees, as officers who have attained "twenty or more years of service toward the minimum [eligibility] period” for VSF payments (see, Administrative Code of City of NY § 13-191 [1] [c]; § 13-192 [1] [b]).

      . See, L 1987, ch 844; L 1987, ch 846; Administrative Code § 13-191 et seq.

      . See, Administrative Code § 13-193 (1) (c) (defining transferable earnings with reference to the Police VSF transfer formula).

        . See, L 1988, ch 247.

      . See, L 1988, ch 247, § 9 (enacting clause [v] of Administrative Code § 13-271 [b] til).

      . See, L 1988, ch 247, § 14. This legislation is the subject of a separate challenge in Ballentine v Koch (89 NY2d 51, supra).

      . See, L 1992, ch 577; L 1993, ch 375, codified in section 13-191 et seq. of the Administrative Code; see also, L 1994, ch 719 (establishing defined supplemental VSF benefits for Housing Police Superior Officers); L 1994, ch 720 (establishing defined supplemental VSF benefits for Transit Police Superior Officers). Since the Housing and Transit Police VSFs were created through almost identical legislation at approximately the same time, there exist two separate sets of sections numbered 13-191, 13-192, and 13-193 in the Administrative Code. As codified, one set specifically applies to the Housing Police VSFs and one set to the Transit Police VSFs.

      . See, Administrative Code § 13-191 (3) (e)-(j).

      . See, L 1992, ch 577, § 18 (b); L 1993, ch 375, § 18 (b).

      . See, L 1994, ch 719, § 36; § 3, adding Administrative Code § 13-191 (3) (f) (3).

      . See, Administrative Code § 13-133 (b).

      . See, L 1992, ch 577, § 16 (adding Administrative Code § 13-193.2 [7] [transfers from the retirement system to the Transit Police Officer’s VSF related to the payment guarantee]); L 1993, ch 375, § 16 (adding Administrative Code § 13-193.4 [7] [transfers from the retirement system to the Housing Police Officer’s VSF related to the payment guarantee]).

      . As one of their alternative arguments, the Gagliardo plaintiffs in their brief also contended that VSF benefits are a constitutionally prohibited gift. This argument, however, is unpreserved since the Gagliardo plaintiffs did not raise it in their complaint below.

      . See, Administrative Code § 13-191 (2) (b); (4) (f) (2); § 13-192 (2) (b); (4) (b) (2).

      . See, Administrative Code §§ 13-127, 13-133.

      . See, L 1992, ch 577; L 1993, ch 375, respectively.


author: Titone, J. Bellacosa, J.

text:
    [674 NE2d 305, 651 NYS2d 375]
    In the Matter of New York City Transit Authority et al., Respondents, v State of New York, Executive Department, Division of Human Rights, Respondent, and Mary Myers, Appellant.
    Argued September 3, 1996;
    decided October 22, 1996

      POINTS OF COUNSEL

      Marc D. Stern, New York City, and Mitchell Tyner, of the Maryland Bar, admitted pro hac vice, for appellant.

      Elaine A. Smith, Buffalo, and Lawrence Kunin, New York City, for State Division of Human Rights, respondent.

      Evelyn Jonas, Brooklyn, Martin B. Schnabel and Richard Schoolman for New York City Transit Authority, respondent.

      O’Donnell, Schwartz, Glanstein & Rosen, New York City (David B. Rosen of counsel), for Transport Workers Union of Greater New York, AFL/CIO, Local 100, respondent.
   OPINION OF THE COURT

Titone, J.

Our State’s Human Rights Law prohibits employers from discriminating against their employees because of their religiously motivated Sabbath observance (Executive Law § 296 [10] [a]). Recognizing that there may be circumstances in which the mandate of the statute conflicts with the strictures of a collective bargaining agreement, we have previously held that an employer caught in such a conflict is obligated only to make a "good faith” effort to accommodate a Sabbath-observing employee (Matter of Schweizer Aircraft Corp. v State Div. of Human Rights, 48 NY2d 294, 299). The present appeal requires us to apply that principle and to delineate some of the contours of what a "good faith” effort is.

Respondent Mary Myers is a practicing Seventh Day Adventist. The tenets of her religion forbid her from engaging in any form of work on the Sabbath, which extends from sundown on Friday to sundown on Saturday. In June of 1988, Myers was hired as a full-time bus operator trainee by the New York City Transit Authority, which operates its buses on a seven-day per week, 24-hour per day basis. From the outset, Myers made it clear to her supervisors that her religious commitments would prevent her from working between sundown on Friday and sundown on Saturday.

During her training period and the first week of her regular employment, Myers’ Sabbath observance presented little conflict with the demands of her job. However, a problem arose shortly thereafter because she was assigned Wednesdays and Thursdays as her days off, a schedule requiring her regularly to work on her Sabbath. Under the terms of the collective bargaining agreement between the Authority and the Transport Workers Union, the privilege of selecting weekly days off was allocated in accordance with a strict seniority system. Ordinarily, employees were not able to choose weekend days as their days off under this system until they had accumulated as much as five years of seniority.

According to the testimony, Myers spoke with several of her employer’s representatives in an effort to obtain some accommodation for her Sabbath observance. Her request for "split” days off was rebuffed on the ground that the practice was forbidden by the collective bargaining agreement. Her request to be permitted to work an early shift on Friday was initially granted, but the Authority denied her request to postpone her Saturday service until after sundown because there were no bus run shifts that began after 5:00 and because respondent had not been trained for other available work. After a few weeks, even her Friday afternoon accommodation was withdrawn. The only solution suggested to Myers was to find another worker in her depot who would be willing to trade shifts with her. However, the Authority did not offer to assist her in locating a willing co-worker. Instead, a supervisor told her that she would have to stand at the door as the bus drivers were leaving and ask each of them if they would consider an exchange of shifts.

Having failed to obtain an accommodation or to locate a coworker who was willing to "swap” shifts, Myers began taking unauthorized days off. Although she called in on several occasions to report her plans to absent herself, she did not think it necessary to call in each time, since her employers knew that she was unwilling to work on her Sabbath. Myers was ultimately discharged on October 10, 1988 because of her unexcused absences.

Following her discharge, Myers filed a complaint with the State Human Rights Division, alleging that the Transit Authority and the Transport Workers Union had violated Executive Law § 296 (10) (a). The Division found probable cause to believe that a violation had occurred and directed that a hearing be held.

At the hearing, a labor relations specialist for the Authority testified that the Authority had a policy to accommodate Sabbath observers only if it could be accomplished without additional cost, disruption of scheduled runs or risk of labor strife. He acknowledged that Sabbath observers such as respondent were caught in a Catch-22 situation, since they would have difficulty securing accommodations unless they had seniority and they could not obtain seniority without working on weekends for several years.

This testimony was echoed by an attorney employed by the Authority, who stated that the union was unwilling to waive seniority rights to accommodate Sabbath observers. It was also reinforced by a union representative who stated that although it was aware of the existence of isolated voluntary swaps, the union would oppose any such "swaps” that were arranged by the Authority to accommodate recently hired Sabbath observers. Such arrangements, in the union’s view, would necessarily violate the contract’s seniority system to the extent that they were offered on a basis other than duration of service. The collective bargaining agreement itself, however, made no specific reference to voluntary "swaps.” There was no testimony regarding specific attempts by the Authority to negotiate a compromise with the union, either specifically on Myers’ behalf or on behalf of all Sabbath-observing employees.

On the basis of the evidence adduced at the hearing, the Human Rights Division concluded that both the Authority and the union had violated the statutory provisions prohibiting discrimination against Sabbath observers. The Division found that both parties had failed to make good-faith efforts to accommodate respondent, despite a statutorily imposed duty to do so. The Division noted that there had been no efforts by either the Authority or the union to make arrangements for a voluntary exchange of shifts, that the parties’ collective bargaining agreement did not preclude such a voluntary exchange and that the Authority had not shown that accommodating Myers would result in economic hardship or serious labor difficulties. Accordingly, the Authority was directed to reimburse Myers, with interest, for her lost back pay. Additionally, the Authority and the union were each directed to compensate her for her mental anguish, and both were ordered to accommodate her Sabbath observance in the future.

The Authority and the union brought the present CPLR article 78 to challenge the Division’s determination. On transfer from the Supreme Court, the Appellate Division annulled the agency’s order, concluding that the seniority provisions of the Authority’s collective bargaining agreement foreclosed any realistic possibility of accommodating Myers. Since the Division had erroneously ignored the effect of these provisions, the Appellate Division held, its ruling was not supported by substantial evidence. We now reverse the Appellate Division’s order insofar as it exonerated the Transit Authority.

Before discussing the Transit Authority’s duty under Executive Law § 296 (10), we turn briefly to the application of that statute to the collective bargaining agent, the Transport Workers Union. Executive Law § 296 (10) (a), the sole predicate for this Human Rights Law proceeding, makes it unlawful "for any employer to prohibit, prevent or disqualify any person from, or otherwise to discriminate against any person in, obtaining or holding employment, because of his observance of any particular day or days * * * as a sabbath * * * in accordance with the requirements of his religion” (emphasis supplied). By its terms, the prohibition is aimed only at employers, a class that plainly does not include the Transport Workers Union in this situation.

Respondent Myers’ contention that Executive Law § 296 (10) should be construed to encompass union conduct is not convincing. "Labor organizations” and "employers” are defined separately in the Human Rights Law (see, Executive Law § 292 [3], [5]), and their substantive obligations are also separately delineated (see, id., § 296 [1] [a], [c]-[e], [g]). Further, Myers’ argument is unpersuasive because it rests on policy considerations that can only be addressed by the Legislature. While it may be true that the goals of the statute could be implemented more comprehensively if it reached unions as well as employers, the inclusion of unions would raise a host of other issues. Weighing these issues and the disadvantages of requiring unions to cooperate in the accommodation of Sabbath observers against the benefits of such a choice is a task that should be reserved for the legislative branch of government.

Having concluded that the Transport Workers Union was not a proper party to this Executive Law § 296 (10) proceeding and that the discrimination charges against it should have been dismissed on that ground alone, we turn now to the central question before us: whether the Transit Authority, the complainant’s employer, violated that statute by failing to make a good-faith effort to accommodate her Sabbath observance. Our analysis of the question begins with this Court’s holding in Matter of Schweizer Aircraft Corp. v State Div. of Human Rights (supra). In Schweizer, a business that operated on a two-shift basis refused to employ a Sabbath-observing Seventh Day Adventist. The employer claimed that it had declined to hire the complainant because his religious observance would have prevented him from working on Friday night, there were no vacancies on the day shift, which was usually reserved for more senior employees, and two supervisors concluded that it would be "unworkable” to locate a day-shift employee who was willing voluntarily to transfer to the night shift. This Court held that the State Human Rights Division had not erred in adjudging the employer guilty of violating Executive Law § 296 (10) (a) under these circumstances, since the employer had made no efforts to accommodate the complainant’s religious observance by at least trying to find an existing day-shift employee willing to exchange shifts for the critical Friday evening Sabbath. In so ruling, the Court was careful to note that an employer is not obligated to assist a Sabbath-observing worker to arrange a voluntary shift swap where "clearly prohibited from doing so by nondiscriminatory provisions of its collective bargaining agreement” (48 NY2d, at 299).

Relying on this language, the Transit Authority argues here that it was excused from its duty to accommodate respondent Myers because it had a collective bargaining agreement with the Transport Workers Union requiring that senior employees be given preference in selecting their days off. Myers and the Division contend, in contrast, that the collective bargaining agreement did not expressly prohibit voluntary "swaps” and therefore did not shield the Transit Authority from its good-faith responsibility. In respondents’ view, the affirmative responsibilities imposed on employers under Executive Law § 296 (10) precluded the Authority from simply accepting without question the union’s position that even a voluntary "swap” arrangement sponsored by the employer would violate the seniority provisions of the labor contract. Instead, according to respondents, the Authority was obligated to dispute the union or even to seek arbitration on the effect of the seniority clause in order to accommodate Myers’ religious needs. We find neither position wholly convincing.

The Division’s contention in this case that the Authority should have adopted an adversary stance and disputed the union’s expansive interpretation of the seniority clause on complainant Myers’ behalf is flawed. Executive Law § 296 (10) directs that employers refrain from discriminating against Sabbath observers by not penalizing them for their inability to comply with the employer’s normal rules of attendance. The statute requires that employers must take all reasonable steps, short of those involving "undue economic hardship” (see, id., subd [c]), to "accommodate” Sabbath observers — a term that denotes giving consideration to or making room for an individual’s special needs. It does not necessarily require, however, that the employer become the Sabbath observer’s advocate by initiating adversarial proceedings against a third party such as a collective bargaining agent in an effort to narrow the scope of contractual protections afforded the other employees (cf., State Div. of Human Rights v Carnation Co., 42 NY2d 873, 875). Such a requirement could be unduly burdensome to the employer, could create practical administrative compliance conflicts and, additionally, could well lead to other inequities among employees in the work place.

In this connection, we deem it significant that the disputed collectively bargained provision in this case involved a bona fide, nondiscriminatory system for distributing days off according to the public transportation employees’ longevity of service. Where there is no prior history of invidious discrimination within the particular business or industry, such seniority systems often operate to promote antidiscriminatory values by providing a neutral and fair method for allocating scarce benefits and privileges among employees (see, Trans World Airlines v Hardison, 432 US 63, 78-82). Given the utility of these seniority systems, it would be unreasonable to construe and apply our State Human Rights Law in such a way as to compel employers to challenge a union’s rational interpretation of the shop’s existing seniority plan.

On the other hand, we decline to read Executive Law § 296 (10) in such a way as to render it toothless, as the Authority’s argument suggests. The richness and strength of our society lies, in part, in its hospitality to religious diversity. Executive Law § 296 (10) represents a legislative expression of the high value that our State places on supporting and protecting such diversity and in prohibiting invidious discrimination based on religious choice. The statute ensures that no citizen will be required to choose between piety and gainful employment, unless the pragmatic realities of the work place make accommodation impossible. In mandating that all reasonable efforts to accommodate be made, the Legislature sought to strike a fair balance between our State’s citizens’ interest in the free exercise of their religious beliefs and the practical needs of the business community and the Sabbath observer’s co-workers. It is in light of those underlying aims that the statute must be interpreted and applied. In this case, although the Authority did not have to go so far as to file a formal grievance to force the union to permit it to arrange a voluntary "swap” for Myers, the Authority did have a duty to take reasonable steps short of such labor litigation in an effort to reach an accommodation of Myers’ religious needs. The record, however, is devoid of proof that any such steps were taken.

There is no proof, for example, that the Authority’s managers had approached the union in an effort either to negotiate an over-all plan to accommodate Sabbath observers or to secure a specific waiver of seniority rules for Myers individually. While the union’s attorney testified in general terms that the union was not willing to waive seniority, there is no way of knowing on this record that that posture would not have changed after a bilateral discussion of the problem. If the union remained unmoved on the seniority question, there were still other possible avenues for compromise, including the possibility of obtaining a waiver of the rule against "splitting” days off. Indeed, although not part of the record on appeal, the parties have acknowledged that during the pendency of this litigation the employer and the union managed to reach an amicable solution to this kind of problem.

Even apart from efforts to secure the union’s assent to a waiver or other compromise, there were other measures that the Transit Authority might have shown it had explored in order to find a place for Myers within its large and diverse organizational structure. For example, the hearing evidence raised the possibility that Myers’ religious needs could have been accommodated by allowing her to leave work early on Friday and come in late on Saturday. There was evidence that Myers had, in fact, been given an early Friday shift during the initial days of her employment. Although a Transit Authority supervisor testified that a late Saturday assignment for Myers was not possible because she was not trained for the only available work, there was no proof that it would have been impractical to give her whatever training was required. Finally, since Myers was designated an "extra”, it is not at all clear that her presence on Saturday could not have simply been dispensed with at little or no cost or inconvenience to the Authority. In any event, having failed to show that it tried at all to accommodate Myers in these or other ways, the Authority did not satisfy its burden of proving before the Human Rights Division that her presence was "essential to prevent undue economic hardship” (see, Executive Law § 296 [10] [c]; Matter of Schweizer Aircraft Corp. v State Div. of Human Rights, supra, at 299).

In the final analysis, what the "good faith” standard set forth in Schweizer requires is that the employer show that it exerted reasonable efforts to accommodate its Sabbath-observing employees. This standard does not require proof that an accommodation was actually found, but rather that a genuine search for reasonable alternatives was undertaken (id., at 299; see, State Div. of Human Rights v Carnation Co., 42 NY2d 873, 875, supra). Since there was no showing that such a search was conducted here and since it is undisputed that Myers was discharged only because of her inability to work a normal weekend shift, the finding of the Human Rights Division that the Authority violated section 296 (10) was supported by substantial evidence and its determination should be upheld.

Contrary to the views expressed by the dissent, there is no need to remand the matter for consideration before the agency. Once the Division found probable cause to believe discrimination had occurred and set the matter down for a hearing (see, Executive Law § 297 [2] [a]; [4]), it was incumbent on the Authority to come forward with whatever proof it had to show that an accommodation could not have been accomplished without undue economic hardship. Having chosen to rely exclusively on the existence of a union-enforced seniority system to establish its economic hardship defense, the Authority cannot now claim that it should, in fairness, be given a new opportunity to recast its strategy and put forth a different set of facts in defense of its position.

State Div. of Human Rights v Carnation Co. (supra), on which the dissent relies, is inapposite. In contrast to this case involving an agency determination made after a full evidentiary hearing, Carnation concerned the propriety of a discrimination complaint’s dismissal at the probable cause stage of the proceeding, before any evidentiary hearing was held. Our decision to remand for a hearing on the economic burden issue in Carnation was the inevitable and unremarkable consequence of our conclusion that the proceedings on the complaint should have been permitted to go forward. Carnation certainly does not suggest that a party who has had a full opportunity to present its factual claims in a hearing should be given a "second bite” when its proof is found wanting and the agency’s unfavorable determination is upheld on appeal.

Accordingly, the order of the Appellate Division should be modified in accordance with the opinion herein, with costs to complainant against petitioner New York City Transit Authority, and the matter remitted to that Court for consideration of issues raised but not considered on the appeal to that Court and, as so modified, affirmed, with costs to petitioner Transport Workers Union against complainant.

Bellacosa, J.

(dissenting in part). I concur in the modification by this Court that releases the Transport Workers Union from the jurisdictional purview and power of the State Division of Human Rights (SDHR) in this case. My divergence with respect to the New York City Transit Authority’s responsibilities as an employer relates to the remedial corrective action necessitated by (1) the substantial party modification of this case, (2) inherent procedural regularity, and (3) a case record riddled with evidentiary and legal complications.

Myers started her bus driver job on June 27, 1988, and was discharged on October 10, 1988. For her approximately three months’ employment, her employer, the Transit Authority, now alone, stands responsible for the SDHR imposed penalty of $50,000 in mental anguish damages and eight years’ back pay.

As in State Div. of Human Rights v Carnation Co. (42 NY2d 873, 875), I believe the prudentially preferable next procedural step for this case is a remand to the agency for such further proceedings as may be necessary and appropriate to consider the employer’s sole responsibility under the Executive Law. Such remand should include reexamination of the appropriate and supportable sanction. The case merits an opportunity for an untangled presentation and assessment of one of the two pivotal discrimination factors — "undue economic hardship” as it impacts this public transportation entity and employer in its relationship with its other employees (see, Executive Law § 296 [10] [c]; State Div. of Human Rights v Carnation Co., supra, 42 NY2d, at 875; Matter of Schweizer Aircraft Corp. v State Div. of Human Rights, 48 NY2d 294, 298-299; see also, Trans World Airlines v Hardison, 432 US 63, 84 ["To require TWA to bear more than a de minimis cost in order to give (petitioner) Saturdays off is an undue hardship.”]).

"Accommodation” of the employee’s Sabbath observance beliefs and personal work scheduling preferences is the corresponding discrimination factor to be weighed in this case, to be sure, but it appears to be given priority by the majority in the rationale and result, absent the benefit of a remand for complementary and thorough consideration of both prongs in the light of the union’s removal from the case as a party. The "accommodation” component is not fairly assessed in virtual isolation at this judicial hindsight point in the case. Moreover, this record, examined against the backdrop of the critical modification and evidentiary developments of this case, suffers a skewed perspective, illustrated by the set of substituted judicial retrospective hypotheses as to how the case might have been tried and the accommodation burden satisfied. A remand would remedy that.

The Transport Workers Union’s role has been central to this controversy up to now. Inasmuch as our unanimous substantive modification removes the union from the case as a party— coupled with the peculiarly and poorly developed record on the tension between the "accommodation” and "undue economic hardship” aspects and some of the acknowledged legal and evidentiary errors and misconceptions of the Division (majority opn, at 90, n 2) in its handling of this recurring controversy — I believe an untangled assessment by the Division is indicated so all remaining parties may have a fresh opportunity to satisfy their respective burdens.

Indeed, that precise remedial direction was used by this Court in Carnation, in a procedurally distinguishable circumstance that is nevertheless prudentially apt, where the Court stated:

"The record in this case is not sufficiently developed to determine, as a matter of law, whether retaining complainant in his former position would have resulted in undue economic hardship to the employer. If, as the employer contends, designating a qualified substitute for complainant’s Saturday shift would entail any significant increase in costs, that would be enough to establish undue hardship. It should be obvious that an undue economic hardship does not require any threat or undermining of the economic stability of an enterprise. It would be enough that a palpable increase in costs or risk to industrial peace would be required in order to accomplish the end sought by the employee. But, without an evidentiary hearing, it cannot be determined definitively whether the employer could have accommodated appellant’s schedule without such significant cost or risk” (State Div. of Human Rights v Carnation Co., supra, 42 NY2d, at 874-875).

If such corrective action was necessary there — with a private employer and no union involvement and ultimate party disentanglement, as here — then that remedial direction makes eminent good sense here due to the legal, evidentiary, statutory, penalty and policy features of this case. That is hardly a "second bite” and is more akin to a "fair shake.”

This dissent as to the corrective action upon the party modification reflects my vote to modify in a significant, additional, remedial respect by remitting to the Appellate Division "with directions to remand to the Division of Human Rights for further proceedings” (State Div. of Human Rights v Carnation Co., supra, at 875).

Chief Judge Kaye and Judges Simons, Smith and Levine concur with Judge Titone; Judge Bellacosa dissents in part in a separate opinion; Judge Ciparick taking no part.

Order modified, etc.

      . We reject respondent Myers’ contention that the Transport Workers Union cannot raise this issue because it is not an appellant in this Court (see, Oden v Chemung County Indus. Dev. Agency, 87 NY2d 81, 89). As a party respondent in this appeal, the union is entitled to raise any claim of legal error below, "as long as [the claimed] error has been properly preserved and would, if corrected, support a judgment in [its] favor” (Parochial Bus Sys. v Board of Educ., 60 NY2d 539, 546).

      . The Division rejected the employer’s position, in part because of its view that the seniority provisions of the collective bargaining agreement did not actually bar voluntary shift swaps. On this point, the Division’s analysis missed the mark. Whatever the correct interpretation of the agreement might be, the salient fact remains that the union took the position that an employer-arranged shift exchange would violate it. As previously noted, the Authority was not obligated to take unilateral steps to protect Myers in direct defiance of the union’s position. Despite this misstep, however, the Division’s final conclusion remains valid, since, regardless of the effect of the collective bargaining agreement, the Authority could have sought a negotiated compromise or an alternative solution that did not bring it into conflict with the union at all.