[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
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  Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 / 
Rules and Regulations  

[[Page 49125]]


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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 [email protected].

SUPPLEMENTARY INFORMATION: On July 7, 1995, the Office of Personnel 
Management published proposed regulations (60 FR 35342) barring 
severance pay for certain PCC employees who continue in their positions 
when the Panama Canal is transferred to Panamanian control as a result 
of the Panama Canal Treaty of 1977. The changes will affect PCC 
employees who are offered reasonably comparable employment with the 
successor Panamanian public entity before separation from PCC 
employment or who accept such employment within 30 days after 
separation. Individuals hired by the Panama Canal Commission on or 
after the 90th day following publication of these regulations will also 
be excluded from severance pay eligibility.
    Severance pay was intended as a transition benefit for Federal 
employees who lost their jobs involuntarily. Severance pay was intended 
to ``help tide Federal employees over difficult transition periods'' 
and to ``help cushion the readjustment'' associated with the loss of 
employment. (See H.R. Rep. No. 792, 89th Cong., 1st Sess., at 11, 30 
(1965).)
    The severance pay law lists certain categories of employees who are 
excluded from coverage and provides that additional categories of 
employees may be excluded by regulation (5 U.S.C. 5595(a)(2)). OPM's 
regulations exclude certain groups and individual employees because of 
the nature of their appointment, type of work schedule, circumstances 
of separation, etc. For example, the regulations bar entitlement to 
severance pay for any employee who declines a ``reasonable offer'' of 
another Federal position before separation. (See 5 CFR 550.701-704.) 
Severance payments are discontinued if the recipient is reemployed by 
the United States Government (5 U.S.C. 5595(d)).
    Prior to 1990, OPM's severance pay regulations provided that an 
employee involuntarily separated due to transfer of a Federal function 
to a non-Federal (private or public) successor organization could be 
denied severance pay based on the offer of ``comparable employment'' 
with the successor organization, or on acceptance of any employment 
with such successor organization within 90 days of transfer. (These 
provisions were formerly located at 5 CFR 550.701(b) (5) and (6) and 
were in effect when the Panama Canal Treaty of 1977 was signed and 
entered into force.) OPM deleted those regulatory provisions in 1990 
(54 FR 23215 and 55 FR 6591). This change was made to make contracting 
out (i.e., privatization) of Federal functions more attractive to 
Federal employees. It also was intended to address the problem of some 
employees not being offered comparable jobs by private contractors 
before transfer and then delaying acceptance of jobs until after the 
expiration of the 90-day restriction period. We note that the driving 
purpose of encouraging contracting out, which was behind the deletion 
of the above severance pay restrictions, is not relevant to the Panama 
Canal situation. We also note that the rule OPM is adopting in these 
regulations differs in several respects from the above former rules--
e.g., a 30-day period instead of a 90-day period--as explained in the 
notice of proposed rulemaking (60 FR 35342) and in this notice.
    OPM believes it is appropriate, and consistent with the original 
purpose of the severance pay law, to deny severance pay eligibility for 
PCC employees who have the opportunity to maintain the same job, or a 
reasonably comparable one, with the successor Panamanian public entity 
and who furthermore have legally guaranteed protections with respect to 
benefits and working conditions while employed by that entity. We also 
believe that it is reasonable to deny severance pay eligibility for 
employees hired by PCC during the final years of United States control 
of the Canal, since the long-scheduled transfer is now imminent and 
these employees will know when they are hired that their tenure with 
PCC will be of short duration. We believe the Panama Canal transfer 
presents a unique situation that requires special treatment.
    PCC estimates that, without these changes in OPM's severance pay 
regulations, $68 million in severance pay costs would be incurred, of 
which only $7 million is currently funded. PCC states that the 
remaining $61 million would need to be prefunded by a reduction in 
operating expenses and the capital program, and possibly a modest toll 
increase in fiscal years 1998, 1999, and the first quarter of fiscal 
year 2000. PCC believes that these measures would have a negative 
impact on the Canal's competitive and fiscal position. Since, under the 
Panama Canal Treaty of 1977, the Canal operation must be transferred to 
the Republic of Panama in December 1999 free of any debt or 
encumbrances, preventing severance payments to the employees in 
question would help PCC meet its treaty obligations.
    Comments on the proposed regulations were received from 6 labor 
organizations (14 letters), 5 groups of employees (648 individuals), 10

[[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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